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Analyzing'-forest fer tilization:
study evaluates costs, benefits
Increased growth must be matched by increased profitability. Economic analysis
provides 'best estimates' of possible gains, considering the number of variables
By RICHARD E. MILLER
and ROGER D. FIGHT
FOREST FERTILIZATION is widespread
now in stands in Canada and the United
States, but the fundamental question
asked by forest managers who may not
yet have been heavily involved in the
practice remains: How much extra
wood volume can reasonably be ex­
pected, and will the investment be
profitable?
It has been nearly 15 years since the
first large-scale fertilization was done in
the Pacific Northwest. In 1965, 1,500
acres of Douglas fir on Crown Zeller­
bach Corp.'s managed forest lands near
Molalla, Ore., were treated with small,
white spheres of urea nitrogen. Since
then, nitrogen fertilizer has been applied
to about 1 million forested acres in
western Washington and Oregon, some
9Q1lO of which is industry-owned. Appli­
cation has been almost exclusively by
helicopter, distributing 150 or 200 lb of
elemental nitrogen fertilizer per acre as
urea prill or larger forest-grade
granules.
This commercial practice was pre­
ceded by numerous field trials in which
fertilizer was spread over the soil and
trees subsequently were measured for
growth in diameter and height. Those
trials provided direct evidence that ni­
trogen fertilizer increased growth of es­
tablished stands. And that direct evi­
dence led to large-scale applications.
What is the score to date? Fertiliza-
THE AUTHORS are, respectively, principal
soil scientist and principal economist with
the U.S. Forest Service's Pacific North­
west Forest and Range Experiment Sta­
tion. Mr. Mil/er is at the station's Forc'stry
Sciences Laboratory in Olympia, Wash.,
and Mr. Fight is at the station's Portland,
are., headquarters.
tion, unquestionably, has developed
into a practical means for increasing
yields from Douglas fir forests.
And what is the next question?
Forest managers ask how much extra
,- wood volume they can reasonably ex­
pect and whether the investment would
be profitable. Forest managers consid­
ering investments in intensive forestry
want "best estimates" of possible gains
from forest fertilization. What follows
here represents some current best
answers and provides some background
information about fertilization and
economic analysis of the practice.
There is no question that forest fer­
tilization can be an economically attrac­
tive way to increase wood producing in
Douglas fir forests. Quite understand­
ably, profit will depend on the total costs
of treatment, the amount of extra wood
produced by the fertilization and the
value of that extra wood to the land­
owner. Obviously, fertilizing Douglas
fir forests will be more profitable for
some landowners than for others.
Does fertilization pay?
Forest managers want a financial
gain from investments in fertilization.
Revenue from increased growth must
exceed total costs of fertilization if that
gain-or profit-is to be realized.
Economic gain is influenced by various
factors, as will be seen from the
economic analysis which follows. The
analysis presents "best estimates" of
economic returns from fertilizing the
species and in this analysis three levels
of stand response to fertilization are as­
sumed. These are low, high or average
and correspond to 200, 800 or 400 cu ft
per acre. This range, which spans con­
servative, optimistic and average esti-
How much extra volume can be attained?
FIELD TRIALS i n western Oregon,
Washington and British Columbia dur­
ing the past 25 years have demonstrated
that addition of nitrogen u sually in­
creases growth of Douglas fir over the
full range of site qualities, Sites I
through V. Early results from recently­
installed cooperative trials at 85 loca­
tions in western Washington and Ore­
gon show that application of 200 pounds
of nitrogen per acre to low-quality sites
can provi de greater cubic foot gain than
the same application on higher quality
sites.
During the first four years after fer­
tilization, average yearly gains from fer­
tilized Douglas fir stands ranged from 27
cu ft on Site I, through 91 cu ft on Site IV.
