Alternative Price Adjustment Models for long-term log contracts – impacts on Small Scale Forest Farmers

Abstract

Small Scale Forest Farmers have the potential to contribute considerably to regional economic activity in terms of forest products grown for the commercial processing industry. Financial returns, economic viability and ecological sustainability are dependent on a number of parameters including yield, species, growth rate, log prices, supply contracts and certification of timber quality. Log prices determination and adjustment through the term of the contract affect financial returns to industrial growers and small-scale forest farmers alike. Maintaining the "real" value of the contract price throughout the term of the contract is imperative.

This paper addresses the issue of log price setting and adjustment for long term contracts of logs supplied from small scale and commercial softwood plantations. Specifically, it deals with the reasons and rationale for adjusting the contract price over time and explores various adjustment models applied in a number of countries. Parallels are drawn and the implications of different adjustment models are assessed as they affect commercial softwood forest growers and small-scale farm foresters.