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Official journal of the New Zealand Farm Forestry Association February 2018
Will the trees you plant be a profitable investment?
Naturally durable timbers working well
Challenges for harvesting small forest blocks
The fantastic run on log prices
Is it time for joint ventures?
Promoting the wise use of trees for profit, amenity, sustainability and the environment
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Vol 39 No 1 February 2018
ISSN 0111-2694
Contents
If you plant trees during the next few years, will they be a profitable
investment...............................................................................................3
Hamish Levack
Is it time for joint ventures?.......................................................................5
Howard Moore
Carbon insurance and the Emissions Trading Scheme.................................8
Jo McIntosh and Ollie Belton
Goulters Gully field day...........................................................................10
Julian Bateson
Logging day demonstration.....................................................................11
Julian Bateson
Eastwoodhill arboretum..........................................................................14
Alex Davies
Logging day demonstration 11
Annual conference in Nelson...................................................................18
Radiata pine for the next generation.........................................................20
Michael Watt and Harriet Palmer
Naturally durable timber posts working well..............................................24
Paul Millen, Clemens Altaner and Harriet Palmer
Challenges and opportunities for harvesting
New Zealand’s farm forest blocks............................................................27
Kristopher Brown
Action Groups weekend..........................................................................35
Julian Bateson
The fantastic run on log prices and demand continues..............................36
Allan Laurie
Emissions Trading Scheme now ten years old...........................................39
Stuart Orme
Durable timber performing well 24
A bad year for forestry safety..................................................................41
Julian Bateson
The Kapiti Proposed District Plan
– What have we achieved and what have we learned.................................42
Don Wallace
Real estate exemption, good news for forest owners................................44
Andrew McEwen
Regulars
From the President...................................................................................2
From the Patron.....................................................................................35
Market report.........................................................................................36
Health and safety...................................................................................41
Association contacts..............................................................................45
Harvesting forest blocks 27
Membership...........................................................................................46
The opinions expressed in Tree Grower are not necessarily the opinion of, or endorsed by, NZFFA, editorial staff or the publisher.
Every effort is made to ensure the accuracy of the information, but neither NZFFA nor the editor accept liability for any consequences
arising from reliance on the information published. If readers have any doubts about acting on any articles they should seek confirming,
professional advice.
New Zealand Tree Grower February 2018 1
President’s comment
Official Journal of the New Zealand Farm
Forestry Association
President
From the President
Neil Cullen
Phone: 03 415 8470 Neil Cullen
Email: cullen@farmside.co.nz
National Head Office As predicted in my column in November’s Tree Grower, the new government
Level 9 is taking a much more active role in the forest industry. They see a key role for
The ForestWood Centre forestry in boosting regional development, creating quality jobs, meeting climate
93 The Terrace change targets, providing opportunities for Maori land use, and supporting
sustainable land use.
Wellington 6011
With Minister for Forestry, Hon. Shane Jones inside Cabinet, his focus
Phone: 04 472 0432
on enacting the target of planting a billion trees over ten years is resulting in
PO Box 10 349 developments. Initially this is coming through Crown Forestry which has been
The Terrace allocated funds to secure land for new planting and contract the necessary increase
Wellington 6143 in nursery production of seedlings. Further action will be required to provide
Email: admin@nzffa.org.nz the right incentives and advice for land owners to commit to changing their
Website: www.nzffa.org.nz land use to forestry. Depending on location, land class and preference this need
not be production forestry but could include native planting and revegetation or
Editor conservation planting with exotics.
The Minister is setting up a Ministerial Advisory Group of industry
Julian Bateson
representatives to provide expert and practical advice on which policies will
Bateson Publishing Limited
produce the results this government is seeking. Small-scale growers will be
PO Box 2002
represented there and we will also be meeting the Minister separately to explain
Wellington
how the NZFFA is able to provide both advice and examples across the country of
Phone: 04 385 9705
how forestry is a profitable and rewarding land use.
Mobile: 021 670 672
With the sustained period of buoyant log prices, harvesting small scale forests
Email: bateson.publish@xtra.co.nz
planted in the late 1980s and 1990s has increased markedly and record quantities of
logs have been exported in 2017. Some forest owners have taken the opportunity
Advertising Management to cash in on their asset by selling or harvesting at a young age with all logs being
Bateson Publishing Limited exported. This has resulted in concerns from local processors that their future
Phone: 04 385 9705 supply of logs is being jeopardised.
