Financial Dilemmas Associated with the Afforestation of Low-Productivity Farmland in Poland
AbstractIn Poland, 82% of forests are State-owned, and only 17% of forests constitute private property. Each year, forests are converted to other land-use types, mainly for road construction. The afforestation rate on privately-owned low-productivity land is decreasing steadily. The owners and perpetual usufructuaries of this kind of land are eligible to government subsidies to cover establishment expenditures in whole or in part, provided that the afforestation scheme complies with the local zoning plan or an outline planning permission. The above creates a dilemma for farmers—is this a profitable option of managing low-productivity land? Owners of small farms particularly often face such dilemmas. Owners of small farms, which consist of low-yield agricultural land, can be regarded as investors operating on the real estate market, but those investors have features characteristic of agricultural producers. This study relied on the net present value (NPV) criterion, which is popularly used to assess the effectiveness of investments on the real estate market. A financial feasibility assessment performed with the use of such method in view of afforestation statistics and the 5% discount rate on the Polish forest market revealed the highest increase in net cumulative cash flows in the first five years, followed by a gradual decrease in successive years. The first negative cash flow was reported in year 20. NPV would remain negative because farmers would be charged with periodic maintenance expenditures until the stand reaches harvestable age at approximately 40 years. The longer the investment period, the lower the profits, even if discount rate is excluded. Investments of the type are difficult to terminate because forests younger than 20 years are difficult to sell at a price that covers growing outflows. Afforestation projects are also influenced by other economic and non-economic factors. The paper validates the research hypothesis that afforestation is a long-term investment that delivers benefits for future generations. View Full-Text
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Źróbek-Różańska, A.; Nowak, A.; Nowak, M.; Źróbek, S. Financial Dilemmas Associated with the Afforestation of Low-Productivity Farmland in Poland. Forests 2014, 5, 2846-2864.
Źróbek-Różańska A, Nowak A, Nowak M, Źróbek S. Financial Dilemmas Associated with the Afforestation of Low-Productivity Farmland in Poland. Forests. 2014; 5(11):2846-2864.Chicago/Turabian Style
Źróbek-Różańska, Alina; Nowak, Andrzej; Nowak, Magdalena; Źróbek, Sabina. 2014. "Financial Dilemmas Associated with the Afforestation of Low-Productivity Farmland in Poland." Forests 5, no. 11: 2846-2864.