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Is short rotation coppice economically interesting? An application to Germany

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Abstract

Short rotation coppice (SRC) is, from a comparative static point of view, an interesting economic alternative to traditional agricultural land use. Nevertheless, farmers often do not integrate SRC into their land use. Due to the fact that the conversion to SRC can be seen as an investment, it seems as though farmers do not act according to the classical investment theory. A relatively new approach which could help to explain farmers’ inertia is the real options approach (ROA). Compared to the classical investment theory, the investment triggers in general, and conversion triggers in particular, of the ROA are shifted upwards. We want to know if the ROA could be an explanatory approach for farmers’ inertia to integrate SRC into their land use. To do this we develop a model to calculate the conversion triggers at which farmers should switch from rye production to SRC. The results show that the conversion triggers calculated according to the ROA are higher than those of the classical investment theory. In addition, it is shown that risk-averse farmers should convert earlier from rye production to SRC than risk-neutral farmers. It can be concluded that there is an explanatory potential of the ROA for famers’ inertia concerning the conversion to SRC.

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Notes

  1. Through the conversion decision to SRC, there is no change in machinery equipment and employment configuration.

  2. The wood chips prices from 2003 to 2011 we deducted from the heating oil prices are correlated with the real observed wood chips prices of the same period by 92 %. Therefore, our wood chips prices can be used as a reliable proxy to calculate the historical revenues and the GM of SRC.

  3. Changes in political framework lead to structural breaks which could result in suboptimal investment decisions (Khajuria et al. 2009).

  4. Tested at the 5 % level of significance.

  5. The GM of rye and SRC are correlated because of the strong correlation of the prices for rye and wood chips. The inflation-adjusted prices of rye and wood chips from 2003 to 2011 are correlated by 73 %. This can be justified due to the fact that they are partially substitutable.

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Acknowledgments

The authors would like to thank three anonymous referees and Shibu Jose for helpful comments and suggestions. We gratefully acknowledge financial support from the German Federal Ministry of Education and Research (BMBF; FKZ: 033L033A).

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Authors and Affiliations

  1. Department of Agricultural Economics and Rural Development, Georg-August-University Goettingen, Platz Der Goettinger Sieben 5, 37073, Goettingen, Germany

    Matthias Wolbert-Haverkamp & Oliver Musshoff

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  1. Matthias Wolbert-Haverkamp
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Correspondence to Matthias Wolbert-Haverkamp.

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Wolbert-Haverkamp, M., Musshoff, O. Is short rotation coppice economically interesting? An application to Germany. Agroforest Syst 88, 413–426 (2014). https://doi.org/10.1007/s10457-014-9697-2

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