Economic valuation of forest

1. ECONOMIC VALUATION OF FORESTS
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By
Vinod M Mhaiske
Assistant Professor, College of Forestry, Dr. BSKKV, Dapoli

2. Importance of Forests
Forests
Economic
Benefits
Social
Benefits
Ecological
Benefits
Wood
Products
Non-Timber
Products
Domestic
Uses
Recreation
Aesthetics
& Spiritual
Watershed
and soil
improvement
Habitats &
Biodiversity
Climate
Mitigation
Source: Tim White, 2011

3. Direct and Indirect Benefits from the Forests
• Direct Benefits
- Timber
- Non Wood Forest Products
(Medicinal plants, fodder,
fuel wood, gum, resin, fruits,
flowers, roots, bark, leaves,
fiber etc.)
• Indirect Benefits
- Soil and water conservation, pollution control,
recreation, education, research, increase rainfall,
temperature control, ground water recharging,
flood control, disease regulation, nutrient cycling,
water cycling and habitat for wildlife etc.

4. Tangible and Intangible benefits
• Tangible Benefits
- Which can be measured directly
in a monetary term by known methods
(weight, number, volume, load)
(Direct benefits)
• Intangible Benefits
- Which can not be measured
directly (Indirect benefits)
-Economic value is not traded in market
- Measured benefits based on
assumption by known method

5. Forest Ecosystem Services
MEA, 2005

6. Total Economic Value
• The Total Economic Value (TEV) is the sum of use
values and non-use values.
• TEV = Use Value + Non Use Value
= (DUV+IUV+OV) + (EV)
DUV = Direct Use Values
IUV = Indirect Use Values
OV = Option Value
EV = Existence Value
(Pagiola et al., 2004)

7. Total Economic Value
• Use Value
• Direct Use Value- Current use of the resources and services- Timber and
non timber forest product (Consumptive); recreation. education, research
(Non consumptive).
• Indirect Use Value- Related to ecological functions that the forests
provide, e. g. ground water recharging, flood control, soil & water
conservation, regulation of stream flow, climate mitigation, soil
improvement.
• Option Value - Retaining the option of using a forest resources in the
future by protecting or preserving it today e. g. water purification, carbon
sequestration, biodiversity, soil fertility, temperature control etc.
• Non use Value
• Existence value -Originates when people are willing to pay to conserve a
resource for the use of future generations e. g. conservation of
endangered species, rare species, heritage site etc.

8. Economic Valuation
• Valuation can simply be defined as an attempt to put
monetary values to environmental goods and
services or natural resources.
• Economic valuation is concerned with all values or
services or benefits measured in monetary term.

9. Need for Forest Valuation
• To determine the total economic value of forests
(Tangible and intangible benefits).
• Estimate the relative importance of various
ecosystems.
• Transfer of forest land for developmental activities.
• Provide a basis for policy
formulation.

10. Methods of Economic Valuation
Direct Market Valuation Approach
– Many goods and services are traded in local markets,
including wood products (timber and fuel), non-wood
forest products.
– Quantity of forest produce collected by the local people
is recorded
– Prices are derived within the market place through
interaction between consumers and producers.
– Time value for collection is
considered
– Useful method for assessing
tangible benefits

11. Contingent Valuation Method
• Contingent valuation method is the most popular techniques to
evaluate intangible benefits of forests (Tom, 2009).
• This is the survey based method used to estimate the economic
value in monetary terms.
• CVM is based on directly asking the people how much they are
willing to pay for the benefit or willing to accept for
compensation.
• Socio economic characteristics of the
concerned respondents is necessary.
• Survey can be conducted on telephone,
mail, in person.

12. Methods used for applying CVM
• Contingent Referendum Method: (Yes/No)
– No freedom to express actual value for WTP
• Open ended question method
-- Respondent has the full freedom to state any value for intangible benefits.
• Bidding Game method
- The maximum willingness to pay is determined by the bidding process.
- Bidding start from higher value to lower (till says Yes)
- From lower value to higher WTP (Till says No)
• Payment card method
– A set of monetary values will be given to the respondent. The
respondent has to choose one of the value according to his choice.

13. Travel Cost Method
• Clawson (1959) developed travel cost method.
• This survey based method commonly used to estimate
environmental benefits of recreational sites.
• Total Cost- Travel cost, travel time, expn. on food,
accommodation charges, entry fee, time value is considered.
• Basic socio economic variables of
respondents is necessary- income,
group size, education, age,
occupation, distance travelled etc.
• This method give the accurate
monetary value for benefits.

