- Email: [email protected]
Production costs for first rotation biomass plantations
Biomass 12 (1987) 215-226
Production Costs for First Rotation Biomass Plantations* C. H. Strauss, P. R. Blankenhorn, T. W. Bowersox and S. C. Grado School of Forest Resources, The Pennsylvania State University, University Park, Pennsylvania 16802, USA (Received 11 August 1986; revised version received 13 February 1987; accepted 16 February 1987)
ABSTRACT A series of short rotation Populus plantations involving alternate management strategies were evaluated in terms of the financial and energy costs required in the production process. The plantations used hybrid poplar NE-388 (Populus maximowiczii x trichocarpa), a tree spacing of 0"6 m × 0"8 m and a rotation length of 4 years. Four production strategies (control, irrigation, fertilization, and fertilization-irrigation) were employed on sites representing favorable and unfavorable growing conditions. The production costs were based on a proposed commercial design involving a plantation unit of 924 hectares, with 4 such units providing a sustainable supply of biomass. The control strategy on the better site was least expensive, with base stumpage costs of $28" 71 Mg- 1 ovendry (od). The addition of fertilizer on the better site increased the financial costs for the product by 24"0% and the energy costs by 5"4%. Irrigation on the better site more than tripled the financial costs for the stumpage product and caused a 20"6% increase in its energy costs. Key words: Economics, woody biomass, plantations, financial costs, energy costs.
1
INTRODUCTION
The series of oil and natural gas crises that adversely affected the United States economy during the 1970s caused a general search for other *This paper was approved from publication as Paper No. 7430 in the Journal Series of Pennsylvania Agricultural Experiment Station. 215 Biomass 0144-4565/87/S03.50- © Elsevier Applied Science Publishers Ltd, England, 1987. Printed in Great Britain
216
C. H. Strauss, P. R. Blankenhorn, T. W. Bowersox, S. C. Grado
viable domestic fuels. One possibility is woody biomass. This source has provided modest contributions toward home heating and industrial needs, with annual consumption placed at 1.17 trillion MJ. 1 This role could be expanded through the increased use of forest growth, mortality and urban wood wastes. The energy potential from available biomass was estimated at 10.02 trillion MJ or 12% of the United States' current annual energy consumption. An even greater supply could be realized from plantation systems designed to maximize biomass. About 4.75 trillion MJ could be provided annually by converting 10% of the arable soil found in private forests, range and forage lands to intensive culture plantations. 1 The basic impediment toward the development of either extensive or intensive sources is the cost considerations in producing woody biomass. The financial and energy requirements of biomass plantations are being evaluated by the School of Forest Resources at The Pennsylvania State University in cooperation with the US Department of Energy. This project provides financial and energy analysis of Populus hybrid plantations grown under four production strategies on two dissimilar sites. The plantations are analyzed on a total cost basis involving a proposed commercial-scale of operations. This report identifies the particulars of the commercial design and the financial and energy costs of the four production strategies after the first rotation.
2
PROJECT DESIGN AND PROCEDURES
To develop the necessary production data for this study a series of Populus hybrid plantations were established on two central Pennsylvania sites, representing favorable (Basher silt loam soil) and unfavorable (Morrison sandy loam soil) growing conditions. Each plantation site (1.2 ha) consisted of six replications (0"2 ha each) of four production strategies (0.05 ha each for the control, fertilization, irrigation and fertilization-irrigation units). Half of the plantations were established in 1980, with the remainder initiated in 1981. All trees were Populus hybrid NE-388 (Populus maximowiczii x trichocarpa) and were planted 0.6 m apart in rows spaced at 0.8 m. These spacings were designed for 4 year rotations of the plantation, with 5 such rotations expected from the initial root stock planting. The plantations were established in a manner analogous to the site preparation and planting of agricultural row crops. The basic sequence of operations involved a fall preparation of the site followed by the spring planting of the poplar cuttings. The pattern of operations was
Production costs for first rotation biomass plantations
217
based on an extended series of research plantations established in central Pennsylvania.2 The fertilization strategies for the sites were developed from the nutrient requirements for corn production. The fertilization treatment provided a balanced N - P - K - C a - M g nutrient set on both sites for a targeted equivalent output of 47 Mg ha- 1 (field weight) of corn silage. A trickle irrigation system was installed to deliver a non-limiting volume of water at the specified management units. Soil moisture values in the upper 20 cm of soil were used to determine the frequency and volume of irrigation. All aspects of the production strategies were continuously monitored, including nutrient and moisture input-output flows. Annual destructive samples were taken to determine the moisture content, specific gravity, gross heat of combustion and ash, nutrient and chemical contents of the biomass. The plantation operations were cost analyzed on both the financial and energy basis in terms of the first rotation biomass output. The project's orientation to first rotation yields dictated the use of an accounting-type cost analysis rather than a cash flow model. This also involved the prorate of the investment costs of establishment over the 20 year life span of the plantation. For cost accounting purposes, plantation production was divided into: (1), establishment; (2), maintenance; and (3), the cultural additions of fertilization and irrigation. Establishment represented the fall and spring operations necessary for the initiation of the basic control strategy. This involved the fall application of herbicides to old field sites, followed by mowing and offset disking. In the spring, the sites would be disk harrowed, herbicided again and planted. The maintenance operations included biennial pesticide and fungicide treatments and the annual costs of land use and management. Fertilization and irrigation operations included the annual prorate of initial investment costs plus the addition of annual operating costs from each strategy. Each establishment operation was sequentially analyzed on a commercial scale basis to determine the areal rate of production for the central unit of equipment, the volume of land prepared during the limits of seasonal time frames and the number of equipment units required for the proposed size of operation. Offset disking was the critical constraint in the volume of land prepared during the fall establishment period. The central equipment unit, a 170 hp tractor, can prepare an area of 924 ha during the 11 week fall plowing period available to our region. By establishing the commercial size of the base working unit at 924 ha all other fall and spring establishment operations could be completed within their respective time frames.
