Simulation of Management Enhancement Scenarios for the JSC Latvian State Forests

Abstract

The expansion of global economy and the rise of living standards are set to force the world's consumption of raw material to nearly double by 2060, thus consumption of wood resources is forecasted to increase more than twofold. In Latvia, forests cover 52% of the total area. The total forest area in Latvia has continued to grow since the beginning of the 20 th centuryin 1923 the forests covered only 27% of the country's area; accordingly, the question is whether the value of forests continues to grow proportionally. One of the criteria for determining the value of forest is forest capital. A higher economic value of forest reflects the forest's capability to produce more wood, and this allows generating higher revenues from forestry. It is the value of plantations of certain tree species as well as the quality of wood produced that increase the price of wood and consequently result in higher revenues. The largest supplier of wood in Latvia is the state-owned joint stock company Latvian State Forests (JSC LSF), which managed 1.6 million hectares of forestland in 2018. In 2018, 12.8 million cubic metres of roundwood were harvested in Latvia, of which 6 million cubic metres were harvested by the JSC LSF. Therefore, the research aims to design and assess potential scenarios of increasing the value of forest capital for the JSC LSF. The authors simulated potential scenarios for the JSC LSF in order to identify changes to be made in the current forest management pattern with the aim of increasing the value of forest capital. A higher value of forest capital would also mean greater public attention to the future use of existing resources. Calculations of the economic value of forests were carried out to identify necessary changes to be made in the management of state-owned forests in Latvia and to compare several management enhancement scenarios. The potential scenarios were assessed by five qualified experts, academics, representatives of business and public administration by employing the Analytic Hierarchy Process (AHP). The experts rated the possible scenarios for enhancing forest management relatively equally, giving slightly higher ratings to the potential scenario of quotation of the national forest management company on the stock exchange. The value of forest capital was calculated for each of the potential scenarios using the most commonly used net present value method (NPV). It was concluded that the potential scenario of lowering the diameter threshold for felling trees by two centimetres would lead to the greatest increase in the value of forest capital.