0413-A2

Determination of the Economic Performance at Forest Enterprises: A Case Study From Turkey

Atakan ÖZTÜRK ¹, Mustafa Fehmi TÜRKER ²

Abstract

Main purpose of this research is to determine the economic performance at forest enterprises. According to the absolute economic results, both Artvin and Ardanuç SFEs had been successful between 1991 and 1995, except that Ardanuç SFE had not been successful in 1994, and the relative economic results, Yudeich Pressler Index Ratio, Kraft Index Ratio and Pressler Approximate Index Ratio have been 6 %, 58 %, 7 % in Artvin SFE, and 41 %, 61 %, 29 % in Ardanuç SFE, respectively.

As a result of this research, it has been determined that Artvin SFE has less economic performance than Ardanuç and could not used its capital as rational as Ardanuç SFE.

1. Introduction

The forest area in Turkey occupies 26.6 % of total land area. Approximately 99.9 % of Turkish forest area is owned by the state, the remaining 0.1 % is owned and managed by private owners (MoF 2000). Because of the forest ownership, the forest management activities have been undertaken by the central and province organizations that are coordinated by the Ministry of Forestry.

Various activities producing technical, biological, economical and social results have been carried out together with in forestry (Gülen 1990). State forests divided by regional, district, sub-district administration basis such as 27 Regional Forest Directorates, 241 State Forest Enterprises (SFEs), and 1328 Forest Administration Chief Offices (Türker et al. 2001).

SFEs in Turkish forestry sector are fundamental units in which forest management activities are realized technically, economically and financially (Türker et al. 2001). It's necessary to take into consideration some principles such as economic, profitableness, productivity to perform and protect functions effectively and sustainability of SFEs respectively. Each of these concepts is a tool to decrease costs and increase revenues of SFEs (Yazýcý 1989).

Nowadays, the necessity of the determination of the economic performance in public and private enterprises has been increasing. That measuring, improving and checking of the performance and criteria or models would be used for these aims, may be changed depending on time, regions and sectors (Daºdemir 1996). Thus, there are some difficulties to determine the economic performance of the SFEs due to the long rotation periods, lack of the data, harmful effect of the nature, and so on.

However, to manage the forests effectively and productively and reach national forestry objectives in Turkish forestry, it's needed a new economic, social and technical reorganization fitting the contemporary forest management. It's only possible such a reorganization determining and examining of the economic performance at SFEs.

Main purpose of this research is to determine the economic performance of SFEs and to give financial, economical, administrative and social suggestions to provide higher performance for each enterprise.

2. Source of the Data

It's used records of Management-Marketing, Machine-Completion and Administrative-Financial Works Head Offices in Artvin Regional Forest Directorate, and management plans and book keeping records of Artvin and Ardanuç SFEs, and also schedule of stumpage value and distribution costs, prepared by General Directorate of Forests .

3. Determination of the Study Area and Period

Because, SFEs are fundamental units in Turkish forestry sector, especially in making a decision and applying, it's seen fit to determine of economic performance at SFEs levels. So, Artvin and Ardanuç SFEs, both of them are located Blacksea region of Turkey, are chosen as models.

4. Calculation Methods for Economic Performance

That calculation of the economic performance for forest enterprises is based on two different approaches. One is absolute economic result, indicating amount of net profit or loss, and the other one is relative economic results, indicating profit rate of capital.

4.1. Calculation Method for Absolute Economic Performance

When defining economical results for forest enterprises, it's taken into consideration whether enterprise is annual or periodical. Because, it has been harvested woods annually and permanently in Artvin and Ardanuç SFEs, both are accepted as annual enterprises.

Because of harvesting wood products every year at annual enterprises, revenues and expenditures are compared with each other at end of the same year. Thus, net revenue of an enterprise can be calculated as below (Günel 1989):

NG = A_u + D_i + N_s +...- c - uv - (uB+NS) 0.0p (1)

Where,

NG ; net revenue
A_u ; final yield revenue
D_i ; intermediate yield revenue
N_s ; secondary product revenue
c ; restocking expenditure
u ; rotation
v ; administration expenditure
uB 0.0p; land revenue
NS 0.0p; interest of the growing stock

Revenues used in this study are wood sale revenues mines harvest, transport and sale costs. Expenditures include growing stock, land value, management and restocking costs.

In formula 1 above, when the result is zero, it means that revenues and expenditures are equal.

So,

A_u + D_i + N_s - (c + uv) = u B 0.0P + NS 0.0p (2)

Left part of equilibrium formula 2 should represent interests of the land expectation value and growing stock of the enterprise.

(u B_u + NS) 0.0p= (u B + NS) 0.0p (3)

According to equilibrium formula 3, an economic result of the enterprise is an absolute value, determined by formula 4.

ES = u (B_u - B) 0.0p (4)

This absolute economic result has been calculated by the theory of net land expectation value. Where, while (B_u 0.0p) value is the highest amount of the land revenue, (B 0.0p) is annual interest of real land value (Fýrat 1971). In formula 1, if total revenues are equal to total expenditures, it means that enterprise works at projected interest rate. If revenues are higher than the expenditures, this means that enterprise is working at higher interest rate than projected interest rate (Miraboðlu 1983).