218
2.1
C. 1t. Strauss, P. R. Blankenhorn, T. W. Bowersox, S. C. Grado
Financial accounts
All production operations were cost analyzed on the basis of financial and energy expenses. In the financial and energy conventions, costs were divided into variable and fixed expenses associated with the self-ownership of all capital equipment. The financial costs were developed for the base year 1981. All costs encumbered in the production process were compounded to the end of the rotation at an annual rate of 5%. This rate represented a compromise between a 6% historic and projected after-tax real rate on US corporate capital 3 and a 4% real rate proposed as the marginal long-term expectations on new productive investments. 4 Variable costs within an operation included labor, fuel, materials and maintenance on the equipment. Base pay rates were taken from standards in the agricultural sector, 5 with 5 to 20% added for fringe benefits. Fixed costs included insurance, equipment shelter, depreciation and interest. Annual insurance and shelter charges were based at 1.5% of the equipment's original list price. Depreciation and interest were treated as an annuity payment to reflect the recovery of the original net investment and a 5% real interest charge on the remaining principal. One of the key items in the cost models was the financial charge for land. This annual charge, noted as land rent, was developed from a review of corn production on soils comparable to our research sites and represented the annual net revenue available from this production alternative. These results agreed with the Pennsylvania farm land values defined for the period 1976-81. 6 Property tax was assigned in accordance with regional agricultural land values and taxing procedures. The managerial costs represented the full time employ of a management, technical and clerical staff for the operation and harvest of 4 working units and a satellite nursery. These assignments would encompass approximately 3700 ha of plantations and 55 ha of nursery. 2.2
Energy accounts
The accounting convention for energy values was largely patterned from Pimentel. 7 In this approach equipment energy was divided into: (1), energy embodied in the equipment's materials; (2), energy employed in the fabrication of the equipment; and (3), energy embodied in repair parts. This provided the fixed energy costs for all equipment used in the establishment, maintenance, fertilization and irrigation operations. The variable energy costs for materials such as fuel, herbicides, pesticides, fungicides and fertilizers were based on their particular energy to
Production costs for first rotation biomass plantations
219
weight measures and the respective volumes used in each given operation. The expenditure for human labor was itemized but proved to be a small energy input; also confirming earlier measures of this resource. 7 The energy equivalent for land rent was the net energy return from corn production foregone by the use of the site for biomass production. The energy equivalent for property tax was the energy to financial cost ratio from land rent multiplied by the financial cost of the tax.
3
3.1
RESULTS AND DISCUSSION
Operational and strategy cost summaries
The total costs for the various strategy/site options at the end of the first rotation are presented in Table 1. Under the control strategy, total costs for establishing and maintaining the plantations were identical on either site (S1015 ha- ~). The cost of land (rent and tax) constituted nearly one third of the total cost for the control strategy. The second major cost item was managerial expenses; amounting to 24% of the total. Planting costs were another 23% of the total, with the cuttings representing 85% of the planting costs. The remaining major expense was the biennial charge for insecticides and fungicides -- about 9% of the total. Overall, nearly 69% of the costs in the control strategy were fixed in nature, composed of rent, taxes, management and maintenance. Fertilization added 49% and 66% to the base cost of the control strategy on the Basher and Morrison sites, respectively. The less favorable Morrison soils required 35% more fertilizer than the Basher soils. Irrigation was a major expense and nearly tripled the initial costs on both sites. The higher cost of irrigation at Morrison ($3518 ha-1) over Basher ($3147 ha-1) reflected the added expense of a well system at Morrison versus the stream supply used at Basher. The increased capital outlay for the well at Morrison contributed 77% to this differential, with the remaining 23% resulting from the increased energy in pumping water. Companion summaries of energy costs are provided in Table 2. Land rent accounted for nearly 87% of the total energy costs. Although this energy was not actually used in biomass production, it is the minimal expected energy return for employing land in biomass production. Of the remaining 7116.2 MJ ha- 1 actually used in the control strategy, 56% was tied to the biennial insecticide and fungicide spray operations and 32% to the planting operation. The major energy input for the
220
C. H. Strauss, P. R. Blankenhorn, T. W. Bowersox, S. C. Grado TABLE 1
Financial Summary of Operations and Strategy Costs a for the First Rotation Basher and Morrison Site Plantations
A. Operational costs 1. Establishment Mower Disc Herbicide Harrow Plant
.
.
Maintenance Insecticide-Fungicide Property rental Property tax Management
Cultural amendment Irrigation Fertilization
B. Total strategy costs Control Irrigation Fertilization Fertilization-Irrigation
Basher site (S ha- 9
Morrison site (S ha- 9
3.22 5"80 72.74 4"08 233"47
3.22 5.80 72.74 4.08 233.47
319.31 b
319.31 h
85.94 327"82 33.84 247.71
85.94 327"82 33.84 247.71
695"31
695.31
2 132"81 498"51
2 503.14 669"85
2 631"46
3 172"99
1014.62 3 147.43 1 513"27 3 646.08
1014.62 3 517'76 1684"47 4187"61
aTotal costs at the end of a 4 year rotation with expenses compounded at a 5% annual rate. bThe total establishment cost of $923"26 ha- 1 was prorated over 5 rotations (20 years), with the cost for the first rotation ($319"31 ha-l) representing the compound value of four annuity payments at the end of the rotation. s p r a y i n g o p e r a t i o n was m a t e r i a l s , r e p r e s e n t i n g 8 2 % o f t h e o p e r a t i n g cost. F e r t i l i z a t i o n was 7 to 9 t i m e s m o r e e x p e n s i v e t h a n t h e total o f all e n e r g y a c t u a l l y u s e d in t h e c o n t r o l strategy. N e a r l y 9 8 % o f the e n e r g y u s e d in f e r t i l i z a t i o n o n e i t h e r site was f o r m a t e r i a l s . A l t h o u g h i r r i g a t i o n also r e p r e s e n t e d a m a j o r e n e r g y cost, it o n l y i n v o l v e d a b o u t 4 0 % o f t h e
Production costs for first rotation b iomass plantations
221
TABLE 2 Energy Summary of Operational and Strategy Costs for First Rotation Basher and Morrison Site Plantations Basher site (MJ ha - I)
A. Operational costs 1. Establishment Mower Disc Herbicide Harrow Plant
2.
