Linear programming used for valuation and planning of New Zealand plantation forests

With the proposed incorporation of the state plantation forests, negotiations began between the New Zealand Treasury Department (as seller) and the New Zealand Forestry Corporation Limited (as buyer) over the value of the forests. Both based valuation on discounting expected net cash flows. The authors used a linear programming forest estate modeling system to model the plantation forests and to estimate future cash flows from them. The results were used to develop forest valuation methodology and in negotiations between the two parties. They also used the system to help managers develop management strategies for the 14 corporation districts, modeling forest management, harvesting, and log allocation to processing plants for the next 40 to 70 years. Before the incorporation process was concluded, the government decided to sell the state plantations to the private sector. Subsequently, the system was used to help set reserve prices and provide indicative valuations. Prospective buyers have also used the system to help them value the forests and develop bidding strategies.