All forest owners have the right to manage and sell their forests to their best
advantage, but independent advice should be sought to ensure that the price
Subscriptions: $50 annually for New Zealand, offered is the best available and that local industry has the chance to compete for
$NZ55 for Australia, $NZ65 for the rest of the those logs. The high prices are, of course, providing some great rewards to our
world, including postage.
members who are harvesting, with reports of sellers located close to mills and ports
Subscription enquiries and changes of address netting over $100 a tonne on average. Members are encouraged to provide details
should be sent to NZ Farm Forestry Association, of their returns to Allan Laurie via the Tree Grower Editor so they can be published
PO Box 10 349, The Terrace, Wellington. in table format. Anonymity is assured and the details required are in last May’s Tree
Phone 04 472 0432
Grower. This information is of use in providing a picture of how forestry rates as a
The Tree Grower is published in February, May, land use option.
August and November. One of the projects funded this year by the Forest Growers Levy Trust Board is
The Tree Grower is partly funded one proposed by Graham West. It will provide information which assists small-scale
by the Forest Grower’s Levy growers at the time of harvest to engage a harvesting management contractor and
achieve the best possible outcome.
With a government taking a more ‘hands on’ approach to forestry, not all
their actions will please all parts of the industry. A current proposal to include
cutting rights for forests over 50 hectares in the Overseas Investment Act could
deter foreign investment, as the process can be expensive and time consuming.
The NZFFA will be making a submission to try and ensure that members selling
opportunities are not unnecessarily restricted.
All members have registration forms for the conference in Nelson from 6 to 9
May and people can also register online via our website. This is a great opportunity
to visit and sample the autumn splendour of this region. The local branch is
working hard to provide a memorable experience at a very reasonable price.
2 New Zealand Tree Grower February 2018
Profitability of trees
If you plant trees during the next few
years, will they be a profitable investment?
Hamish Levack
It is impossible to be sure, but many indications point to carbon sequestered by trees remains substantial, as seems
continued investment in forestry being well worthwhile. probable, then many forest owners may well choose to
The first question to answer is − Will the profitability delay harvesting their crops, which would flatten the
be affected by the current national forest plantation age spike we call the wall of wood.
class distribution?
Let us assume that most radiata pine stands will be Global supply sets prices
harvested when they are about 28 years old. From the Undesirable boom and bust cycles are caused by regional
mid-1990s boom in new planting, commonly called the asymmetries in forest area and age class distributions.
wall of wood, the harvest is likely to be completely by
The wall of wood we are just beginning to harvest is
2036 as shown by MPI’s forecast on the graph below.
already increasing costs as a result of shortages of skilled
labour and machinery, although later costs should drop
MPI’s best estimate of the volumes when there is not enough wood to keep all the workers
of national wood yield and their gear busy.
Available volume of wood
in millions of cubic metres New Zealand radiata pine
In addition, no matter how much local wood comes
40 on stream over the short to medium term, if supply
35 cannot be sustained there will be no increase in local
30 The challenge and wood processing, which means there will be no overall
25 opportunity for New Zealand increase in domestic demand for wood. But that is
20 mainly irrelevant to the price local millers will offer for
15 logs. Log prices obtained by forest growers are ultimately
10 set by the global supply and demand for wood. In the
5 end, factors external to New Zealand, particularly the
0 Asian supply and demand for logs, shipping costs, the
2005 2010 2015 2020 2025 2030 2035 2040 dollar exchange rate play the major part in what a New
Zealand miller will offer a forest owner for their logs.
You might think the graph implies that New Zealand
trees planted over the next few years will be maturing
Global demand
after the wall of wood has been harvested − when local What will global demand be for wood in a world where
sawmills will be short of logs and when good prices population and wealth is increasing? The Food and
should be being offered to growers. However, this Agriculture Organisation say that the global population,
ignores the fact that the trees harvested between 2020 currently 7.5 billion, is expected to have increased to
and 2036 will be replanted and we can expect a new 10 billion by 2050. Assuming the average use of wood
wall of wood between 2048 and 2054. This is about the remains at about 0.6 cubic metres a person each year,
same time that any new planting carried out over the and the yield from new plantations averages 500 cubic
next decade will be maturing. metres a hectare, then 1.5 billion cubic metres more
Such forecasts may be confounded by other factors. wood will need to be produced each year. This means
For example, over the next decade some forest owners three million more hectares a year of radiata pine forest
may choose to convert their plantations to manuka, equivalent will need to be harvested annually. Compare
or back to pasture, instead of replanting. Another this to 50,000 hectares a year, which is about the
consideration is the fact that almost all of the 2020 to expected area New Zealand will be harvesting once the
2036 wood supply spike and its expected echo about wall of wood, has passed through.
