This is the AFR article:
Frank Wilson, chief executive of TFS Corporation - the world's biggest Indian sandalwood plantation business - is bullish about yields.
TFS, which operates one of the last remaining forestry managed investment schemes in Australia – if not the last – got off to a slow start after the first trees were planted in 1999.
Back then, the survival rate of the trees, which are grown in Western Australia, the Northern Territory and Queensland, was dire and yields were extremely low.
As a result, investors only "got a little bit" of a return on the first two harvests. It was a poor outcome after a 15-year investment period. But Wilson predicts that will all change. The third harvest is looking far more promising and future ones even more so.
Wilson will need returns to improve substantially if he is to shake off the terrible reputation of agribusiness MIS schemes, which offer tax breaks to invest in livestock, farming, horticulture or forestry projects. MIS schemes became a byword for huge losses after a string of operators collapsed after the global financial crisis.
Wilson has another reason to want the harvests to succeed. He has a fair amount of skin in the game. The chief executive owns 15.8 per cent of the listed company, which has a market capitalisation of $530 million.
Sandalwood has proven to be a more robust investment than many of the agricultural products offered to unsuspecting investors, such as radiata pine, teak and bluegum schemes.
The wood, priced at between $US150,000 ($202,030) and $US180,000 a tonne, is typically used to make luxury furniture, jewellery and carvings. The processed oil, worth about $US4500 a kilogram, is used in fragrances, cosmetics and pharmaceutical products – western and eastern. All the sandalwood produced by TFS is exported.But it is the supply and demand story that is more important to investors. The 2016 prospectus says there is a "very strong global demand" and "dwindling wild supplies".
Wilson says that supply will continue to be constrained by the fact that most of the global stock is illegally harvested from Indian native forests, which is not favoured by increasingly environmentally-conscious consumers. As for farming, sandalwood is hard to cultivate. The plant is a parasite, so host trees also need to be grown.
It has been a long, hard road for TFS thus far. In the first two plantations, only 20 per cent of the trees survived, well below the target of 85 per cent.
But after an intensive research program and further investments, trees in the third harvest, now under way, enjoyed a 60 per cent survival rate. As a result, the yield is likely to be 8 tonnes a hectare this year, up from 1 tonne a hectare for the first two harvests. Wilson calculates the internal rate of return to be greater than 9 per cent since 2000.
"We have made a lot of mistakes and we have learnt from them. The trees we have grown in the past five years have significantly improved," he said.
As well as higher yields, TFS is planning to expand its acreage, now 12,000 hectares, by 1500 hectares a year.
This year, MIS investors are offered to take a minimum investment of one 12th of a hectare from $7975 per lot, including GST, with volume discounts available for investments over 1ha. An upfront annual fee of $580, including GST, per lot is also applicable. All fees are fully tax-deductible in the financial year they are paid.
MIS investors account for about only 5 per cent of the company's investor roll-call. The majority of investors (about 60 per cent) are large overseas institutions, such as Harvard University's Endowment Fund, the Church of England and the Abu Dhabi Investment Fund. A further 35 per cent are Australian high net-worth individuals.
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