4.2. Calculation Methods for the Relative Economic Performance

This study uses current interest rate for the calculation of the relative economic performance, because it's more suitable for the short periods.

4.2.1. Calculation Method for the Yudeich Pressler Index Ratio

If value of the one stand in m age is A_m, and in m+1 is A_m+1, one-year increment value would be A_m+1- A_m. This increment value includes interest of the stand value at the beginning of the year, land value, and administration expenditures ((A_m+B+V)0.0w). This increment value should be equal to the expenditures (Fýrat 1971, Günel 1989).

    (5)

Thus, interest rate would be;

(6)

Formula for the n year increment is;

    (7)

Interest rate according to this equation is;

Furthermore, capital values of the land values and administration expenditures are the values that Pressler define as "principal capital". If total of these values are indicated by the G, formula would be as;

So, this indicates that stand produces w interest rate in n period.

4.2.2. Calculation Method for the Kraft Index Ratio

Kraft's index interest ratio is calculated using equations below (Günel 1989).

There, 0.0p is current interest rate in the country.

G/A_m value can be calculated for each age period or it can be regarded constant for short periods. Kraft determined G(1.0pⁿ-1)/A_m as 0.04-0.3 for a high forest having average conditions in 90-100 year harvesting ages, at p= % 3 (Fýrat 1971).

4.2.3. Calculation Method for Pressler Approximate Index Ratio

Pressler suggested this index ratio for practical purposes (Günel 1989);

Where; a= volume increment percentage, b= quality increment percentage, c= dearness increase percentage, H= Average growing stock value, G= B_u+V

This formula can be modified regarding the H / G = r term defined as relative tree value by Pressler;

(H / H+G) and (r / r+1) multipliers are the coefficients determining the relation between general value increment value and current value percentages. As these coefficients are smaller than than 1, current increment rate (w) is lower than the general value increment rate (a+b+c) (Günel 1989).

Volume, quality and dearness increment percentages, which constitute the general value increment percentage, can also be calculated by Pressler's increment percentage formula (Fýrat 1971).

Land value, which is required for the determination of the index ratio, is included formulas as maximum land expectation value. But, land value doesn't affect the index ratio so much. (Günel 1989).

Index ratio is used to determine whether one stand is financial harvesting age. This age identify the harvesting time at which stand create the most financial performance. But, it doesn't give any idea about whether today's conditions are the most profitable (Fýrat 1971). After index ratio, a current interest rate, reaches the maximum value, it is lower than the general average interest rate. Therefore, it can't be said that enterprise is at loss after the financial harvesting age (Günel 1989).

5. Findings and Discussion

5.1. Absolute Economic Performance Findings

Revenues and expenditures are given in the Table 1 for each enterprises.

Table 1. Comparisons of the total revenues and expenditures regarding the absolute economic performance in Artvin and Ardanuç SFEs (1 000 Turkish Lira-TL)

Land expectation values (B_u) were determined for various rotation period by using the Faustmann formula in Artvin ve Ardanuç SFEs for the 1991 (Table 2). Both SFEs have the highest value for 60 year rotation period. However, even the highest B_u value of the Artvin SFE is negative. The highest land expectation values have calculated through deflator. B is the land value determined by Ribel formula.

Table 2. Land expectation values for 3^th site class Spruce by Faustmann formula (TL/Ha)

Land expectation value is negative for the Artvin SFE. Thus, calculated absolute economic performances of the Artvin SFE are not significant. However, these values are given below.

As explained above; ES = u (Bu-B) 0,0p formula gives the absolute economic performance. These values for Artvin SFE in different years as follows (TL);

1991 - ES = 80315 (-1 259 103-34 049) 0,03 = - 3 115 785 086
1992 - ES = 80315 (-2 170 122-203 118) 0,03 = - 5 718 203 118
1993 - ES = 80315 (-3409247-160 440) 0,03 = - 8 600 682 342
1994 - ES = 80315 (-7523 219-215 797) 0,03 = - 18 646 772 100
1995 - ES = 80315 (-14 184 478-373 087) 0,03 = - 35 075 724 990.

The most significant factor to makes economic performances negative is negative value of the highest value of the land expectation value. Although enterprise is successful than projected according to these calculations, these values are insignificant.

These values for Ardanuç SFE in different years as follows (TL);

1991- ES = 38289,5 (408 194-501 648) 0,03 = - 107 349 208
1992- ES = 38289,5 (703 541-1239 973) 0,03 = - 616 191 392
1993- ES = 38289,5 (1 105 258-2 031 245) 0,03 = - 1 063 667 377
1994- ES = 38289,5 (2 438 985-2 088 526) 0,03 = + 402 566 996
1995- ES = 38289,5 (4 598 527-5 386 766) 0,03 = - 905 438 316

Negative values for Ardanuç SFE ascertain that enterprise have reached a higher performance than projected. But, in 1994, enterprise's performance was lower than the projected performance.