28 years later, comes from stands classed as ‘post 1989’ New Zealand will probably continue to supply
under the Emissions Trading Scheme. If the price of what are considered to be the stable timber markets of
New Zealand Tree Grower February 2018 3
Profitability of trees
Australia, Japan, Korea and the United States, but our Wood is also becoming stronger. The GF Plus genetic
major future log market is likely to be China and India. improvement scheme for radiata pine allows tree buyers
In a recent market report the ANZ bank said ‘While to grow trees with greater wood density than before.
China has undertaken a lot of construction activity The use of wood in buildings and other wooden
over the last 10 years, more is still required over coming products lock away embedded carbon for the lifetime
decades…. and over the longer term, India offers good of the structure. This has been discussed as part of the
growth opportunities for New Zealand wood exporters.’ current Emissions Trading Scheme review, and it is likely
that government will at least indirectly recognise it with
Global supply financial incentives.
Where will the increased global supply of wood come
from? If three million more hectares are to be harvested The effect of the Emissions Trading
annually, about the equivalent of 100 million hectares of Scheme
New Zealand-type radiata pine forests will be needed A number of high-profile studies have demonstrated
globally. However, far more forest than that will be that the benefits of strong and early action on climate
needed because more than 90 per cent of the current change outweigh the costs of not acting, and since the
global wood supply is still coming from natural forests, Paris climate change conference in late 2015, every
most of which is not being managed sustainably, is being country in the world except USA has agreed to act to
degraded or is being converted to different land uses. reduce emissions. Moreover, it is unlikely that the USA
Modelling world wood supply is complex, and will remain an exception for long.
getting accurate input data is even more difficult. The The International Energy Agency says that the
FAO’s last relevant forecast was published in the year carbon price the developed world will eventually have
2000, only looked ahead until 2010, and was of dubious to impose is US$190 a tonne, equivalent to around
reliability. However, given the pressure on land for NZ$270 a tonne, if the Paris agreement on greenhouse
increased agriculture, the increased demand to set aside gas emission reductions is to be achieved. Different
natural forest for conservation, the high levels of capital countries have different emission profiles and different
needed to manage natural forests well or establish new ways of modelling this price. However you look at it, a
forests, and the fact that it takes decades to get a return New Zealand Unit at price of $19.25 a tonne, the value
on investment in forestry, it seems likely that wood in mid November 2017, is a bargain, and is likely to rise
supply will be falling short of demand by the time the substantially, given the Adern-led government’s statement
trees mature in any New Zealand forest planting in the that it intends to take a lead role on ameliorating the
next few years. effects of climate change. A sustainably managed radiata
pine forest stores approximately 300 tonnes of carbon for
Future competition from substitutes each hectare. Carbon is therefore a strong potential forest
At least ten times as much energy is needed to produce revenue stream
substitutes for wood as is required to produce wood
itself. Therefore, widespread substitution is not possible Supporting reports
unless the world finds a cheap, large-scale, renewable, New Zealand’s Paris commitment is by 2030 to reduce
non-polluting new energy source. In addition, nett emissions by 30 per cent below 2005 levels, which
any increase in energy prices will result in large means that increasing abatement will be needed over
cost increases in making such substitutes. coming years. In April 2017 Parliament debated a
Substitutes which have displaced wood in particular recent report snappily entitled Net Zero in New Zealand:
roles in construction are now being ousted by new Scenarios to achieve domestic emissions neutrality in the second
forms of engineered wood. Conventional wood in half of the century. It was prepared by Vivid Economics
the form of beams, posts, framing and joinery were and commissioned by Globe-NZ a cross party group of
substituted out of the building industry during the last 35 MPs concerned about policy to ameliorate climate
century by steel, concrete, aluminium and plastics. Now change. All the MPs in the house supported it, which
wood is making a comeback via engineered wood bodes well for the possibility of future cross party
products which are finding their way into all sorts of agreement on the management of the ETS.