3.
Maintenance Insecticide-Fungicide Property rental Property tax Management
Cultural amendment Irrigation Fertilization
B. Total strategy costs Control Irrigation Fertilization Fertilization-lrrigation
Morrison site (MJ ha - i)
50.2 129"8 644.6 58"6 2197.7
50"2 129.8 644.6 58"6 2197"7
3080"9"
3080"9
3 951.6 167 737-2 17 769.6 20.9
3 951.6 167 737.2 17 769.6 20.9
189479"3
189479"3
21989.1 51600.8
23 090-0 64 581.6
73 589-9
87 671"6
192 560.2 214 549.3 244 161.0 266 150.1
192 560"2 215 650"2 257 141"8 280 231.8
"The total establishment cost of 15 404.4 MJ ha- l was divided over 5 rotations, with the cost of any one rotation placed at 3 080-9 MJ ha- ~.
energy used in fertilization. A p p r o x i m a t e l y 5% of the irrigation energy was for p u m p i n g water to the trees, with the remaining 95% tied to the energy e m b o d i e d in equipment.
3.2
Per unit production costs
T h e first rotation o v e n d r y biomass yields r e p o r t e d in Table 3 include all w o o d , b a r k a n d b r a n c h w o o d above a 15 cm s t u m p height. T h e s e ranged
1014.62 3 147.43 1513.27 3 646.08 1014-62 3 517.76 1684.47 4187.61
35"34 32"65 42"51 43-04 31"59 33"95 38"20 41.11
Control Irrigation Fertilization Fertilization/ Irrigation
Control Irrigation Fertilization Fertilization/ Irrigation
Basher
Morrison
"Four year ovendry total tree yields.
Hectare financial costs (S ha - I)
Biomas yield" (Mg ha- i (od))
Management strategy
Site
192 560"2 215 650-2 257 141-8 280231.8
192 560-2 214 549"3 244161.0 266 150.1
Hectare energy costs (MJ ha - t)
TABLE 3 Production Results from First Rotation Yields
Biomass energy costs (MJ Mg- ' (oa)) 5 448.8 6571.2 5743.6 6 183.8 6 095.6 6 352.0 6731.5 6816.6
Biomass financial costs (S Mg- ' (od)) 28.71 96-40 35.60 84"71 32.12 103.62 44"10 101"86
.~
-~
.~ .~
I'O tO tO
Production costs for first rotation biomass plantations
223
from 31.6 Mg (od) ha -~ for the control strategy on the less favorable site to 43.0 Mg (od) ha- 1 for fertilization/irrigation on the favorable site. The financial and energy costs for each strategy/site combination were divided by their respective yields to determine production costs on an output or stumpage basis (Table 3). On both sites, the control strategy was least expensive, with fertilization and irrigation resulting in moderate to major increases of stumpage cost, respectively. The least expensive strategy was control on the Basher site ($28.71 Mg -1 (od)) and on the Morrison site ($32.12 Mg-l (od)). The relative cost increase for fertilization was not matched by an equivalent gain in output at either site, resulting in higher output costs ($35.60 Mg- 1 (od)), Basher; $44"10 Mg- ~(od), Morrison). The greater cost on Morrison resulted from the higher fertilization costs and lower output on this nutrient-deficient and drier site. Irrigation on either site caused a substantial increase in output costs. On Basher, costs were $96.40 Mg -1 (od) and on Morrison, S103"62 Mg-i (od). The combination of fertilization and irrigation caused some reductions in the per unit production costs due to the increased ouput; a 12% reduction on Basher and a 2% reduction on Morrison. In both instances the relative increase in fertilizer cost was exceeded by the relative gain in output. Although the margin from fertilization was cost efficient, the composite venture was cost prohibitive. The per unit energy costs for the first rotation resulted in the same approximate cost ranking among strategy/site combinations as shown in the financial summary (Table 3). In all instances the magnitude of difference between the options was far less on an energy basis than on a financial basis. This was due to land's energy cost being a major common expense to all strategy/site combinations (Table 2). Land represented from 66% to 96% of the total costs in the various energy accounts. 3.3
Basic sources of financial costs
The origin of financial costs within each 'line item' of the production process was identified. Origin, in this instance, refers to the basic inputs; equipment, fuel, materials, labor and land. The individual sources were delineated within each stage of the production process and totaled for each strategy/site combination (Table 4). The strategies displayed major differences in their input characteristics but, for any given strategy, were fairly consistent between the two sites. For the control strategy, labor and land were the major financial inputs, each representing over one third of the total production costs. Material costs for herbicides, pesticides and fungicides contributed
224
C. H. Strauss, P. R. Blankenhorn, T. W. Bowersox, S. C. Grado TABLE 4 Production Costs by Basic Input Source
Site
Management strategy
Biomass financial cost (S Mg - I (od))
Origins of cost (%) Equipment
Fuel Materials Labor
Land
Basher
Control Irrigation Fertilization Fertilization/ Irrigation
28.71 96-40 35.60 84.71
7"0 44"2 6.6 38.9
3.4 2.8 2.7 2.5
16.5 5.3 41.1 17.1
37.2 36.1 25.5 31-5
35"9 11"6 24.1 10.0
Morrison
Control Irrigation Fertilization Fertilization/ Irrigation
32.12 103.62 44.10 101.86
7.0 50"3 5.9 42"9
3.4 3.2 2.4 2.8
16.5 4.7 47.1 18"9
37-2 31-4 23.0 26"7
35"9 10.4 21.6 8"7
