Comment: The ramifications of establishing forestry blocks takes some research, writes Jim Childerstone.
The Productivity Commission suggests farmers could allocate 20 per cent of their property to plant trees
This may work, dependent on income comparisons with lower production grassland areas.
That is commercial plantations verse income from grazing land, excluding carbon credits.
Facts and figures from recent harvests indicate farm woodlots can give better returns from South Island class 1, 2 and 6 lands.
Net returns vary from $40,000 to $50,000 per hectare.
This can be as high as $1550.00 per hectare per year, dependent on access and distance from port and mills.
But the ramifications of establishing forestry blocks takes some research.
According to extensive data produced by Beef + Lamb NZ, as well as input from Lincoln University, each land classification includes considerable diversity in income.
Class 1 is defined as steep, marginal high country grazing properties, carrying under 5 stock units per hectare.
These properties run into 1000s of hectares. Many of these areas would not be suitable for commercial woodlots.
Those runholds that have gone into Merino wool breeding could boast far better income than traditional sheep and beef production.
Beef + Lamb figures indicates an average of just $37.00/ha/year.
Class 2 lands included lighter hill country grasslands, such as foothill areas running into steeper back country grazing.
However Beef + Lamb figures indicated a wide range in income on what were obviously extensive acreages.
Stocking rates listed on a Lincoln University graph indicated between five and 10 SUs per ha.
Income varied from $400 to $600 /ha/a.
Beef + Lamb lists an average of $492.00 net EBITR.
Class 6 lands includes rolling hill and flats, usually fattening units, running 10+ SUs/ha, including some cropping.
Again, figures indicate huge variations of income, ranging from $636.00 to $1488.00 /ha/a, listing an average of $973.00.
Size of properties would be a factor as to what farmers would have to consider before establishing a woodlot.
Recent harvests in eastern Otago and Southland areas last year while log prices were up, indicates net returns.
A farm forestry block netted $45,000/ha of 29 year old trees.
This woodlot was fully tended, pruned and thinned, giving a good return on top pruned grades on more than 10 ha.
It was within 60k of port and local mills.
The woodlot required minimal infrastructure suitable for a ground based logging operation on an easy, though hilly, site.
It also helped that the contractor had logged nearby woodlots with little time wasted, moving plant and setting up on a new site.
When calculated in annual returns the figure was $1551.72 /ha/a.
Other blocks within similar proximity to port and mill, inland and along coastal Otago, gave similar returns.
Even untended blocks (some partly pruned and thinned) have yielded between $30,000 and $35,000 /ha , still more than $1000 /ha/a.
Planting, pruning and thinning costs over the period would not have cost much more than $3000 p/ha.
However, these areas will be out of production during the growing cycle, except for carbon credits.
There is no way creditors and lending institutions will hang fire for nearly 30 years before bills are paid.
Property owners need assurance that there is adequate area left for continuous production.
Also, there can be an excessive IRD hit after harvest, although this can be mitigated through spreading the income over a few years, according to an Oamaru accountant.
It’s advisable to do this through an accountant familiar with forestry.
Back nearly 20 years ago tending costs were negligible, only $2000 p/ha from planting to harvest, according to an East Otago grower.
And many foresters had registered for carbon credits, which basically covered this outlay, particularly now with credits up to $25/t Co2.
However, those who consider establishing woodlots could be faced with over $5000 /ha to cover a full regime tending costs (Steve Johnson Forestry silviculture figures).
Currently forest establishment subsidies are available through Government provisional development grants.
To achieve maximum returns farmers should be warned to seek advice on where trees need to be established.
There had been many grumbles in the past where farmers had received what they perceived as minimum returns.
Small woodlots (under 5ha) did not justify professional harvest contractors to move expensive plant, unless similar aged forests were in close proximity.
When 1990 subsidies were available, property owners tended to establish woodlots in some of the most isolated parts of their properties – up steep gullies at the back and beyond of regular access on unreachable sites, requiring costly infrastructure.
Also cartage distance from where logs could be sold.
There are site specific areas suitable for tree growing.
Radiata pine will grow better, quicker on some sites than on others, depended on rainfall, soils and contour.
Other species such as Attenuata hybrid, Douglas-fir and Corsican pine may be more suitable on some sites.
Southland forest owners tend to get better returns due to higher precipitation, better soils and proximity to a full-on processor such as Niagara sawmill, which processes every inch of wood.
Contractor Log Marketing records some woodlot returns exceeding $50,000/ha.
And, to just end on a positive note, log prices have tended to move upwards over decades, in spite of dips and highs.
There had some downward move in the 2018 last quarter, but prices seem to have stabilised so far this year.
Potential growers just need to list the diverse products processed from timber.