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News National Rural News Agribusiness and General General Could land become cheap as woodchips? Could land become cheap as woodchips?
MARIUS CUMING
4/02/2009 5:22:00 PM
Timbercorp is in the process of selling 50,000 hectares planted to blue gums to reduce debt, roughly half its timber estate.
Superannuation funds are amongst the interested parties according to the Managed Investment Scheme (MIS) company.
Timbercorp has stated it will lease the land back but growing woodchips on good farming land was always like “buying a sheep farm to grow dags” according to one agribusiness banker who recently spoke to agricultural economist and valuer Sam Paton.
He says, on a pre-tax basis, it rarely stacks up, and even allowing for 40c in the dollar tax deduction, the break-even threshold for an investor to recover the full commitment of their investment in woodlots, management and lease fees, is high.
Over the coming years, as the blue gum harvest takes place, uncertainty surrounds the future of close to 500,000 hectares under MIS forestry in southern Australia.
“Neither government nor investor did their sums at the time to ensure that a value adding process was in place (similar to the Pinus radiata industry in Green Triangle and the Upper Murray of New South Wales), and while thousands of hectares of high quality land was being turned over to plant blue gums, despite media speculation about numerous proposed mills in the Green Triangle, 10 years after the launch of the vision statement by Wilson Tuckey, the only value adding option is for woodchips at Portland and Corio,” he said.
Port of Portland management has confirmed four hardwood chip shipments due to sail to Japan have now been cancelled since November.
Ironically this week the first dedicated ship of hardwood chips left the port.
“I understand that the supply of pulpwood through the pipeline is full relative to demand and like in any tough financial time, companies are running down their inventories. I have a lot of faith that the trees will be harvested and will come through here, the fundamentals are still solid for the blue gums,” the port’s chief executive officer Scott Paterson said.
However forestry experts do not necessarily agree.
Senior lecturer in Forest Science at Melbourne University Rowan Reid said there was always uncertainty surrounding the future a plantation industry driven solely by retail investors.
“I have often said that if poorly designed, wall-to-wall timber plantations can be a form of land degradation. If they fail commercially and provide no other secondary values, such as shelter or land degradation control, then land values can fall. It may cost as much as $1000 per hectare just to get it back to a state that it can be used for agriculture again.”
However, Mr Reid sees some good coming from the shake-up of the industry.
“Investment forestry will probably contract back into selected areas where the rainfall, soils, land values and proximity to markets come together to underpin their real profitability. This will open up market opportunities for farmers in surrounding areas who are willing to integrate timber plantations with their farming systems. The mistake of the last decade is that industry and government put all their hopes on the MIS model alone, rather than looking at what is required to develop a truly sustainable forestry sector that is integrated into the existing agricultural landscape.”
The present price of woodchips at the stump varies from $35 to $40 according to one forestry company who did not want to be named.
“Based on recent feedback we have received about yields, it is questionable as to what net return these investors will receive even factoring in the tax break, given the crop income is not received for 10 to 12 years.”
Mr Paton said after the blue gum harvest which is set to peak next year, big questions remained.
“Without a second rotation of trees, selling the land back to its previous purpose (grazing) would involve substantial costs to clear the area of stumps, flatten and resow areas to pasture. In the current economic climate I would not be surprised to see those sites not earmarked for a second rotation back on the market in coming years, but western district graziers would only typically purchase such land after it has been rehabilitated back to pasture at substantial cost.” Mr Paton said.
Great Southern, with 150,000 hectares planted to blue gum is one of the largest Forestry MIS operators and insist their business is sound.
Company spokesman David Ikin said hardwood chip prices had increased with strong demand from Japan.
He said Great Southern would not be selling prime forestry land which he described as the “crown jewels” of the company.
Under the structure of the company, investors own the trees and the company shareholders own the land.
Great Southern does have some “non-core assets” presently for sale, including land in Queensland and cattle properties on King Island, Tasmania.
Timbercorp has stressed its financial health is sound and has support of the banks.
But if large tracts of land come onto the market at once it could have major impacts on land values in the regions affected across southern Australia according to Mr Paton.
Sam Paton, senior valuer and agricultural economist with Sam Paton and Associates says if large tracts of blue gum land come onto the market at once it could have a big effect on land values in the regions concerned.Most Popular
1. Timbercorp teeters after asset sale
Copyright © 2009. Fairfax Media.
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