another 16.5% to total costs. Equipment and fuel costs were only 10.4% of the total expense. Irrigation systems were both capital and labor intensive. Equipment charges were major on either site, representing 44.2% on Basher and 50"3% on Morrison. The higher cost on Morrison was for the more elaborate well system. Additional labor was also used in irrigation, with its cost representing about one third of the total costs on either site. The increased equipment and labor charges for irrigation reduced the relative importance of land to the 10% level. For the fertilization strategy, materials were the major cost on either site, with the higher proportion on Morrison representing the greater volume of fertilizer required on the less favorable site. The cost impact of fertilizer reduced the relative importance of both labor and land. In the combined fertilization/irrigation strategy a different alignment of input costs occurred. Equipment costs dominated the system at the 40% level, with labor following in the 27-31% range and materials dropping to 17-19%. Land's relative impact was reduced to 10% or less. The sensitivity of price changes among the various inputs in terms of their effect upon total production costs is a direct extension of their cost distributions. Any price changes to the more costly inputs would have a greater impact on production costs than would price changes to less costly inputs. For example, an initial 10% change in labor costs within the control/Basher combination would impose a 3"7% change in total
Production costs for first rotation biomass plantations
225
stumpage costs (0.1 × 0"37), whereas an initial 10% change to fuel costs would only result in a 0"3% change in stumpage costs (0.1 ×0.03). Among the particular strategies, labor and land are focal inputs to the control strategy; fertilizer and labor to the fertilization strategy; equipment and labor to irrigation; and equipment, labor and fertilizer in the fertilization/irrigation strategy. In contrast to the proportioned cost effect of input price changes, any change to output would place a more direct impact on stumpage costs. The mathematics of an initial 10% increase in output would cause a 9.1% decrease in stumpage costs, whereas an initial 10% decrease in output would serve to increase product cost by 11.1%. Yield changes, on a relative basis, induce a near equal, but reciprocal, effect on stumpage costs. 4
CONCLUSIONS
From a least cost viewpoint, the optimal strategy for the first rotation was the control strategy on the more favorable, Basher site. Total production costs for this option were $28.71 Mg-l (od). The same strategy on the less favorable, Morrison site was 12% higher, at $32"12 Mg-1 (od). Fertilization on Basher cost 24% more than the control strategy. The addition of irrigation to either control or fertilization caused a severe increase in production costs, with little or no increase in product yield to offset these cost increases. The stumpage costs for irrigation-related strategies were three times more expensive than for the control strategy. Although the Basher/control combination was cheaper than the Basher/fertilization, there remains some question on whether the control strategy's nutrient drain will permit the same output over continued rotations. Potentially, fertilization may be necessary to sustain a given production level. From a financial standpoint, the most critical inputs to the control and fertilization strategies were labor and land, and for the latter strategy, fertilizer itself. Nearly 65% of the labor costs originated from the managerial staff proposed for the operation of the commercial plantation system. Potentially, larger plantation designs and allied economies of scale could reduce these labor costs. Land was either a primary or secondary expense to most strategies. The financial charge for this resource was based oh the net return from corn production. Commercial plantations, as proposed by this study, will require substantial blocks of good quality land. This type of land use will be in direct competition with alternate agricultural pursuits and, as such,
226
c. H. Strauss, P. R. Blankenhorn, T. W. Bowersox, S. C. Grado
must have the financial capability of making a competitive return to the land base. There may be some potential for reducing the cost of fertilizer. Nutrient uptake by the Populus hybrids was well under the actual volumes supplied to these trees during their first rotation. Reductions of nitrogen and phosphorus by 20 to 30% seem feasible and will be further evaluated by this project.
ACKNOWLEDGEMENT Support provided by US Department of Energy Subcontract No. 19X07928 under contract No. W-7405-eng-26 with the Union Carbide Corporation Nuclear Division.
REFERENCES 1. Society of American Foresters Task Force. (1979). Forest biomass as an energy source. Journal of Forestry, 77, 1-8. 2. Blankenhorn, P. R., Bowersox, T. W. & Strauss, C. H. (1985). Net financial and energy analysis for producing Populus hybrid under four management strategies -- first rotation, Final report to the US Department of Energy, The Pennsylvania State University, University Park, Pennsylvania, USA. 3. Klemperer, W. D. (1979). Inflation and present value of timber income after taxes. Journal of Forestry, 77, 94-6. 4. Row, C., Kaiser, F. & Sessions, J. (1981). Discount rates for long-term Forest Service investments. Journal of Forestry, 77, 369-76. 5. Doane's Agriucultural Service Inc. ( 1981 ). Machinery operating costs, 44, No. 9-6 Doane's Agricultural Service, Inc., St Louis, Missouri, USA. 6. Gingrich, N. B. & Shortle, J. S. (1984). Valuing agricultural real estate in Pennsylvania, Agric. Econ. & Rural Soc. 175, The Pennsylvania State University, University Park, Pennsylvania, USA. 7. Pimentel, D. (1980). Handbook of energy utilization in agriculture, CRC Press, Boca Raton, Florida.
