Saturday, March 30, 2024

PULPIT: Farmers miss forestry wealth

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On average Jack and Jill farmers work extremely hard to create wealth for themselves and others.  They face adversity of all types, getting up each morning determined that growing more grass and converting it into great products will one day make them and their children well off while dealing with mounting environmental and compliance costs that would stop a charging bull. 
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But who in farming is asking is this the only way to wealth and wellbeing? Are we farmers really informed of the opportunities for land use change? 

Among the many controversial opinions raised about land use and the environment there has recently developed an anti-pine and anti-commercial forestry sentiment. 

Public opinion now suggests forestry investment is not in the best interests of New Zealand. 

This view seems to have come about from a lack of factual information and perhaps could be better informed. I want to address this view with some easy-to-find facts and figures that might let us answer the questions above with a little more openness and clarity.

The excellent Deloitte’s summary of the top 200 NZ companies’ financial records provides data for an interesting comparison of how relevant large commercial enterprises are performing. The table is taken from the summary and gives the financial performance of all 12 pastoral companies and 11 forestry companies listed in the top 200.

They are ranked by return on assets and while most of the pastoral companies are processors and most of the forestry companies are growers there is a stark contrast in the investment performance between them, with A2 Milk being the exception. 

This becomes more obvious when graphed and if we assume that from profitable companies we get reinvestment and from reinvestment we get more jobs, where should we be putting our capital? 

While some will say wood has experienced high prices in the last financial year so have milk and meat.

There have been many opinions voiced that pastoral land is too good for forestry and we will all suffer economically if we change too much land into forestry. 

Most of the plantation forests have been planted on marginal land, a mixture of land use classes six, seven and eight, often problem areas because of erosion, weeds or nutrient deficiencies. 

The Beef + Lamb sheep and beef farm survey 2018-19 gives farm profit before tax for North Island hill country of $325-$450/ha a year for generally similar land developed into pasture 50 years ago or more.

B+LNZ reports average returns on farm capital for these properties of 1.6-3.5%. Deloitte’s indicates forestry returns for this class of land of $1000-$2000/ha a year and average returns on capital of 5% to 9%.

Dairy farms are expected to return net profits of about $1000-$3500/ha a year. 

Established and well managed forests on moderately flat land like Kaingaroa in the central North Island are giving the same high return with little or no environmental impact. Despite the sentiment that flat pastoral land is too good for forestry, when you compare like with like, ie a mature operating forest with a mature dairy farm on similar land there is little difference in investment return. 

If we look at export earnings as an indication of national benefit, forestry again performs very well.

Forests are often misunderstood by farmers. Active farmers like to be busy accomplishing things every day and forests do not need daily care and hence seem non-intensive and below optimum returns.

And the 25-30-year delay till timber harvest is seen as a major hurdle and financially unworkable if there is a mortgage to pay. 

However, new forests will be allowed to use the averaging rules of the Emissions Trading Scheme that greatly change the cashflows. Selling carbon credits could supply farmers with enough interim cash to reduce debt, make farm improvements or develop a range of forest age classes that could give frequent timber harvests from part of their property. 

Growing trees to offset emissions on leased marginal land hasn’t been well understood but offers dairy farmers a way to address the voluntary emission scheme they have offered to develop for the Government. 

While carbon prices are stabilised with a Government-guaranteed price of $20/tonne the upper limit is suggested to be $50/tonne. Forests are flexible in terms of time of harvest and wood yields can be taken when cash is needed. 

Scale is often raised as an impediment to good forestry returns but a recent survey of farm foresters proves high returns can be earned from small, well managed woodlots. Location has greatest impact. Moderate contour land close to mills or ports can be very profitable but land that is steep and remote has high forestry costs and is not suited to short-rotation timber harvests. 

However, forestry does have a different pattern of employment to farming but if farmers integrate forestry into their business planning themselves and use farm labour in tree crops there’s not much change.

On balance, the public has not been well informed of the wealth created by forestry and farmers have not been well informed of the opportunity forestry offers them both in terms of more resilient cashflows and environmental mitigation. 

The average Jack and Jill farmer deserves better factual information and less rhetoric than we have read over the last year. The culture of livestock farming is not threatened by the culture of forestry. Attend a farm forestry field day sometime, trees make you feel good. At future A & P Shows and field days we will hopefully see better information services and improved integration and understanding. 

Who am I?
Graham West is chairman of the Bay of Plenty Farm Forestry Association and a member of the Farm Forestry Association executive committee.

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