construction. Vivid Economics have indicated that a New Zealand
These include optimised engineered lumber, cross- Unit price of at least $50 a tonne will be needed to
laminated timber, glue-laminated timber, parallel-strand meet the Paris target. This is a good deal less than the
lumber, laminated-strand lumber, laminated-veneer International Energy Agency’s recommended price, but
lumber and wood I-joists. They all provide performance at $50 a tonne, afforestation will be very profitable. In
certainty in their inherent specifications. addition, a March 2017 report by the OECD about the
4 New Zealand Tree Grower February 2018
Profitability of trees
state of the New Zealand environment, and an October cent is assumed to be ‘safe’, with the forest replanted for
2016 report by the Parliamentary Commissioner for a second rotation. A discount rate of seven per cent has
the Environment, agree that New Zealand needs land been applied, which is in line with the long-run cost of
use change involving the afforestation of about another capital for the primary sector.
million hectares of plantation forest. The results for good forests which are within 200
All the mentioned contributors also note that, apart kilometres of a port or mill show an average pre-tax
from carbon sequestration, forestry has many co- real rate of return, excluding carbon revenue, of 6.3 per
benefits that are not yet monetised. However, thanks to cent, with a range of 4.4 to 7.9 per cent. If you include
ecosystem research carried out by Scion, these benefits carbon revenue, the average pre-tax real rate of return
are being quantified financially. Such co-benefits rises to 9.9 per cent, with a range of 8.3 to 11.2 per
probably far exceed any commercial benefits that cent.
current forest investors are receiving. The genetics of radiata pine are being enhanced
all the time. For example, a GF 23 trees will produce
Investment in afforestation a 27 per cent volume gain over unimproved stock at
The following data comes from an ANZ March 2017 maturity. Planning and inventory is being upgraded
report on forest investment. It calculates returns for a by using remote sensing and drones. High technology
range of these main variables for a pruned radiata pine harvesting machines, using robotics, are increasing
forest, with a 28-year rotation, applying average prices productivity, and reducing the cost of extracting trees
from the past year. on steep slopes, as well as reducing hazards to workers.
The carbon prices are modelled at $18 a tonne, a bit Such research and development will continue to
less than the current price, and it is assumed 80 per cent improve the profitability of afforestation.
of the carbon is released at harvest. The remaining 20 per Hamish Levack is a member of the NZFFA Executive.
Joint ventures
Is it time for joint ventures?
Howard Moore
We accumulate stuff. We die. Often this is just a simple correlation. However, the fact is at some
point we have to pass stuff on, and when that time comes it is useful to sort it into different heaps.
The relative size of each heap depends on the discrimination of the hoarder and the understanding
of the sorter. Even if the hoarder knew their stuff, few sorters would recognise a box of unlabelled
papers as anything but fire starters.
Wives call reducing stuff ‘de-cluttering’ but it can use without a massive change of land ownership, we
feel like amputation. Bleeding from such a trauma I might need to revisit the ideas in these papers.
recently found a box-file full of papers on small forest For convenience I have listed at the end of this
investment. Pleased, I realised that with the election of article several of the papers you might recognise. Are
the new government these might be saved. Instead of they still relevant, now that we have the internet? Well,
Class E stuff they were now in fact Class A stuff, fully yes, since they relate specifically to New Zealand where
entitled to shelf space. land owners and investors have the same concerns as
The papers are important because the new before, laws have the same purposes as before and legal
government wants us to plant and replant another agreements have the same strength as before. The biggest
million hectares of trees. This requires both land and change in recent time has been the introduction of the
money, and frequently people have one, but not the Emissions Trading Scheme.
other. If there is going to be a massive change of land The ETS has made it possible to earn money and
New Zealand Tree Grower February 2018 5
Joint ventures
recover the costs of establishing and tending a forest owner and an investor, where the land owner gives
early in its life. It gives you a higher internal rate of the investor the right to establish, manage and harvest
return or alternatively, once you have your money back a forest on his land. …As both land owner and
you can run the forest for cash flow without worrying investor contribute resources essential to the growing
about internal rate of return. There is a catch of course. of trees, both are entitled to a beneficial interest in
Any carbon credits you sell become a carried liability the trees and hence a share of harvest value. It follows
on the land which is never forgiven, and rises with the that both parties also share the risks.’
price of carbon. The exception, at the time of writing,
It goes on to discuss 50 different things which should be
is if you sell a forestry right. Then any carbon liability
addressed in an agreement, offering draft clauses in many
passes to the buyer of the right.
cases that you can cut and paste into an agreement of
A repayable loan your own. However, the underlying structure is simple.
