Economic viability of cerrado vegetation management under conditions of risk

Abstract

Cerrado vegetation is Brazil’s second largest biome, comprising about 388 municipalities in Minas Gerais state alone and serving as an important source of natural resources. A large share of the wood charcoal produced in Minas Gerais is sourced from Cerrado vegetation. The objective of this work is to assess the economic viability of Cerrado vegetation management for wood charcoal production, under conditions of risk. The study site is a fragment of Cerrado subjected to five levels of intervention as to basal area removal. For risk analysis, the Monte Carlo method was applied, using charcoal price, interest rate and land value as input variables, and using Net Present Value as output variable over an infinite planning horizon. It was concluded that introducing risk in the economic analysis of the various Cerrado management regimes helped provide additional information to that obtained by deterministic analysis, improving understanding and ensuring safety in decision-making about the economic viability of such regimes. For all treatments, the probability of VPL being negative increases with increasing cutting cycle lengths. For all treatments, the optimal cutting cycle is ten years. Treatments where a larger volume of wood was removed proved less prone to risks of economic inviability since they secure more revenue than treatments where less wood was removed.