Production Costs for First Rotation Biomass Plantations* C. H. Strauss, P. R. Blankenhorn, T. W. Bowersox and S. C. Grado School of Forest Resources, The Pennsylvania State University, University Park, Pennsylvania 16802, USA (Received 11 August 1986; revised version received 13 February 1987; accepted 16 February 1987)
ABSTRACT A series of short rotation Populus plantations involving alternate management strategies were evaluated in terms of the financial and energy costs required in the production process. The plantations used hybrid poplar NE-388 (Populus maximowiczii x trichocarpa), a tree spacing of 0"6 m × 0"8 m and a rotation length of 4 years. Four production strategies (control, irrigation, fertilization, and fertilization-irrigation) were employed on sites representing favorable and unfavorable growing conditions. The production costs were based on a proposed commercial design involving a plantation unit of 924 hectares, with 4 such units providing a sustainable supply of biomass. The control strategy on the better site was least expensive, with base stumpage costs of $28" 71 Mg- 1 ovendry (od). The addition of fertilizer on the better site increased the financial costs for the product by 24"0% and the energy costs by 5"4%. Irrigation on the better site more than tripled the financial costs for the stumpage product and caused a 20"6% increase in its energy costs. Key words: Economics, woody biomass, plantations, financial costs, energy costs.
1
INTRODUCTION
The series of oil and natural gas crises that adversely affected the United States economy during the 1970s caused a general search for other *This paper was approved from publication as Paper No. 7430 in the Journal Series of Pennsylvania Agricultural Experiment Station. 215 Biomass 0144-4565/87/S03.50- © Elsevier Applied Science Publishers Ltd, England, 1987. Printed in Great Britain
216
C. H. Strauss, P. R. Blankenhorn, T. W. Bowersox, S. C. Grado
viable domestic fuels. One possibility is woody biomass. This source has provided modest contributions toward home heating and industrial needs, with annual consumption placed at 1.17 trillion MJ. 1 This role could be expanded through the increased use of forest growth, mortality and urban wood wastes. The energy potential from available biomass was estimated at 10.02 trillion MJ or 12% of the United States' current annual energy consumption. An even greater supply could be realized from plantation systems designed to maximize biomass. About 4.75 trillion MJ could be provided annually by converting 10% of the arable soil found in private forests, range and forage lands to intensive culture plantations. 1 The basic impediment toward the development of either extensive or intensive sources is the cost considerations in producing woody biomass. The financial and energy requirements of biomass plantations are being evaluated by the School of Forest Resources at The Pennsylvania State University in cooperation with the US Department of Energy. This project provides financial and energy analysis of Populus hybrid plantations grown under four production strategies on two dissimilar sites. The plantations are analyzed on a total cost basis involving a proposed commercial-scale of operations. This report identifies the particulars of the commercial design and the financial and energy costs of the four production strategies after the first rotation.
2
PROJECT DESIGN AND PROCEDURES
To develop the necessary production data for this study a series of Populus hybrid plantations were established on two central Pennsylvania sites, representing favorable (Basher silt loam soil) and unfavorable (Morrison sandy loam soil) growing conditions. Each plantation site (1.2 ha) consisted of six replications (0"2 ha each) of four production strategies (0.05 ha each for the control, fertilization, irrigation and fertilization-irrigation units). Half of the plantations were established in 1980, with the remainder initiated in 1981. All trees were Populus hybrid NE-388 (Populus maximowiczii x trichocarpa) and were planted 0.6 m apart in rows spaced at 0.8 m. These spacings were designed for 4 year rotations of the plantation, with 5 such rotations expected from the initial root stock planting. The plantations were established in a manner analogous to the site preparation and planting of agricultural row crops. The basic sequence of operations involved a fall preparation of the site followed by the spring planting of the poplar cuttings. The pattern of operations was
Production costs for first rotation biomass plantations
217
based on an extended series of research plantations established in central Pennsylvania.2 The fertilization strategies for the sites were developed from the nutrient requirements for corn production. The fertilization treatment provided a balanced N - P - K - C a - M g nutrient set on both sites for a targeted equivalent output of 47 Mg ha- 1 (field weight) of corn silage. A trickle irrigation system was installed to deliver a non-limiting volume of water at the specified management units. Soil moisture values in the upper 20 cm of soil were used to determine the frequency and volume of irrigation. All aspects of the production strategies were continuously monitored, including nutrient and moisture input-output flows. Annual destructive samples were taken to determine the moisture content, specific gravity, gross heat of combustion and ash, nutrient and chemical contents of the biomass. The plantation operations were cost analyzed on both the financial and energy basis in terms of the first rotation biomass output. The project's orientation to first rotation yields dictated the use of an accounting-type cost analysis rather than a cash flow model. This also involved the prorate of the investment costs of establishment over the 20 year life span of the plantation. For cost accounting purposes, plantation production was divided into: (1), establishment; (2), maintenance; and (3), the cultural additions of fertilization and irrigation. Establishment represented the fall and spring operations necessary for the initiation of the basic control strategy. This involved the fall application of herbicides to old field sites, followed by mowing and offset disking. In the spring, the sites would be disk harrowed, herbicided again and planted. The maintenance operations included biennial pesticide and fungicide treatments and the annual costs of land use and management. Fertilization and irrigation operations included the annual prorate of initial investment costs plus the addition of annual operating costs from each strategy. Each establishment operation was sequentially analyzed on a commercial scale basis to determine the areal rate of production for the central unit of equipment, the volume of land prepared during the limits of seasonal time frames and the number of equipment units required for the proposed size of operation. Offset disking was the critical constraint in the volume of land prepared during the fall establishment period. The central equipment unit, a 170 hp tractor, can prepare an area of 924 ha during the 11 week fall plowing period available to our region. By establishing the commercial size of the base working unit at 924 ha all other fall and spring establishment operations could be completed within their respective time frames.