Stripped to its bones, a joint venture forestry agreement
In essence, the ETS provides you with a contingently
under the Forestry Rights Registration Act will −
repayable loan. The government issues you with carbon
• Name the parties
credits, equivalent to lending you money, which are
• State the purpose
repayable in the event you cease to store the carbon.
• Define the land by title, map or aerial photograph
Just like borrowing real money, you have to report on
• Grant access
progress and so you incur compliance costs. Unlike
• Set the term
borrowing real money, the loan carries an unknown
• Define the inputs or contributions and how they are
interest rate – you have to repay the ‘borrowed’ credits
shared
irrespective of their dollar market value.
• Define the outputs or benefits and how they are
If you receive carbon credits and sell them at $20,
shared
but then have to surrender them at $50 ten years later
• Define the responsibilities of the landowner, the
because your forest has been destroyed, it might hurt.
investor, and of both parties together
For the time being you can insure against loss of carbon
• Set out a procedure for handling disputes and
from fire and storms, but make no mistake, carbon
changes of circumstances.
credits are not a gift. They come with risks.
That said, you can plant an ETS forest with outside There are lots of examples, some good and some poor
investment if you accommodate carbon credit benefits and and you should get advice to work out which is which.
liabilities in the agreement. The basics remain the same.
Leases
A lease is a more arm’s length arrangement than a joint
Investment
venture. Although leases and joint ventures have much
Ruling out borrowing, which has been used in the past, in common, the biggest differences are that in leases you
there are three mechanisms available to land owners for have to commit complete titles, tenants have full rights
sourcing outside investment for forestry − joint ventures, of occupation, there is no sharing inputs or outputs and
leases and grants. there are usually provisions for rent reviews. Other than
that, the bones of the agreements can look similar.
Joint ventures
Forestry leases were popular in the 1960s and 1970s
My favourite paper on joint ventures Guidelines for
but no longer so. They can provide for rent to be paid in
Participants in Joint Venture Forestry defines a joint venture
cash, perhaps as carbon credits, or as a share of harvest.
forestry agreement as −
Cash rental leases were used when the land owner
‘A contractual arrangement between a land needed the income. Rent payments were sometimes
6 New Zealand Tree Grower February 2018
Joint ventures
indexed to the Consumer or Producer Price Index or Little will happen
land values, and reviewed at regular intervals. Disputes Where does that leave us? Well, I will keep the papers,
arose periodically because in general, investors and land but unless something changes radically I doubt they
owners had little in common. A whole generation of will be in demand for a year or two for the following
land owners’ children could be born and raised within
reasons.
the term of the lease, with little understanding of why
Despite the good news signals from the government,
their parents had alienated their land.
it seems to me that −
‘Share of harvest’ leases overcame this by creating
• Any new forests will have to be planted on grassland,
strong common interests, and were used by the NZ
and there is no appetite to grow much of it on the
Forest Service in particular. Examples of these leases are
Crown estate.
the Lake Taupo and Rotoaira forest leases with Ngati
• Because farm prices are high and farmers do not
Tuwharetoa and the Mamaku lease with NZ Forest
want to change land use, any land they plant or
Products, negotiated between 1968 and 1973.
offer to investors is likely to be steep, unproductive,
Much like a joint venture share of harvest leases
remote, relatively inaccessible or all of the above.
offered land owners an equity stake in the forest, which
As a result, no-one will rush to buy farm land for
appealed if the land owner did not require a regular
commercial forestry.