Thus far, an average of 108 to 364 cu
ft of extra wood was produced by treat­
ment and it is likely that these gains will
at least double during the future growth
of some of these stands. These and ear­
lier exp erime ntal trials indicate that land
managers can reasonably expect from
200 to 800 additional cu ft of stemwood
per acre over a 100year period after ap­
plying 150 to 200 pounds of nitrogen per
•
acre.
Table 1: Early gains fertilizing
Douglas fir on Sites I through IV,
with 200 Ibs N per acre as urea
Site
I
"
III
IV
Gain
Yearly
cu ft
4-year
cu It
27
48
70
91
108
192
280
364
Turnbull, Pelerson, 1976
Reprinted with permission from FOREST INDUSTRIES, September 1979
60
Fig. 1: Average fertilization costs
and stumpage prices
250
Fig. 2: Cumulative cost of fertilizing
7% Interest
Initial cost $60 /acre, compounded at
$232
240
'
220
200
/ ............
...
I
I
I
I
I
150
I
I
I
I
I
I
I
I
'0
0
100
.
50
,,
.......
.
�
.... ........
.£,.,.
",
,.
.
1968
1970
1972
()
160
140
$118
'iii 120
0
(i1
.-.
Co
'0
­
­
loo
80
­
­
,.­
.,...
.,...
­
­
­
­
"
"
"
".
"
/
60 1-40
20
1974
1976
Years
mates, reflects the biological fact that
some forests respond to N fertilization
more than others do.
The total cost of fertilization has two
components: the initial cost, and the in­
terest charges for carrying this cost until
harvest.
Initial costs. The initial costs of fer­
tilizing include the contract costs (sup­
plying the fertilizer, transporting it into
the forest and applying it to specified
areas by helicopter), and the costs of
administering the contract, providing
access roads and heliports and, in some
instances, assessing water quality and
tree response.
Past costs of fertilization varied
widely from year to year. For example,
in 1970 the total cost of applying 200 lb
of N lacre averaged $23. By 1974, as
worldwide fertilizer shortages de­
veloped, average costs more than dou­
bled, to about $57 per acre. During the
same period, however, stumpage prices
increased even more, so fertilization
appeared a more profitable investment
in 1974 than in 1970 (Fig. 1).
Current contract costs for applying
200 lb N lacre range from $55 per acre
for small jobs (200 acres) to $41 per acre
for largejobs (4,500). In this analysis, an
average initial treatment cost of $60 per
acre for a contract to fertilize about 200
acres and to cover costs of administer­
ing the contract is assumed.
Interest charges. The compound in­
terest costs of carrying this initial in­
vestment strongly affect profits gained
from fertilization. As consumers, we
know that such carrying charges are
based on the interest rate and the dura­
tion of the loan. Although the market
rate of interest may be 12%, the real rate
61
180
Price'·
i
./
.
--- -
200
7%
".
0
0
2
4
6
8
10
12
14
16
18
20
Investment period-years
of interest is less because the rate of
inflation must be subtracted.
For example, if one borrows money
at the market rate of 12% and the annual
rate of inflation is 5%, then the real rate
of interest is only 7%. Although the
amount that must be paid to the lender is
based on the 12% rate, the inflation­
caused increase in the cost of borrowing
money will approximately be offset by
the inflation-caused increase in the price
of stumpage. (A detailed discussion of
the effect of inflation on evaluation of
forest investments, by H. M. Greger­
sen, is in the Journal of Forestry,
73:570-572.1975.)
During a 10-year period, a fertiliza­
tion cost of$60 borrowed at a real rate of
7% almost doubles to a cost of$118 (Fig.
2). If carried 20 years, it doubles
again-to $232 or almost four times the
initial cost. To earn a profit, therefore,
the increase in value of wood harvested
from the fertilized stand must be more
than $118 if harvested in 10 years and
more than $232 if harvested in 20 years.
