New in­vest­ment mod­els needed for plan­ta­tion es­tab­lish­ment

Australian Forests and Timber - - IN THE NEWS -

EX­IST­ING PLAN­TA­TION ar­eas are shrink­ing and new in­vest­ment has stalled. Rod Keenan (a pro­fes­sor in the School of Ecosys­tem and For­est Sciences at the Univer­sity of Mel­bourne) ex­am­ines the eco­nomic, en­vi­ron­men­tal and so­cial driv­ers be­hind the need for bet­ter plan­ta­tion pol­icy in Aus­tralia and the in­no­va­tive in­vest­ment mod­els re­quired. Source: Pol­i­cy­fo­

For­est plan­ta­tions have been part of the Aus­tralian land­scape since the early 1900s. Aus­tralia’s two mil­lion hectares of soft­wood and hard­wood plan­ta­tions pro­vide more than 80% of the coun­try’s wood for for­est prod­ucts in­dus­tries. Wood de­mand is con­tin­u­ing to grow with our in­creas­ing pop­u­la­tion and will po­ten­tially rise fur­ther in a car­bon-con­strained econ­omy. Some ar­gue that plan­ta­tion tim­ber should com­pletely re­place native for­est har­vest­ing. But plan­ta­tion in­vest­ment has stalled and there have been few new plant­ings in Aus­tralia since 2008, rais­ing the ques­tion of whether plan­ta­tions in Aus­tralia can meet a grow­ing lo­cal and global de­mand for wood? And if so, how?

In 2002, I chaired a na­tional con­fer­ence on plan­ta­tions. At that time, plan­ta­tion pol­icy was driven by the 2020 Vi­sion to treble the area of plan­ta­tions from one mil­lion to three mil­lion hectares. We felt that most tech­ni­cal is­sues for plan­ta­tions had been ad­dressed and that the chal­lenges had moved on to other di­men­sions, in­clud­ing im­prov­ing bio­di­ver­sity and en­vi­ron­men­tal out­comes and ad­dress­ing com­mu­nity needs and con­cerns.

It’s timely there­fore, to take stock of how we have fared.

Plan­ta­tions ex­panded rapidly from the 1950s on­wards. One mil­lion hectares of pine plan­ta­tions were es­tab­lished, largely on con­verted pub­lic native forests, by state for­est agen­cies with fi­nan­cial sup­port from the Fed­eral Gov­ern­ment. In the 1990s in Vic­to­ria, and later in Queens­land, the pub­lic pine es­tates were sold off to in­ter­na­tional in­vest­ment firms and pen­sion funds.

In 2002 we were at the peak of a wave of pri­vate in­vest­ment in hard­wood plan­ta­tions on agri­cul­tural land that be­gan in the early 1990s, pri­mar­ily through com­pa­nies op­er­at­ing man­aged in­vest­ment schemes (MIS). The global fi­nan­cial crisis that be­gan in 2007 saw the demise of th­ese MIS com­pa­nies, which be­came highly de­pen­dent on cheap debt and the tax ad­van­tages of this in­vest­ment.

In­ter­na­tional in­vestors ac­quired many of th­ese MIS es­tates and most of Aus­tralia’s plan­ta­tions are there­fore now largely un­der pri­vate own­er­ship by larger in­ter­na­tional and na­tional in­vestors. With strong lo­cal hous­ing mar­kets and high in­ter­na­tional de­mand, plan­ta­tions in the right lo­ca­tion and grow­ing con­di­tions are gen­er­ally mak­ing good re­turns for their own­ers.

How­ever, in­vest­ment in new plan­ta­tions is at a stand­still and there has been lit­tle new plant­ing since the demise of the MIS com­pa­nies. Many of th­ese plan­ta­tions were es­tab­lished on lower rain­fall sites or on poor soils and the pro­duc­tiv­ity does not jus­tify re-plant­ing. Oth­ers are too far from mills or pro­cess­ing plants. Tens of thou­sands of hectares of hard­wood plan­ta­tions are be­ing har­vested and con­verted back to farm­land. This has im­pli­ca­tions for our na­tional car­bon bud­get and for fu­ture wood sup­ply.

While we pro­duce most of our sawn tim­ber for hous­ing lo­cally, Aus­tralia has a sig­nif­i­cant trade deficit in terms of the value of wood prod­ucts. We ex­port a large amount of un­pro­cessed wood as chips and im­port pro­cessed pa­per and board prod­ucts. We also ex­port an in­creas­ing quan­tity of raw soft­wood logs. Most of our pinebased pro­ces­sors are op­er­at­ing older mills and would like to re-in­vest and ex­pand. There is also the op­por­tu­nity for more re­gional in­vest­ment in pulp and pa­per plants like the Visy mill in Tu­mut, New South Wales.