income from ground rent. Of course, disputes arose but
with some qualifications these leases proved successful. Little is likely to happen until −
Leases are not popular today probably because joint • The rising costs of environmental compliance force
ventures under the Forestry Rights Registration Act are down farm land prices;
simpler to document, offer the landowner more options • The rising price of carbon drives up investor
and are cheaper to arrange for small forests. willingness to either buy farm land for long-term
commercial forestry using carbon income to help
Grants offset the land price, or enter into joint ventures to
The government, via MPI, provides two cash grants to plant commercial forests on farm land using carbon
landowners for afforestation − the Afforestation Grant income to help offset establishment costs
Scheme and the Erosion Control Funding Programme. • The public starts asking for forested rather than
The first is ‘designed to help establish 15,000 hectares tussock landscapes.
of new forest in New Zealand between 2015 and Even with these changes no-one will want to plant
2020,’ the second ‘to help reduce wide-scale erosion steep, unproductive, remote or relatively inaccessible
problems in the Gisborne district.’ These cash grants farm land unless carbon prices are high, stable and offer
offset the costs of land preparation and planting, but at returns into the future irrespective of possible harvest.
the moment neither is funded to make any impact on The key to a successful joint venture is a profitable
the government’s planting target. Of course, this could forest. Right now, and for the foreseeable future, the
change but no-one I know thinks it is likely any time profitability of new forests is determined by the price
soon, given other demands on State income. of land and the price of carbon, and those stars do not
Thought has been given to privatising the align. Until conditions improve I will keep my papers in
Afforestation Grant Scheme to allow it to run on a the box-file.
grander scale.You might encourage investors to fund There are some useful joint venture publications.
landowners by, in effect, forward-buying the carbon • Joint Venture Forestry on Farmland, J G Groome &
credits earned by newly planted forests over their first Associates, 1983
10 years. But there are obvious catches. • Forestry Joint Ventures NZ Forest Service, 1984
First, it is unlikely investors would be interested in • Guidelines for Participants in Joint Venture Forestry, NZ
dealing with large numbers of small forest owners and Forestry Council, 1985.
second, without help, investors would have no way • Report of the Forestry Joint Venture Working Group,
of ensuring the forests they paid for would grow and Ministry of Forestry, 1991
produce the necessary carbon credits. The government • Forestry Joint Ventures Ministry of Forestry, June 1994
would probably have to do three things to reassure • Forestry (law and legal precedents), Ministry of
investors and make it work – introduce a price floor for Forestry, 1994
carbon credits, manage land owner compliance and take
the credit or default risk. Unfortunately, this risk would Howard Moore has made and documented commercial loans
appear as a liability on the Crown accounts just as if it to forest owners, introduced a forestry right as a security
the money had come from MPI. Under the National instrument for commercial lending and researched and helped
government, that was unacceptable and today it still re-negotiate cash and ‘share of harvest’ forest leases. He is a
looks unlikely. member of the NZFFA and NZIF.
New Zealand Tree Grower February 2018 7
Insurance
Carbon insurance and
the Emissions Trading Scheme
Jo McIntonsh and Ollie Belton
Is it time to take another look at your carbon and the Emissions Trading Scheme? In 2011, I was
asked to speak to forest owners at the Carbon Forestry Conference. Back then, the room was full
of optimism that carbon and the ETS was expected to be a new and valuable income stream for
forest owners. Carbon prices were expected to immediately reach the capped value of $25 a tonne.
As most of you no doubt know, that optimism soon which is why I have asked Ollie Belton from Carbon
disappeared as carbon prices fell. The actual New Forest Services Limited to comment later in this article
Zealand Unit price went as low as $1.50 a tonne on the main areas for forest owners to consider. From
in 2013. Foresters were frustrated by the ability for my perspective, there are three main insurance policy
businesses to offset their carbon liability with cheap options available for forest owners.
international carbon units. This was further exacerbated
by the 2008 global financial crisis which resulted in Three options
lower activity and lower emissions globally. Prices have
generally languished at less than five dollars a tonne ever Adding to current policy
since, well below the level that most people require to Option one is that plantation forest owners can simply
make ETS economically viable. add carbon stock tonnes per hectare and a carbon unit
In late 2017 the world changed and the carbon price value per hectare to nominated standing timber sums to
broke through the magic $20 a tonne mark. As a result, be insured. The carbon values chosen can be obtained
we are seeing a resurgence of interest in carbon. It is from the MPI look-up tables if the forest is less than 100
now necessary to take another look at carbon, the ETS hectares. If your forest is over 100 hectares use specific
and what the risk implications are. participant tables provided to you by MPI once you
have registered in the scheme.