For "best estimate" purposes, a 10­
year investment period is assumed. It
further is assumed that most of the vol­
ume gained from fertilization would be
accumulated in 10 years and that this
extra volume, or its equivalent, could be
cut and sold at that time. But harvesting
trees 10 years after treatment is reason­
able only if fertilizer is applied to a stand
that is merchantable or nearly mer­
chantable. If smaller trees are fertilized,
then a longer investment period is
necessary until crop trees reach mer­
chantable size.
The additional revenue gained from
fertilization depends on the amount of
extra volume and its price per unit. For
the landowner who sells stumpage only,
this extra revenue is obtained from in­
creased volume. For landowners with
manufacturing facilities, however, addi­
tional revenue accrues if the extra vol­
ume provides a more secure wood sup­
ply or reduces a need to purchase wood
on a fluctuating open market when
prices are high.
Interpretation of results from
numerous field trials supports the as­
sumption that $60-per-acre fertilization
would increase volume growth by 200 to
800 cu ft during the next 10 years.
Current stumpage prices. The extra
volume of wood from fertilization pro­
vides revenue to the landowner when it,
or an equivalent volume, is harvested
and sold. The stumpage price paid to the
forest owner is the residual or net value
after the costs of logging, loading and
hauling are subtracted from the price
paid for logs at the mill. Large trees have
more stumpage value per unit of volume
because the price paid at the mill in­
creases and the costs of harvesting de­
crease. Therefore, the landowner ob­
tains a higher stumpage price for selling
larger trees (Table 2).
Although growth is more precisely
measured in cubic feet, cubic foot prices
are seldom used. Therefore, to estimate
the stumpage value of extra cubic feet
produced after fertilization, one must
convert conventional stumpage prices
per thousand board feet, Scribner scale,
to a price per cubic foot.
To convert stumpage values in board
feet (BF) to cubic feet (CF):
$
$
BF
x
CF
BF
CF
The number of board feet recover­
able from a cubic foot of wood and the
_
FOREST INDUSTRIES/September 1979
Table 2: Estimated prices & costs
1976, by average tree diameter,
in dollars/1,000 bd ft, Scribner
Av. dbh
(In.)
Mill
price
Logging,
haul costs
81
121
16
20
30
$180
190
200
210
215
$90
80
60.
50
50
Stumpage
price
90
$
110
140
160
165
'Frequently bought. sold on tonnage basis
Table 3: 1976 stumpage prices
in board feet and cubic feet
Dbh (In.)
harvested
trees
8
12
16
20
30
Stumpage
price per
1,000 bd ft
A ssumed
conversion
bd fVcu ft
Stumpage
price
per cu ft
2.8
3.8
4.3
5.0
5.3
$0.25
.42
.60
.80
.87
$ 90
110
140
160
165
Table 4: Future revenues discounted
back to 1978 using 7% rate
Estimated:
Low
Avg.
High
Gain in yield (cu tt)
200
400
800
$122
390
$244
780
Discounted revenue (1978 dollars)
$ 31
$ 62
8 in. dbh
99
198
20 In. dbh
$124
397
Future revenue (1978 dollars)
$ 61
8in.dbh
195
20in.dbh
Table 5: Estimated present net worth and
benefit/cost ratio, 200 Ibs N, harvest
10 yrs after fertilization, per acre 1
Volume gain (cu ft, (otal stem)
400
200
Present net worth (1978 dollars)
-$29.02
8 in. dbh
20 in. dbh
39.15
Benefit /cost ratio
8 in. dbh
20 in. dbh
0.52
1.65
$
800
1.96
138.30
$ 63.92
336.59
1.03
3.30
2.06
6.61
'includes real price increase of 2% per year and future revenues dis­
counled al 7%
FOREST INDUSTRIES/September 1979
vides present net worth (PNW) for har­
vesting two sizes of trees (Table 5).
Moreover, benefit-cost ratios are com­
puted by dividing discounted revenues
by the $60 fertilization cost. Now you
have "best estimates" as derived from
this analysis.