If we want to increase plan­ta­tion tim­ber pro­duc­tion, what are the op­tions? We can ei­ther increase the plan­ta­tion area, or increase the growth rate from the ex­ist­ing es­tate, or both.

Speak­ing at a re­cent in­dus­try con­fer­ence, Dr David Brand, CEO of Aus­tralia’s large hard­wood plan­ta­tion com­pany, New­forests, sug­gested that with the high cap­i­tal cost of land and the time re­quired to pro­duce a sell­able prod­uct (at least 10 years for pulp­wood and 25 years for a pine sawlog), in­vest­ment in new plan­ta­tions is of lim­ited in­ter­est to most in­vestors. In­creased de­mand for plan­ta­tion land would fur­ther push up the cap­i­tal cost through com­pe­ti­tion. He ar­gued that fo­cus­ing on get­ting max­i­mum pro­duc­tion out of the ex­ist­ing es­tate is the best op­tion.

Oth­ers, like Tony Price from wood­chip ex­porters Mid­way Ltd, sug­gest that with the right in­vest­ment ar­range­ments, farm­ers may be will­ing to al­lo­cate a por­tion of their land to tree grow­ing. From 10 to 20% of most farms could be planted with trees with lit­tle im­pact on farm out­put. In fact, trees may ac­tu­ally en­hance crop or live­stock pro­duc­tion, while also pro­vid­ing wa­ter qual­ity or bio­di­ver­sity ben­e­fits.

Who might put up the cap­i­tal and what kinds of in­vest­ment or part­ner­ship mod­els might be at­trac­tive to farm­ers? Fi­nan­cial in­sti­tu­tions with longer time hori­zons, such as su­per­an­nu­a­tion funds or the Fu­ture Fund, may be in­ter­ested but farm­ers would also need the right in­cen­tives through an­nu­ities, lease pay­ments or a share of the tim­ber re­turns to al­lo­cated land and par­tic­i­pa­tion at suf­fi­cient scale.

A pay­ment for the car­bon se­questered in for­est plan­ta­tions would increase the in­vest­ment at­trac­tive­ness. How­ever, cur­rent poli­cies do not al­low for Emis­sions Re­duc­tion Fund pay­ments in more pro­duc­tive higher rain­fall ar­eas that are close to ex­ist­ing pro­cess­ing plants. This is a dis­tinct dif­fer­ence to the New Zealand Emis­sions Trad­ing Scheme, which al­lows car­bon cred­its for all tree grow­ers. It has been sug­gested that be­tween 14.6 and 21.3 mil­lion hectares will need to be con­verted to woody tree cover if Aus­tralia is to meet ‘deep de­car­bon­i­sa­tion’ and long-term cli­mate pol­icy ob­jec­tives.

Mod­els that pro­vide in­te­grated in­vest­ment in tim­ber pro­duc­tion, car­bon and bio­di­ver­sity con­ser­va­tion are be­ing pro­moted glob­ally through ini­tia­tives such as the Global Part­ner­ship for For­est Land­scape Restora­tion and the Global Land­scapes Fo­rum.

If plan­ta­tions in Aus­tralia are to make a sub­stan­tial con­tri­bu­tion to meet­ing fu­ture de­mand for wood prod­ucts both glob­ally and lo­cally, new in­vest­ment mod­els and ap­proaches to plan­ta­tion es­tab­lish­ment and in­vest­ment are needed. Th­ese could po­ten­tially in­volve part­ner­ships with lo­cal farm­ing fam­i­lies through joint ven­tures, land leases and other ar­range­ments. There is also the op­por­tu­nity to ex­plore dif­fer­ent species, pro­cess­ing ap­proaches, prod­ucts and mar­kets for plan­ta­tion hard­woods.

Plan­ta­tions in Aus­tralia have un­der­gone rapid change in own­er­ship, mar­kets and plant­ing rates in the last 15 years. We said in 2002 that plan­ta­tion pol­icy needs to be dy­namic and in­sti­tu­tions need to be in reg­u­lar dia­logue with stake­hold­ers to re­main ef­fec­tive. This has not hap­pened. Pol­icy and in­sti­tu­tional ar­range­ments need to take ac­count of the chang­ing in­vest­ment en­vi­ron­ment to en­sure that plan­ta­tions de­liver eco­nomic, en­vi­ron­men­tal and so­cial ben­e­fits for the en­tire Aus­tralian com­mu­nity.

■ Rod Keenan

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