Both SFEs were at loss at different scales according to the comparisons of the total revenues and expenditures regarding the absolute economic performance (Table 1). But, Artvin SFE were at profit only in 1995. As the economic performances are negative, there isn't any relation between revenues and expenditures calculated and in balance sheets. This situation is also valid for the Ardanuç SFE.

As a result negative values of the all land values calculated by the Faustman formula in Artvin SFE clarify that there is not a rationale land use and successful management. Ardanuç SFE is used its lands mores rationally considering the positive land values.

5.2. Relative Economic Performance Findings

Interest rates according to Yudeich Pressler for the 1991-1995 period are 6% in Artvin and 41% in Ardanuç. This means that increment in the forests' value interested capital at 6% and 41% in Artvin and Ardanuç respectively. Kraft's interest rate is 58% in Artvin and 61% in Ardanuç. In another words, increment in the forests' value interested enterprise's capital at 58% in Artvin and 61% in Ardanuç. Pressler's Approximate Index Ratio is 7% in Artvin SFE and in 29% in Ardanuç SFE.

Evaluated all three current interest rates together, interest rates in Ardanuç are higher than the interest rates of the Artvin. This clarifies that Ardanuç uses it is capital more rational and gets higher interest rates. Thus, Ardanuç is more successful than the Artvin in given period.

As 3% interest rate were used to calculate financial harvesting age or highest land expectation value, and the calculated current interest rates are over this interest rate, theoretically, these stands have not reached the financial harvesting rate.

These criteria have similar approaches with the internal rate of return (Geray 1986). Therefore, these current interest rates can be assumed to be internal rate of return. So, considering the current interest rates above as internal rate of returns, Ardanuç SFE has more profit than Artvin SFE.

It is possible to make comparison between these interest rates and interest rate of the long period government bonds. Average interest rate of the government bonds in this period were 74% (Anonymous 1996). The highest current rates are the Kraft's interest rate; 58% in Artvin SFe and 61% in Ardanuç SFE. Thus, all the current rates calculated in this study are lower than the interest rates and interest rate of the long period government bonds. Although, current interest rates are lower than the government bonds, considering the non-marketable values of the SFEs, these interest rates would be a higher level.

6. Recommendations

It would be possible to stop harvesting the products of which expenses are higher than selling price primarily because of the negative, even though management plans necessitate harvesting of them (Türker 1995).

Artvin and Ardanuç SFEs should think over expenses compound the biggest part of the total expenses to improve their economic performances. These expenses are the transporting and general administration costs in Artvin SFE and transporting and tending costs Ardanuç SFE.

SFE's balance sheets should include land and growing stock values and thus forest value. Yet, stumpage prices determined by the SFEs should be used to calculate land and growing stock values instead of general price given by the GDF.

SFEs conduct economic activities through revolving budget and public nature services through contributory budget. Both budgets are based heavily on revenues of the enterprises. This situation is also causing economic performance of the enterprises negatively. Thus, public nature services shouldn't be financed by the revolving budget or enterprises' revenues (Peker 1973).

There are considerable problems regarding the reporting and insufficient information in SFEs. In order to tackle these issues computerizing should be started. These can make possible to efficient auditing and planning the management activities (Daºdemir 1996).

Economic performance of the forest management in view of regional and macro-economic frameworks should be determined. Also, competition should be formed among enterprises. Enterprises should be made autonom (independent). SFEs should employ an wage system wit premium (Geray 1993).

Literature

Anonim, 1996. Turkish Republic Central Bank Records (1991-1995), Trabzon.

Daþdemir, Ý., 1996. Determination of Succes Levels in the Forest Districts, Ministry of Forestry East Anatolia Forestry Research Institue, Erzurum, 161 p.,

Fýrat, F., 1971. Economics of Forest Management , IU Faculty of Forestry, No: 156, Sceond edition, Ýstanbul, 336 p.

Geray, U., 1986. Planning, MSc Lecturer Notes, IU Faculty of Forestry, Ýstanbul, 122.

Geray, U., 1993. Improvemnet and Problems of Forests Resources Managment, First Forestry Council, Reports Book, Volume 3, 137-149, Ankara.

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Günel, A., 1989. Economics of Forest Management, Lecturer Notes, KTU Faculty of Forestry, No:26, Trabzon, 168 p.

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Türker, M.F., Marketing Mentality and Criticism of Pricing In State Forest Enterprises Methods, KTU Faculty of Forestry Seminar, Trabzon. 5 p.

Türker, M.F., Pak, M., Öztürk, A., 2001. Evaluations Regarding The Forest Management And Forest Ownership in Turkey, Global Inititatives and Public Policies: First International Conference on Private Forestry in the 21^th Century, March 25-27, 2001, USA.

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¹ Research Assistant, Karadeniz Technical University, Faculty of Forestry, Department of Forest Engineering, Division of Forest Economics, 61080-Trabzon/TURKEY, e-mail: [email protected]

² Professor Dr., Karadeniz Technical University, Faculty of Forestry, Department of Forest Engineering, Division of Forest Economics, 61080-Trabzon/TURKEY, e-mail: [email protected]