Threshold values for profitable tree breeding in Finland, society’s,

1. Threshold values for profitable tree breeding in Finland, society’s, private forest owner’s and seed producer’s viewpoints A MULTILEVEL ANALYSIS government subsidy orchard seed producers So-called practical tree breeding* via seed orchards • *Practical in the sense that basic research (incl. e.g. provenance testing) was excluded from the assessments • Practical tree breeding covers app. 83-88% of the annual subsidy directed into tree breeding in Finland private forest owners (demanding the orchard seed) direct relation between the activity and agent direct interaction between agents

2. A MULTILEVEL ANALYSIS – can the profitability conditions be met simultaneously by each agent ? Main variables to be examined for each agent: government *Discount rate (under which the net present value, NPV is positive) *Annual regeneration area *Genetic gain *establishment area for the next-generation seed orchards *Stumpage prices private forest owner *Discount rate * Sowing cost difference (FIM/ha) between orchard and stand seed *Genetic gain * Stumpage prices seed producer * Discount rate *Establishment costs *Annual management costs * collecting costs of the cones * average annual seed crop * selling price of the orchard seed * production age

3. Factor Description Bdiff Differential benefits: genetic gains are assumed to gene­rate faster growth rate resulting in higher present value of the outturns when compared to natural stands Ces Establishment costs of the seed orchards are considered to be differential costs as such due to the absence of any corresponding activity related to natural stand seed ac­quisition Cdiff Differential costs can be divided into progeny testing, annual management and administration Discount factor with per cent p t1, t2, t3 parameters reflecting different time spots (Note that t1¹ t2¹ t3Ù T1¹ T2¹ T3 ) Theoretical framework where: • Economic analyses (society) • cost-benefit analysis, CBA • a specific shadow pricing procedure * A general profitability formula with NPV set as decision criterion Cost data: annual book-keepings (between 1973-1996) of the former Foundation for Forest Tree Breeding and the Forest and Park Service

4. Theoretical framework Financial analysis (private forest owner) * According to neo-classical economics: utility maximization by maximizing net benefit * A specific formula with profitability criterion set to NPV: Financial analysis (seed producer) * Profitability conditions for a single firm: , where Psf = profitability for a single firm q = labour input x = other inputs used in production f(q,x)= production function p= price for orchard seed produced according to f(×) c, z= given prices for inputs q and x, respectively , * The main focus was to examine the overall conditions for positive P, and to estimate whether there are possible economies to scale still to be exploited (at present generation) πtb= net benefit, FIM/hectare JTt=financial value, FIM/ha (assessed by using trend stumpage price as a unit of measure) of a thinning or final cut in an improved stand NSn= financial valueof a thinning or final cut in a normal stand without genetic gains Dp= discount factor t1= time (in years) of the first commercial thinning in an improved stand n1= time of the first commercial thinning in a natural stand tt= time of the final cut in an improved stand nn= time of the final cut in a natural stand Cg(S)= initial sowing cost (FIM/ha) when using orchard seed C0(S)= initial sowing cost (FIM/ha) when using stand seed Cost data: direct production costs (incl. e.g. cone collection, transportation, extraction costs) between 1993-1997 (Scots pine), and 1992-1996 (Silver birch) totally over 700 cost observations for Scots pine and over 150 for Silver birch

5. Conclusions – present generation, Scots pine seed orchards Southern, central and northern Finland Seed producer: Prevailing threshold values for each variable are attainable, provided that the government subsidizes the years from the establishment to the first seed crop (establishment and annual management) Society: 3 % discount rate 8 % genetic gain 24 000 ha annual cultivation area (incl. direct sowing and planting area) Generates the following environment (i.e. through financing) for orchard seed production Through government subsidy orchard seed production enables: attainable Private forest owner: Especially in southern Finland direct sowing with Scots pine orchard seed was profitable with eight per cent discount rate and seven per cent genetic gain, or with five per cent discount rate and three per cent genetic gain (in the latter, sowing cost difference can be as much as FIM 500/ha) attainable

6. Conclusions – next generation, Scots pine seed orchards Southern and central Finland Seed producer: E.g. lowest average seed crop (6 kg/ha/year), collection costs of FIM 10 and discount rate between six1 and eight per cent resulted in a positive NPV, provided that government subsidizes the early years (b) Society: 5% discount rate 8% genetic gain 32 000 ha annual cultivation area 500 ha of seed orchards to be established attainable (with low risk) (1 in real terms) Private forest owner Even better profitability than in the present generation due to the higher obtainable genetic gains, provided that the sowing cost difference (between orchard and stand seed) does not increase faster than anticipated attainable (with low risk) [Low risk element refers to the results of sensitivity analyses]

7. Conclusions – Silver birch, present generation Southern and central Finland Seed producer: market demand clearly exceeds the long-run average costs, LAC  very profitable production Society: 3 % discount rate 15% (South), 12% (Central Finland) genetic gain 1700 ha annual cultivation area Private forest owner: not relevant due to the fact that no genuine decision between orchard and stand seed attainable Conclusions – Silver birch, next generation Seed producer: profitable seed production attainable even without government subsidy Southern and central Finland Society: 4 % discount rate 15% (South), 12% (Central Finland) genetic gain 1 700 ha annual cultivation area Private forest owner: The same as with present generation

8. The End P.S The original thesis can be copied (an electronic version, PDF file of 1.52 MB) from: ”http://ethesis.helsinki.fi/””väitöskirjat – Doctoral dissertations”  ” Ahtikoski, Anssi. The profitability of Scots pine (Pinus sylvestris L.) and Silver birch (Betula pendula Roth) next-generation seed orchards in Finland”