The Time Dimension of Natural Resources Investing
Natural resource investments may
include short-term activities such as annual agronomic crops and
livestock, or long-term items such as horticultural or timber trees.
Because of the long time between initial investment and income being
generated from sale of tree products, investment in trees is especially
sensitive to the time dimension of money. The economic
concepts of opportunity cost, internal rate of return, and net present
value are very helpful in comparing systems with very different
economic life cycles such as annual cropping with agroforestry (growing
crops or pasture between trees) or forestry. In general, systems, such
as agroforestry, which mix short-term income components with
longer-term wealth accumulation (from trees) are more attractive than
either trees or crops alone because they have more even cash flow,
total higher profitability, and lower risk.