Valuation of Timber Plantation in Kenya: - a Case Study of Sitoi Tea Estate, Elburgon and Kaptumo.

Abstract

Highlighting the overall importance of timber plantations linked to job creation, contribution to gross domestic product and environmental sustainability, necessitates a study on wholistic and accurate valuation methods. Establishing the value of timber plantation is fundamental because without accurate valuation, motivation on investment in tree and forest management will be low. Guided by standards set by International Accounting standards (IAS 41) that require valuation of biological assets to be based on fair value valuation method, namely income, cost and sale comparable approaches instead of historical cost, timber plantation valuation in Kenya have only focused on tangible plantation outputs to near exclusion of other non-market services/benefits. Western Rainforest region was selected owing to its extensive bio-diversity, within the region, Elburgon, Kaptumo and Sitoi tea estate were purposively sampled as case study areas, due to their ease of access to the wanted data and multiplicity of benefits derived from their respective timber plantation. Data was collected through interviews and questionnaires in both random and purposive sampling design to Valuers, farmers and plantations visitors. Data collected were aimed at developing a case that was judged to be satisfactory in meeting the study objectives of identifying timber plantations valuation methods in Kenya, evaluating their accuracy, establishing constraints to timber plantation valuation and making recommendation on the appropriate mechanisms to enhance timber plantation valuation. The study revealed two categories of timber plantation valuation methods in Kenya, market and non-market methods. Market methods are cost, income and sale comparable and are used in valuing physical plantation products while non-market methods are for intangible services and are premised on willingness to pay or accept. The market methods were found to be accurate since their resulting values were within the 1%-15% acceptable accuracy but they were unreliable because they didn’t capture non-timber benefits. Further, the study revealed constraints to timber plantation valuation to include quantification of indirect benefits, lack of data, determination of interest rate and heterogeneity of timber assets. The study recommends the use of a hybrid approach that is, total economic method also obtainable by adding 30.93% (found to be the non-timber benefit) to the values returned by market approaches. It further recommends the use of adjusted discount rate which reflects the added risk of timber plantation and integration of technologies such as database management system (DBMS). In addition, it stresses the need for due diligence, networking and civic education through continuous professional development programmes for Valuers on forest resources.