Risk – hold or transfer? This method is a very blunt instrument and relies
A big part of my job is to help clients identify risk and on you getting the standing timber values and carbon
then help them decide how they manage that risk – do values correct. Given the market fluctuations across both
you want to retain the risk and self-insure, or do you commodities, that is easier said than done.
want to transfer some of that risk to insurance? First
of all, the good news is there are insurance policies Rotation timber policy
available for those involved in ETS. There are options Option two is to purchase a rotation timber policy.
for plantation timber owners and also options for This combines a traditional standing timber policy
native ‘lock up and leave’ foresters who are part of the with collective carbon cover. The policy is divided into
permanent forest sink carbon scheme – the Permanent two sections. The first is standing timber cover which
Forest Sink Initiative. includes all the usual optional covers such as fire, wind,
The not such good news is that the ETS scheme removal of debris and replanting as well as a second
is complicated and is difficult for most lay people, section which covers your collective carbon.
insurance brokers included, to get their heads round. Within the collective carbon section there are more
This is an area where you really need good advice. All choices and options for you to consider. These include
insurance options require you to nominate your sums whether you want a fixed price replacement value or
insured and there are a number of choices around how market replacement value structure and options to
you structure your policy. Getting this right is vital, have indexed or future carbon cover for carbon not yet
8 New Zealand Tree Grower February 2018Insurance
sequestered for one to a maximum fiver-year period. forestry right holder becomes the new ETS participant,
Future carbon helps to cover shortfall of projected and as such may become responsible for meeting
future carbon growth in your trees due to an insured emissions obligations associated with the harvest. They
event.Your trees may die causing loss of carbon to advise anyone about to undertake a harvest, or anyone
emission. The trees may survive but the stress caused to who is a prospective purchaser to obtain legal advice
them may diminish future growth for a period of time. before they begin.
Future carbon allows you to main a carbon income for As with most of my past articles, the best advice I
the first five critical years after an event and can help have is to make sure you understand the risk and set
maintain carbon payments if you have entered a forward your policy values and policy structures accordingly.
sold contract until you can re-establish your forest. At this point I will let Ollie Belton finish the article.
Permanent non-harvest forests Carbon loss insurance
The third option is the other policy available for With New Zealand Units trading above $20, forest
permanent non-harvest forests such as native forests owners should take note of the increased financial cost
registered for carbon under the Permanent Forest Sink when repaying carbon to the government if the forest
Initiative and exotic planted forests which are not is destroyed by fire or storm damage. Those at most risk
going to be harvested. This policy does not include the are forest owners who have sold NZUs. In the event of
standing timber section and focuses only on covering carbon loss these foresters will need to go to market to
carbon loss risk. buy replacements. Because the NZU price has risen 140
per cent over the past two years, it is likely that the forest
Sold carbon a greater risk owner will have to pay back much more than earned
If you have sold your carbon to a third party the risk is from carbon sales, and the amounts can be significant.
greater.You not only have to consider your own loss, but For example, replacing carbon on an ETS registered
also your contractual obligations to the third party. 20-year-old radiata block in Gisborne can cost more
These contracts need careful attention. I have seen than $6,500 a hectare at the current price.
contracts which make forest owners responsible for Fortunately, carbon loss insurance is available and
100 per cent of the value of the carbon for all perils premiums are relatively inexpensive given the insured
including wind and fire, and yet the insurance policy in values. I would recommend all forest owners who have
place has comparatively low wind limit. sold carbon, or are considering selling carbon, to look
What happens if there is a catastrophic loss? For at insuring as a minimum the carbon replacement risk
example, a cyclone could wipe out significant standing associated with sold NZUs. Even forest owners who are
timber and with it your carbon. If you have a low not NZU sellers may want to consider carbon forest
wind limit, have you just created a large financial gap? insurance, not as a hedge against carbon loss liability, but
I also question some of these contracts as it has no as a strategy for protecting lost income if required to
confirmation over who has priority on the insurance repay to the government unsold NZUs.
placed. If the policy benefits the carbon purchaser in the When getting cover, forest owners should get
first instance, that again means the forest owner may be specialist advice from the right professionals to ensure
left in financial strife. they are not over-insured and paying too much in
premiums, or under insured and exposed to financial
Transfer of obligations risk.
