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An integrated corporate planning model for forest-based industries

By Warren H Hausman and Mehran Sepehri

Abstract

The paper presents an integrated model for corporate planning of forest-based industries. Techniques are developed to determine the profitability of wood quality manipulations, taking into proper account the impact of uncertainties on future product prices. Production alternatives of final products are specified as functions of wood quality properties which are, in turn, functions of tree type (genotype) alternatives. The total return from processing wood depends on future prices of final products, which are unknown. Selling prices of final products are related to stochastic price indices for solid wood products and paper products. Risk can be reduced by diversifying among genotype alternatives; in a case study the value of a portfolio of genotype alternatives is significantly larger than the single 'best' genotype alternative. The model framework may be applicable to any other natural resource industry with similar characteristics such as agriculture, petroleum or mining.

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