Tuesday, March 19, 2024

Forestry – an under-recognised star

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Forestry has been something of a standout performer in recent years, but not that you would know it from following the general or rural media. Amid the gloom of dairy and the disgruntlement of meat producers it has been a nice earner, though most media comment has been on trucking problems.
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It remains our third biggest export earner behind dairy and meat, but generates more than twice the export earnings per-hectare of the latter.

Someone really ought to tell this country’s politicians, business commentators and academics about it – none seem to be aware of forestry.

All log grades are selling well at the moment, especially pruned logs that are at a 15- year high.

And I can vouch for the good returns from forestry. I have just harvested a five-hectare, 27-year-old radiata pine stand and netted $180,000.

Add in the $3000-4000/ha netted from two production thinnings and I am looking at close to $40,000/ha over the 27 years. A nice little earner as they say.

This was a good-quality stand, with 40% large-diameter pruned butt logs and, after multiple production thinnings good-quality structural logs above.

The average return over all grades was a very healthy $90/tonne. It was also a cheap logging operation on easy sand dunes and despite a very wet spell during harvest, expenditure on the access track was a restrained $3500.

Everything was in its favour except volume, which was relatively low at just under 500-cubic metres a hectare.

Inevitably I, and others I’m guessing, will be asking how this would compare with returns if left in the second-rate pasture it carried before. In two words: it doesn’t – forestry wins hands-down.

I can vouch for the good returns from forestry. I have just harvested a five-hectare, 27-year-old radiata pine stand and netted $180,000.

So let’s do the comparison. I can’t give you my costs for establishing and tending this particular stand because I did all the work myself and the only figure in the books is $500-600 for radiata pine seedlings (in 1989 dollars) so I’ll use more general industry figures for a fully pruned stand:

  • Establishment including seedlings, planting and release spraying is about $1100/ha.
  • Sometimes there might be a need for blanket spraying at about $150-$200/ha.
  • Three pruning lifts at roughly $600/ha, totalling about $1800/ha.
  • Thinning – I production-thin most of my stands, including this one. This is not feasible on most hill country and there are two thinnings to waste at about $500/ha, totalling about $1000. This adds up to about $4000/ha spent over the first 10 years, all tax deductible. You need to adjust for inflation on forestry timescales, but compound this $4000 figure forward at 4% starting with five-year-old trees and it’s worth about $9500 in today’s dollar terms at 27 years. But you can do it more cheaply – my costs were more than covered by production thinnings at 15-20 years. These days the sale of carbon could also cover establishment costs.
  • Harvesting costs vary markedly. Logging can range from the low-$20 mark (mine was $24/tonne) to more than $40 in the most difficult hauler operations while roading might vary from my $2/tonne for extra gravel to megabucks in difficult hill country. Road haulage costs to mill or wharf are also site-dependant – mine ranged between $15-$37/tonne. Another variable is standing volume. Mine was quite low at less than 500 tonnes/ha but this was balanced by good quality. 
You can play with these figures as you like, every case is different, but what about potential livestock returns? I certainly can’t claim to be the best sheep and beef farmer and others might do rather better.
But I think this class of land – relatively easy, but summer dry and exposed sand dunes – could carry 6-7su/ha maximum.
In the past four average-to-moderately-good years my gross margins for sheep and beef have been about $50/year/su – gross returns less the big-cost items of fertiliser, animal health, hay-silage and pasture renovation-forage crops but excluding the cost of the animals.

Thus I would estimate the potential return from livestock over the 27 years would have been no more than $9000/ha in present-day dollars.

So it’s a generous $9000 income from livestock versus about $30,000 for forestry, after allowing for the initial investment. Need I say more?

I will end with a question though – why are livestock farmers prepared to pay two to three times more for land than foresters when they are getting much lower returns? This is one of New Zealand’s eternal mysteries.

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