An extensive forest fire dataset covering plantations in a fire-prone region of South Africa across two

decades was used to examine the impact of forest fires on estate value. Catastrophic forest fires are
rare events and so conventional statistical methods are not viable for describing their occurrence.
We applied methods from an alternative branch of statistics that has been specially developed for
modelling rare and extreme events. We used a Monte Carlo style approach for integrating the model
outputs into the estate’s woodflows. During each simulation stands were selected at random to be
burned to replicate the expected fire regime. Once a stand was burned its yield projections were
adjusted, resulting in changes to the estate’s woodflow and subsequently forest value. The
woodflows incorporating the effect of the simulated fire regime were used in a discounted cash flow
(DCF) model using costs and values provided by the forest manager. As no single fire regime could be
predicted directly, 100 simulations of the estate value were used to study the impact of fire regime
on estate value. The mean estate value reduction caused by the fire regime based on the historical
fire database was 5.3%. The maximum simulated loss of value was 11.1% and the minimum was
2.4%. The simulation year within which the catastrophic burn occurred impacted the percentage of
value lost. Figure 1: Firefighter attempting to control a fire 10 When a catastrophic fire event
occurred early in the simulation value loss was greatest, whereas fire events in the distant future
caused relatively little impact on value. Several scenarios were formulated to explore the impact of
modifying the fire regime on estate value. The scenarios illustrated the effect of either reducing fire
frequency through investment in fire preparation or reducing fire magnitude through investment in
firefighting (Figure 1). This exercise displayed how the modelling framework developed can be used
to examine different management options once a base case was established using the observed
historical fire regime.