218
2.1
C. 1t. Strauss, P. R. Blankenhorn, T. W. Bowersox, S. C. Grado
Financial accounts
All production operations were cost analyzed on the basis of financial and energy expenses. In the financial and energy conventions, costs were divided into variable and fixed expenses associated with the self-ownership of all capital equipment. The financial costs were developed for the base year 1981. All costs encumbered in the production process were compounded to the end of the rotation at an annual rate of 5%. This rate represented a compromise between a 6% historic and projected after-tax real rate on US corporate capital 3 and a 4% real rate proposed as the marginal long-term expectations on new productive investments. 4 Variable costs within an operation included labor, fuel, materials and maintenance on the equipment. Base pay rates were taken from standards in the agricultural sector, 5 with 5 to 20% added for fringe benefits. Fixed costs included insurance, equipment shelter, depreciation and interest. Annual insurance and shelter charges were based at 1.5% of the equipment's original list price. Depreciation and interest were treated as an annuity payment to reflect the recovery of the original net investment and a 5% real interest charge on the remaining principal. One of the key items in the cost models was the financial charge for land. This annual charge, noted as land rent, was developed from a review of corn production on soils comparable to our research sites and represented the annual net revenue available from this production alternative. These results agreed with the Pennsylvania farm land values defined for the period 1976-81. 6 Property tax was assigned in accordance with regional agricultural land values and taxing procedures. The managerial costs represented the full time employ of a management, technical and clerical staff for the operation and harvest of 4 working units and a satellite nursery. These assignments would encompass approximately 3700 ha of plantations and 55 ha of nursery. 2.2
Energy accounts
The accounting convention for energy values was largely patterned from Pimentel. 7 In this approach equipment energy was divided into: (1), energy embodied in the equipment's materials; (2), energy employed in the fabrication of the equipment; and (3), energy embodied in repair parts. This provided the fixed energy costs for all equipment used in the establishment, maintenance, fertilization and irrigation operations. The variable energy costs for materials such as fuel, herbicides, pesticides, fungicides and fertilizers were based on their particular energy to
Production costs for first rotation biomass plantations
219
weight measures and the respective volumes used in each given operation. The expenditure for human labor was itemized but proved to be a small energy input; also confirming earlier measures of this resource. 7 The energy equivalent for land rent was the net energy return from corn production foregone by the use of the site for biomass production. The energy equivalent for property tax was the energy to financial cost ratio from land rent multiplied by the financial cost of the tax.
3
3.1
RESULTS AND DISCUSSION
Operational and strategy cost summaries
The total costs for the various strategy/site options at the end of the first rotation are presented in Table 1. Under the control strategy, total costs for establishing and maintaining the plantations were identical on either site (S1015 ha- ~). The cost of land (rent and tax) constituted nearly one third of the total cost for the control strategy. The second major cost item was managerial expenses; amounting to 24% of the total. Planting costs were another 23% of the total, with the cuttings representing 85% of the planting costs. The remaining major expense was the biennial charge for insecticides and fungicides -- about 9% of the total. Overall, nearly 69% of the costs in the control strategy were fixed in nature, composed of rent, taxes, management and maintenance. Fertilization added 49% and 66% to the base cost of the control strategy on the Basher and Morrison sites, respectively. The less favorable Morrison soils required 35% more fertilizer than the Basher soils. Irrigation was a major expense and nearly tripled the initial costs on both sites. The higher cost of irrigation at Morrison ($3518 ha-1) over Basher ($3147 ha-1) reflected the added expense of a well system at Morrison versus the stream supply used at Basher. The increased capital outlay for the well at Morrison contributed 77% to this differential, with the remaining 23% resulting from the increased energy in pumping water. Companion summaries of energy costs are provided in Table 2. Land rent accounted for nearly 87% of the total energy costs. Although this energy was not actually used in biomass production, it is the minimal expected energy return for employing land in biomass production. Of the remaining 7116.2 MJ ha- 1 actually used in the control strategy, 56% was tied to the biennial insecticide and fungicide spray operations and 32% to the planting operation. The major energy input for the
220
C. H. Strauss, P. R. Blankenhorn, T. W. Bowersox, S. C. Grado TABLE 1
Financial Summary of Operations and Strategy Costs a for the First Rotation Basher and Morrison Site Plantations
A. Operational costs 1. Establishment Mower Disc Herbicide Harrow Plant
.
.
Maintenance Insecticide-Fungicide Property rental Property tax Management
Cultural amendment Irrigation Fertilization
B. Total strategy costs Control Irrigation Fertilization Fertilization-Irrigation
Basher site (S ha- 9
Morrison site (S ha- 9
3.22 5"80 72.74 4"08 233"47
3.22 5.80 72.74 4.08 233.47
319.31 b
319.31 h
85.94 327"82 33.84 247.71
85.94 327"82 33.84 247.71
695"31
695.31
2 132"81 498"51
2 503.14 669"85
2 631"46
3 172"99
1014.62 3 147.43 1 513"27 3 646.08
1014.62 3 517'76 1684"47 4187"61
aTotal costs at the end of a 4 year rotation with expenses compounded at a 5% annual rate. bThe total establishment cost of $923"26 ha- 1 was prorated over 5 rotations (20 years), with the cost for the first rotation ($319"31 ha-l) representing the compound value of four annuity payments at the end of the rotation. s p r a y i n g o p e r a t i o n was m a t e r i a l s , r e p r e s e n t i n g 8 2 % o f t h e o p e r a t i n g cost. F e r t i l i z a t i o n was 7 to 9 t i m e s m o r e e x p e n s i v e t h a n t h e total o f all e n e r g y a c t u a l l y u s e d in t h e c o n t r o l strategy. N e a r l y 9 8 % o f the e n e r g y u s e d in f e r t i l i z a t i o n o n e i t h e r site was f o r m a t e r i a l s . A l t h o u g h i r r i g a t i o n also r e p r e s e n t e d a m a j o r e n e r g y cost, it o n l y i n v o l v e d a b o u t 4 0 % o f t h e
Production costs for first rotation b iomass plantations
221
TABLE 2 Energy Summary of Operational and Strategy Costs for First Rotation Basher and Morrison Site Plantations Basher site (MJ ha - I)
A. Operational costs 1. Establishment Mower Disc Herbicide Harrow Plant
2.
