Native forests can be a good long term investment

5 July 2018

Does it make sense for landowners to plant trees that could take some time to become productive given the uncertainty of benefits over time and unknowns such as climate change?

Economists and scientists from Scion, Manaaki Whenua, MPI and University of Maine funded under the Deep South National Science Challenge have looked at the risk and uncertainty of different afforestation options using ecosystem services with market values.

Ecosystem services are benefits provided by our environment. Some of these services have dollar values, such as timber harvested from a forest; others are harder to value, like the benefits provided by a wetland removing excess nutrients from water.

In the case of forestry, products such as timber and honey have a market value. Carbon sequestration also has a value in the form of NZUs, where 1 NZU represents the sequestering of one tonne of carbon dioxide equivalent. Erosion control can also be valued. For example, the Erosion Control Funding Programme (ECFP) on the East Coast funds afforestation on retired farm land.

The Waiapu catchment

The Waiapu catchment on the East Coast of the North Island is eroding at the rate of 50 million tonnes of soil a year, mostly from sheep and beef farms. This is one of the highest erosion rates in the world. If nothing is done, the eroded area could increase by 41% by the end of the century.

Halting erosion is essential for the people living in the catchment. The large Māori population have seen their quality of life decline as the land has degraded. They have aspirations to reverse the decline, maintain their culture, improve the land and the wider environment and provide for future generations.

Afforesting around half of the current sheep and beef farms in the catchment (or 42,000 ha) would reduce erosion rates by 71% by 2100.  

Although radiata pine is widely grown, the local iwi have a preference for planting indigenous species. The research team have taken this into account and considered the risk and uncertainty around three native planting options with potential high profitability: manuka for honey (MO), manuka and later maturing tōtara for timber (MT) or manuka then tōtara followed by an understory of kawakawa grown for its medicinal properties.

Juan Monge, the lead author, explains the process for comparing the three forestry options: “First, we looked at where converting pasture land into forest would reduce erosion the most to identify where trees could be planted using the spatial, economic optimisation tool NZFARM.

“Then we looked at the effects of biophysical, climatic, market and policy uncertainty on potential profitability. We used these to rank the three options according to their riskiness and the landowners’ potential aversion to risk.

“Finally, we used discount rates from 1 to 5% to look at the effects of wanting a quick return, or being prepared to wait to see benefits. We considered a discount rate of 5% was close enough to the market rate for forest investments and reflects the desire for short-term preferences in a competitive market. Low rates can be used for long-term collective investments benefitting several generations.”

Considering the three options, the MO option, which would begin producing honey a few years after planting, would provide an income the most quickly (highest net present value and the least uncertainty). MTK was the most uncertain alternative due to the market uncertainty around kawakawa and tōtara.

Using a 1% discount rate, all options made money. Such a low discount rate is appropriate in the specific circumstances of Waiapu catchment, with few land-use alternatives in the highly erodible country, the community’s attachment to the land, and desire to provide for future generations.

“We then added in a factor to account for how comfortable people felt taking a risk,” says Juan.

“Considering that we human beings are predominantly risk averse, we found that the high profitability of the MTK option under a low (and plausible) discount rate of 1% outweighed its high uncertainty, potentially making it the preferred option even for highly risk averse landowners.”

“What also became clear to us was that climate change uncertainty, and its effects on future erosion patterns in the Waiapu catchment had to be taken into account in policy making,” said Juan. “Ignoring climate uncertainty could make public environmental investments, such as the Erosion Control Funding Program (or ECFP), unsuccessful.”

What to plant to both control erosion and provide an income has become a hot topic with the one billion trees initiative and the need to sequester more carbon and stabilise vulnerable land.

This work shows that, over time, the economic and environmental benefits of planting natives could compensate for the long term uncertainty. The approach taken here is a good option for supporting collective decision making, especially when the land is likely to be held long term and owners want to provide for future generations.

Ecosystem Services invited articles for a special issue on risk and uncertainty. We considered that the afforestation study was a good addition to mix as it assessed the implications of risk and uncertainty on environmental, economic and socio-cultural drivers.

Monge, J. J., Daigneault, A. J., Dowling, L. J., Harrison, D. R., Awatere, S., & Ausseil, A. G. (2018). Implications of future climatic uncertainty on payments for forest ecosystem services: The case of the East Coast of New Zealand. Ecosystem Services.