14. Hedonic Pricing
• Quality of ecosystem services reflected in local property
prices.
• A particular buyer may be Willing to pay more amount for
some area that he may not be willing to pay for other area.
• Examples: Prices of land and houses found more in hill
stations than other places.
• People always pay more for better
environmental quality, aesthetic
and scenic views of sites.

15. Production Function Method
• The production function method is used to estimate the
economic value of ecosystem products or services that
contribute to the production of commercially marketed
goods.
• The method traces impact of change in ecosystem services
on produced goods.
• Soil fertility improves crop yield, rainforests increase rainfall
and crop output, mangrove forests enhance fish breeding,
better pollination etc.
• Compare the reduced cost of
input and increased crop yield
with previous conditions

16. Case Study – NTPC Dadri
• Conducted study to calculate intangible benefits from
plantations raised at NTPC, Dadri using CVM based on WTP.
• Identified five intangible benefits for valuation- Pollution control,
improvement in underground water level, soil conservation and
remediation, increase in wildlife and eco-tourism.
• Monthly average WTP recorded Rs. 606.90/ household
– Improvement in underground water level- Rs. 129.4
– soil conservation and remediation- Rs. 134.5
– Pollution control - Rs. 118.5
– Increase in wildlife- Rs. 110.2
– Eco-tourism- Rs. 114.3

17. Valuation studies from India
Bisht, 2016 The total net present value of the notified area of the Mizoram
state forest was estimated Rs. 72488.66 crore.
Haripriya (1991) Recorded economic value for carbon storage of Indian forest was
Rs. 20125 per ha and Rs. 1292 billion for total forest.
Kadekodi, et al.,
(1997)
Estimated Rs. 1.2 Lakhs /ha economic value of carbon for all
India forest .
Chaturvedi (1992) worked on water supply intangible benefits in Almora forest and
recorded annual rental value Rs. 4745 /ha.
Chopra &
Kadekodi (1997)
Singh SP (2012)
Economic value of soil conservation of Yamuna wetland found
Rs. 2.0 Lakhs /house hold /year. Use value of ecological function
was Rs. 176/ha in HP and Rs. 3509/ha in Haryana.
TEV for Uttarkhand forest recorded 104 billion rupees /year.

18. Valuation studies from India
IIFM, Bhopal
(2015)
TEV Recorded Rs. 1.14 lakhs/ha/year for Corbett tiger reserve
- Rs. 0.80 lakhs/ha/year for Kanha tiger reserve
- Rs. 0.95 lakhs/ha/year for Kazhiranga tiger reserve
- Rs. 0.50 lakhs/ha/year for Sundarban tiger reserve
- Rs. 1.91 lakhs/ha/year for Periyar tiger reserve
- Rs. 0.56 lakhs/ha/year for Ranthambore tiger reserve
Madhu
Verma (2015)
Net present value of Indian forest recorded between Rs. 9.87 lakh to
Rs. 55.55 lakhs per hectare
Anonymous
(2015)
Total economic value of Indian forest ecosystem has been estimated
at 6.96 Lakh Crorers annually, which is approximately 6.86 % of GDP

19. Valuation studies from India
Verma, et al.,
(2013)
Present net value for Mizoram Forest was Rs. 38.85 lakhs, Rs. 23.62
Lakhs and Rs. 19.03 lakhs per ha for very dense, moderately dense and
open forest area, respectively.
Joshi and
Negi (2011)
Economic valuation of provisioning services of Western Himalayan
forest region for oak forest was Rs. 5676/ person/ year and pine forest
was Rs. 4640/person/year.
Bisht, 2016 Economic value of Mizoram forest for climate regulation was Rs. 6.49
caror, water regulation Rs. 17.67 Lakhs, water supply Rs.22.22 Lakhs,
erosion control Rs.7.61 Caror, soil formation Rs. 28.78 Lakhs and
disturbances prevention Rs. 14.59 per annum.
Chaudhari
(2009)
Economic value of tropical forest in Arunachal Pradesh. was US $
41.6 billion/year for provisioning, regulating & cultural ecosystem
services.
Verma (2000) Total economic value of Himachal Pradesh forest estimated Rs.
106664 Crores.
Kumar (2005) Economic value of soil conservation ecosystem services was Rs.
21583 per ha in Doon valley area of Uttranchal State.

20. “Not all things that can be counted counts, and not all
the things that counts can be counted”
Albert Einstein