3.
Maintenance Insecticide-Fungicide Property rental Property tax Management
Cultural amendment Irrigation Fertilization
B. Total strategy costs Control Irrigation Fertilization Fertilization-lrrigation
Morrison site (MJ ha - i)
50.2 129"8 644.6 58"6 2197.7
50"2 129.8 644.6 58"6 2197"7
3080"9"
3080"9
3 951.6 167 737-2 17 769.6 20.9
3 951.6 167 737.2 17 769.6 20.9
189479"3
189479"3
21989.1 51600.8
23 090-0 64 581.6
73 589-9
87 671"6
192 560.2 214 549.3 244 161.0 266 150.1
192 560"2 215 650"2 257 141"8 280 231.8
"The total establishment cost of 15 404.4 MJ ha- l was divided over 5 rotations, with the cost of any one rotation placed at 3 080-9 MJ ha- ~.
energy used in fertilization. A p p r o x i m a t e l y 5% of the irrigation energy was for p u m p i n g water to the trees, with the remaining 95% tied to the energy e m b o d i e d in equipment.
3.2
Per unit production costs
T h e first rotation o v e n d r y biomass yields r e p o r t e d in Table 3 include all w o o d , b a r k a n d b r a n c h w o o d above a 15 cm s t u m p height. T h e s e ranged
1014.62 3 147.43 1513.27 3 646.08 1014-62 3 517.76 1684.47 4187.61
35"34 32"65 42"51 43-04 31"59 33"95 38"20 41.11
Control Irrigation Fertilization Fertilization/ Irrigation
Control Irrigation Fertilization Fertilization/ Irrigation
Basher
Morrison
"Four year ovendry total tree yields.
Hectare financial costs (S ha - I)
Biomas yield" (Mg ha- i (od))
Management strategy
Site
192 560"2 215 650-2 257 141-8 280231.8
192 560-2 214 549"3 244161.0 266 150.1
Hectare energy costs (MJ ha - t)
TABLE 3 Production Results from First Rotation Yields
Biomass energy costs (MJ Mg- ' (oa)) 5 448.8 6571.2 5743.6 6 183.8 6 095.6 6 352.0 6731.5 6816.6
Biomass financial costs (S Mg- ' (od)) 28.71 96-40 35.60 84"71 32.12 103.62 44"10 101"86
.~
-~
.~ .~
I'O tO tO
Production costs for first rotation biomass plantations
223
from 31.6 Mg (od) ha -~ for the control strategy on the less favorable site to 43.0 Mg (od) ha- 1 for fertilization/irrigation on the favorable site. The financial and energy costs for each strategy/site combination were divided by their respective yields to determine production costs on an output or stumpage basis (Table 3). On both sites, the control strategy was least expensive, with fertilization and irrigation resulting in moderate to major increases of stumpage cost, respectively. The least expensive strategy was control on the Basher site ($28.71 Mg -1 (od)) and on the Morrison site ($32.12 Mg-l (od)). The relative cost increase for fertilization was not matched by an equivalent gain in output at either site, resulting in higher output costs ($35.60 Mg- 1 (od)), Basher; $44"10 Mg- ~(od), Morrison). The greater cost on Morrison resulted from the higher fertilization costs and lower output on this nutrient-deficient and drier site. Irrigation on either site caused a substantial increase in output costs. On Basher, costs were $96.40 Mg -1 (od) and on Morrison, S103"62 Mg-i (od). The combination of fertilization and irrigation caused some reductions in the per unit production costs due to the increased ouput; a 12% reduction on Basher and a 2% reduction on Morrison. In both instances the relative increase in fertilizer cost was exceeded by the relative gain in output. Although the margin from fertilization was cost efficient, the composite venture was cost prohibitive. The per unit energy costs for the first rotation resulted in the same approximate cost ranking among strategy/site combinations as shown in the financial summary (Table 3). In all instances the magnitude of difference between the options was far less on an energy basis than on a financial basis. This was due to land's energy cost being a major common expense to all strategy/site combinations (Table 2). Land represented from 66% to 96% of the total costs in the various energy accounts. 3.3
Basic sources of financial costs
The origin of financial costs within each 'line item' of the production process was identified. Origin, in this instance, refers to the basic inputs; equipment, fuel, materials, labor and land. The individual sources were delineated within each stage of the production process and totaled for each strategy/site combination (Table 4). The strategies displayed major differences in their input characteristics but, for any given strategy, were fairly consistent between the two sites. For the control strategy, labor and land were the major financial inputs, each representing over one third of the total production costs. Material costs for herbicides, pesticides and fungicides contributed
224
C. H. Strauss, P. R. Blankenhorn, T. W. Bowersox, S. C. Grado TABLE 4 Production Costs by Basic Input Source
Site
Management strategy
Biomass financial cost (S Mg - I (od))
Origins of cost (%) Equipment
Fuel Materials Labor
Land
Basher
Control Irrigation Fertilization Fertilization/ Irrigation
28.71 96-40 35.60 84.71
7"0 44"2 6.6 38.9
3.4 2.8 2.7 2.5
16.5 5.3 41.1 17.1
37.2 36.1 25.5 31-5
35"9 11"6 24.1 10.0
Morrison
Control Irrigation Fertilization Fertilization/ Irrigation
32.12 103.62 44.10 101.86
7.0 50"3 5.9 42"9
3.4 3.2 2.4 2.8
16.5 4.7 47.1 18"9
37-2 31-4 23.0 26"7
35"9 10.4 21.6 8"7
