An economic evaluation of a full tree chip harvesting operation in southwestern New Brunswick

Abstract

Recent developments within the forest industry have led to companies gaining an increased interest in chipping hardwood trees for pulp fibre. Independent, privately owned chip harvesting contractors have begun to appear on the market scene to cash in on this new found interest. However, not all operations will prove to be economically viable. The determining factors in this profitability are the type of hardwood chips produced (whether it be for fuel or fibre) and the current market price being paid for said chips. An economic evaluation of a small scale, private full tree chipping operation, currently operating in southwestern New Brunswick, was instituted. The economic viability is determined by using a discounted cash flow analysis to arrive at a rate of return on investment for such an operation. Such an evaluation proved that privately owned operations are profitable, (25.96% return on investment), but only when market prices are high, about $26/green tonne, and the type of chips produced are for pulp fibre. Chips produced for fuel purposes do not possess a high enough market value to return a profit for the producer. Return on investment may be increased through the lowering of operating expenses and higher productivity rates. The reduction of chip delivery costs alone result in a return on investment being increased to 37.92%, a rise of 11.96%. Key Words: wood chip harvesting, fibre chips, fuel chips, full tree harvesting, discounted cash flow analysis, rate of return on i nvestment