Financial analysis of growing Eucalyptus grandis for production of medium size power transmission poles and firewood in Kenya

Abstract

Eucalyptus grandis are grown in most ecological zones and variety of soils in Kenya. Eucalyptus production is likely to increase due to rising demand for transmission poles and firewood. The demand has motivated tree growers to grow E. grandis for income. Costs of seedlings, plantation establishment and maintenance and growth data were collected through field surveys and from five experimental plots of KEFRI at Londiani and 13 plantations in Kericho County owned by Sotik Tea Company. Secondary data on yields were obtained from existing literature on Eucalyptus growing in Kenya. Growth data was used in estimating wood volume per unit area. Financial analysis was undertaken using Net Present Value (NPV), Equal Annual Equivalent (EAE) and Internal Rate of Return (IRR) for a 10-year rotation period for medium power transmission poles and firewood production at discount rates of 8, 12 and 16 percent. It was observed that Eucalyptus growing for firewood generated undiscounted net income of KES 390,306 with NPVs of KES 147,707 ha-1,85,343 ha-1 and 45,546 ha-1yr-1, and EAEs of KES 40,560 ha-1yr-1, 15,105 ha-1yr-1 and 9,419 ha-1yr-1 at discount rates of 8, 12, and 16 percent respectively. The medium power transmission poles production gave undiscounted net revenue of KES 1,940,305 ha-1 with NPVs of KES 860,707ha-1, 581,345 ha-1yr-1 and 402,046 ha-1yr-1, and EAEs of KES 237,555 ha-1yr-1, 102,898 ha-1yr-1 and 83, 143 ha-1yr-1 at discount rates of 8, 12 and 16 percent respectively. The firewood and medium power transmission poles production had a positive IRR of 5.2% and 27.5%, respectively. Growing E. grandis for medium size transmission poles and firewood is profitable in Kenya.