another 16.5% to total costs. Equipment and fuel costs were only 10.4% of the total expense. Irrigation systems were both capital and labor intensive. Equipment charges were major on either site, representing 44.2% on Basher and 50"3% on Morrison. The higher cost on Morrison was for the more elaborate well system. Additional labor was also used in irrigation, with its cost representing about one third of the total costs on either site. The increased equipment and labor charges for irrigation reduced the relative importance of land to the 10% level. For the fertilization strategy, materials were the major cost on either site, with the higher proportion on Morrison representing the greater volume of fertilizer required on the less favorable site. The cost impact of fertilizer reduced the relative importance of both labor and land. In the combined fertilization/irrigation strategy a different alignment of input costs occurred. Equipment costs dominated the system at the 40% level, with labor following in the 27-31% range and materials dropping to 17-19%. Land's relative impact was reduced to 10% or less. The sensitivity of price changes among the various inputs in terms of their effect upon total production costs is a direct extension of their cost distributions. Any price changes to the more costly inputs would have a greater impact on production costs than would price changes to less costly inputs. For example, an initial 10% change in labor costs within the control/Basher combination would impose a 3"7% change in total
Production costs for first rotation biomass plantations
225
stumpage costs (0.1 × 0"37), whereas an initial 10% change to fuel costs would only result in a 0"3% change in stumpage costs (0.1 ×0.03). Among the particular strategies, labor and land are focal inputs to the control strategy; fertilizer and labor to the fertilization strategy; equipment and labor to irrigation; and equipment, labor and fertilizer in the fertilization/irrigation strategy. In contrast to the proportioned cost effect of input price changes, any change to output would place a more direct impact on stumpage costs. The mathematics of an initial 10% increase in output would cause a 9.1% decrease in stumpage costs, whereas an initial 10% decrease in output would serve to increase product cost by 11.1%. Yield changes, on a relative basis, induce a near equal, but reciprocal, effect on stumpage costs. 4
CONCLUSIONS
From a least cost viewpoint, the optimal strategy for the first rotation was the control strategy on the more favorable, Basher site. Total production costs for this option were $28.71 Mg-l (od). The same strategy on the less favorable, Morrison site was 12% higher, at $32"12 Mg-1 (od). Fertilization on Basher cost 24% more than the control strategy. The addition of irrigation to either control or fertilization caused a severe increase in production costs, with little or no increase in product yield to offset these cost increases. The stumpage costs for irrigation-related strategies were three times more expensive than for the control strategy. Although the Basher/control combination was cheaper than the Basher/fertilization, there remains some question on whether the control strategy's nutrient drain will permit the same output over continued rotations. Potentially, fertilization may be necessary to sustain a given production level. From a financial standpoint, the most critical inputs to the control and fertilization strategies were labor and land, and for the latter strategy, fertilizer itself. Nearly 65% of the labor costs originated from the managerial staff proposed for the operation of the commercial plantation system. Potentially, larger plantation designs and allied economies of scale could reduce these labor costs. Land was either a primary or secondary expense to most strategies. The financial charge for this resource was based oh the net return from corn production. Commercial plantations, as proposed by this study, will require substantial blocks of good quality land. This type of land use will be in direct competition with alternate agricultural pursuits and, as such,
226
c. H. Strauss, P. R. Blankenhorn, T. W. Bowersox, S. C. Grado
must have the financial capability of making a competitive return to the land base. There may be some potential for reducing the cost of fertilizer. Nutrient uptake by the Populus hybrids was well under the actual volumes supplied to these trees during their first rotation. Reductions of nitrogen and phosphorus by 20 to 30% seem feasible and will be further evaluated by this project.
ACKNOWLEDGEMENT Support provided by US Department of Energy Subcontract No. 19X07928 under contract No. W-7405-eng-26 with the Union Carbide Corporation Nuclear Division.
REFERENCES 1. Society of American Foresters Task Force. (1979). Forest biomass as an energy source. Journal of Forestry, 77, 1-8. 2. Blankenhorn, P. R., Bowersox, T. W. & Strauss, C. H. (1985). Net financial and energy analysis for producing Populus hybrid under four management strategies -- first rotation, Final report to the US Department of Energy, The Pennsylvania State University, University Park, Pennsylvania, USA. 3. Klemperer, W. D. (1979). Inflation and present value of timber income after taxes. Journal of Forestry, 77, 94-6. 4. Row, C., Kaiser, F. & Sessions, J. (1981). Discount rates for long-term Forest Service investments. Journal of Forestry, 77, 369-76. 5. Doane's Agriucultural Service Inc. ( 1981 ). Machinery operating costs, 44, No. 9-6 Doane's Agricultural Service, Inc., St Louis, Missouri, USA. 6. Gingrich, N. B. & Shortle, J. S. (1984). Valuing agricultural real estate in Pennsylvania, Agric. Econ. & Rural Soc. 175, The Pennsylvania State University, University Park, Pennsylvania, USA. 7. Pimentel, D. (1980). Handbook of energy utilization in agriculture, CRC Press, Boca Raton, Florida.