Table 5 shows the economic advan­
tage of fertilizing where N deficiency is
severely limiting growth and where
large trees can be removed to recover
fertilization costs. For example, a gain
in PNW of $337 per acre could be
realized by fertilizing a mature stand
that subsequently produced 800 extra cu
ft of wood that could be harvested from
trees averaging 20 in. dbh. In contrast,
fertilizing young stands where growth is
not severely limited by N deficiencies
and the owner must wait 10 years to
harvest small trees is unlikely to be
profitable.
Compound interest charges create a
dilemma because forest managers rec­
ognize that silvicultural investments in
young stands will eventually increase
growth and economic returns for their
entire forest ownership. Yet the invest­
ment in young stands may not be profit­
able, because the owner must either
harvest small trees of low stumpage
value or pay compound interest charges
on his fertilization investment for an ex­
tended period of time.
Mature or overmature stands in the
forest inventory can provide flexibility
to harvest immediately the extra growth
gained from treating immature stands.
Real prices ($/cu ft),
Dbh
For example, on forests with a regulated
TOday
Future
Inches
timber harvest, the harvest andresulting
$0.25
8
$0.30
cash flow may increase immeruately
.80
.98
10
when increased growth is included in
Future and discounted revenue.
the forest harvesting plan. On such
These future stumpage prices multiplied forests, this increase in current harvest
by the extra volume gained from fertili­ that occurs before any treated stands
zation equals the landowner's future are actually harvested is called the "al­
revenues. To compare revenue and ex­ lowable cut effect."
It is widely recognized that the al­
penses in the same year, one can either
project costs ahead to the year of rev­ lowable cut effect (ACE) occurs. It is
enues or discount the revenues back to also widely recognized that the im­
the year of costs. The latter procedure mediate increase in current harvest and
provides present net worth (pNW), a cash flow is the result of increasing the
frequently used index to evaluate in­ growth on future stands.
Clearly, this immediate increase in
vestments. PNW estimates profit after
investment costs are subtracted from cash flow does not come directly from
the sale of wood that is produced by the
discounted revenue.
In this analysis, future revenues are fertilizer. Yet, through the ACE, fertili- .
discounted back to present by using a zation can increase harvest level and
7% rate of discount. Discounted rev­ cash flow. Some firms or agencies
enues ranged from $31 to $397 per acre which are committed to a regulated or
depending on assumed amount of extra even-flow volume of harvest use ACEin
growth attributed to fertilization and the evaluating the profitability of forest fer­
dbh of the harvested trees (Table 4). tilization. The occurrence of ACE may
Subtracting a fertilization cost of$60per make forest fertilization more attractive
acre from the discounted revenues pro­ to them than to the small landowner.­
price per board foot are both strongly
dependent upon tree size (Table 3).
Therefore, the price paid per cubic foot
is higher for large diameter logs than for
small logs. This difference in pricing
means that a 300-cu-ft gain per acre from
fertilization might return three times as
much stumpage revenue to the land­
owner if harvested from 20-in. trees in­
stead of from 8-in. trees.
Future stumpage price. The extra
wood produced from fertilization will be
harvested years after application. To
compute financial gains from treatment,
one can estimate the future price of this
extra wood by selecting an appropriate
current stumpage price and projecting
an annual rate of price increase. The
average price for Douglas fir stumpage
on national forests in western
Washington and Oregon has increased
substantially over the last decade. Even
when prices are converted to "constant
dollars" to remove inflation, a substan­
tial increase in real price is evident.
Based on trends of regional stumpage
prices and national lumber prices, a 2%
annual increase in the real price of
stumpage is assumed for estimation of
economic gains from fertilization. This
is a conservative estimate of the future
price.
For this analysis, average 1976
stumpage prices for small (8-in. dbh)
and large (20-in. dbh) trees are used and
projected for 10 years.
62