Economic analysis of field afforestation and forest clearance for cultivation in Finland

Rational land use decisions of private landowners are analysed in the framework of Common Agricultural Policy and other public support schemes effective in Finland in 2003. Net present values are computed for a marginal hectare of a typical Finnish farm. Three alternative land uses are considered: traditional cultivation of oats (Avena sativa L.), cultivation of reed canary grass (Phalaris Arundinacea L.) for energy production, and production of Norway spruce (Picea abies [L.] Karst.) timber. Both arable land and forested land are considered as initial states. Experimental data from 38 afforested stands and distance-independent individual-tree stand growth model are used for computing discounted net returns from forestry. Statistics on market prices, average yields, prices and costs are used for obtaining estimates of land value under agricultural and energy production. Cultivation of energy grass gives clearly the highest economic outcome for arable land, but it has limited demand only in the neighbourhood of thermal power stations. Maintaining arable lands under traditional food production gives higher land value than afforestation. Without an option for agricultural use, public support makes afforestation investments profitable even for the least successfully established forest stands. However, possibilities to sell or to rent out retain arable lands under agricultural production, and explain poor success of the latest afforestation programme. Clearing additional forestland for agricultural production turns rational if clearing of the site is inexpensive, relative value growth of the existing timber stock is low, and future prospects of agricultural production are dependent on scale advantages.