%0 Articles
%T Portfolio management and the competitiveness of forest ownership
%A Penttinen, Markku
%D 2007
%J Dissertationes Forestales
%V 2007
%N 43
%R doi:10.14214/df.43
%U http://dissertationesforestales.fi/article/1827
%X Few forms of production can compete with forestry regarding the amount of conflicting theories, paradigms, beliefs, passions and interests that have been engendered. This is also true for forest economics, where forest rent theory and land rent theory have been accompanied with interest theory to produce various foundations for profitability calculations. Many researchers and practitioners assume a steady-state economy, but most rely on the deterministic world in their modelling. However, risk inclusion has recently attained a dominant position in the investment analyses. The purpose of this study has been to develop novel solutions and constructions for return on forest ownership, and to apply new approaches to the profitability of forestry and the assessment of competitiveness of non-industrial forest ownership.

First, financial and cost accounting has been developed for non-industrial private forestry (NIPF), implementing the solutions for a test enterprise. Financial accounting will also be developed for both the net profit of the enterprise and the calculated profit of the property applying extensive, balance and intensive strategies. The requirements of the International Financial Reporting Standards (IFRS) were researched and implemented in the forestry accounting of agricultural profitability book-keeping farms and the EconomyDoctor service of the MTT Agrifood Research Finland.

Secondly, returns on stocks, debentures, offices, bonds and housing were estimated in addition to the return on forest ownership estimates, showing that NIPF ownership was not as competitive as expected, with a statistically significant correlation with housing and the market portfolio. The return on NIPF ownership was divided into price change, felling, cost and change in growing stock components, the first of which was compared with the inflation rate.
Finally, optimal harvesting age solutions and numerical results recognising price drift, price and growth volatility, volume growth, value growth and stand establishment costs, as well as thinning benefits, were provided by proxying the stumpage price and volume growth processes by geometric Brownian motions. Moreover, comparative static and sensitivity solutions, including numerical results, showed the impact of the discount rate, price drift, and price and growth volatilities on optimal harvesting age.

In all, solutions have been implemented in the METINFO Internet service and tested for the farm accountancy data network (FADN) of the EU. Moreover, developed optimal rotation programs can be incorporated into forest management planning software products such as MOTTI and MELA, which are widely used in Finland.