Application of Value at Risk Method to Assess Timber Selling Price Risk

As organisations and economic markets continually evolve, it becomes essential to improve risk management skills on an ongoing basis. In this respect, it is particularly important to make practical use of all the tools available to identify and quantify risks. As with most entities, the most important tool for forest management is the timber selling price risk (TSPR). Economic practice shows that global markets experience very high volatility in this respect. The awareness of some popular techniques to understand the nature of individual risks by properly identifying their impact on the functioning of the organisation is currently increasing in importance. One of these techniques is the Value at Risk (VaR) method, which was used in this study to measure TSPR in 38 timber-selling economic entities. The aim of this article is to examine the concept of TSPR estimation using the VaR method adopted in the methodology by implementing the main VaR assumptions in the Polish forest economy in order to improve the methods of quantification of market risk in forestry, taking into account the impact of the sales volume and trade pattern of wood species on TSPR. The article demonstrates that the application of the VaR method can be an auxiliary tool in the TSPR management process. It is noted that this method can be a basic tool to ascertain the degree of exposure to risk and that the structure of commercial classes of timber is important. Using VaR, the relationship between the level of generated revenue and TSPR as well as between the assortment structure and TSPR was identified and discussed. It is also shown that the class of timber had an impact on TSPR.