For many of you, if you have ETS registered forest
Aon has an insurance scheme for NZFFA members and
planted in the 1990s, you may be beginning to harvest
in support, pays a contribution to the NZFFA.
those trees. MPI recently put out information to
highlight to forest owners that they are noticing many Jo McIntosh is an Executive Director of Aon and specialises
forest owners are opting to sell the standing trees by in insurance for forestry and horticulture.
granting a forest right. They go on to say that ETS Ollie Belton advises forest owners on how to maximise
participants need to be aware that this will automatically their carbon value while mitigating the associated risk.This
result in a transfer of ETS participation. includes ensuring carbon insurance cover is adequate and
The seller ceases to be the ETS participant. The correct.
New Zealand Tree Grower February 2018 9Conference 2017 field days
Goulters Gully field day
Julian Bateson
The 2017 conference hosted by Middle Districts had a range of good
field days. The following pages have articles two more of these − the
trip to Goulters Gully and on the logging demonstration day.
We decamped from the bus and were led carefully down Recovery plans
a steep track, carefully avoiding the wasps’ nests which Remedial work started in 1958 with flood retention
were clearly marked, although the wasps did not seem to dams and flumes but in these were relatively ineffective
keep within the boundaries. The track was on the edge even though farm boundaries, access and land ownership
of the deep gully system although it was so deep, were were badly affected. Then the Catchment Board and
unable to see the bottom except in the distance. We then the Regional Council took ownership of the
ended up standing among some of the pine trees which gullies and effective plans were put into action.
had been left out of the recent harvest as they were very Planting started in 1967 and by 1976 about 115,000
close to the edge of the gully. willow and poplar stakes had been planted. In addition,
The story was told how it all happened and how from 1972 to 1978 more than 70,000 radiata pine were
this deep gully appeared on relatively flat land. The river also planted. This all worked well and the erosion was
terrace was composed of very erodible sand, although halted. However, as we all know, trees grow and by 2002
superficially it had been very appealing flat terrace land. some of the pine trees were ready to harvest although
It had all been covered with native trees, as had most of they were of different ages with different silviculture −
New Zealand but by the early 1900s European settlers some pruned and some not.
had removed the stabilising forest cover so that they
could use it as farmland. This significantly modified the Harvesting and replanting
run-off. Some serious storms in the mid-1930s led to The problem was then to find ways of harvesting which
streams cutting through the protective loess soil and were not too expensive and did not result in allowing
gravel cap resulting in very rapid gully erosion. Within the land to erode again, although it was not as difficult
20 to 30 years a deep and unstable, canyon gully system as expected because the trees were on reasonable land.
11 kilometres long covered almost 150 hectares. The The harvesting took place in two parts, in 2002 and
banks were just bare sand and on windy days, the sand 2003. The first tender was won by John Turkingtons
would swirl around in the wind. and with some partly pruned blocks, and some not,
they did better than expected. The average harvest was
500 tonnes a hectare with a nett income of $13,000 a
hectare which at the time seemed to be a good result.
The second tender produced a remarkable result
and produced close to $32,000 a hectare. This was a
lot more than expected and was because the successful
tenderer was buying almost everything and outbidding
all competition. But it was not all plain sailing as the
contractor had overstretched and went bankrupt,
fortunately just after the $868,000 income from the
harvesting was paid. All this money went into future
management of the erosion scheme. Replanting was
then carried out and just before the serious floods of
2004. Joint venture projects in other places are being
used to continue to help prevent erosion. The solutions
at Goulters Gully have provided a lot of information for
using afforestation to manage erosion.
10 New Zealand Tree Grower February 2018Harvesting research
Logging day demonstration
Julian Bateson
On the last day of the conference was an extra field visit to Greenock
Forest. This was a demonstration day about harvesting research
work funded predominantly by the levy.
Woody Martin the forest manager for Arbor Forest gave Drones in action
us a quick introduction and a safety briefing. We were
told that we were in a safe zone but logging trucks were
passing by regularly so had to stay off road, move as a
group, stay on the skid site and make sure we wore our
high visibility vests and helmets.
We were then given an outline of the day which was
for us to be shown, or told about, a variety of projects
which were part of the Forest Growers Research
programme over the previous seven years. The aim
of this research was lower cost harvesting, improving
working conditions and getting technology into logging
crews. This would eliminate the use of people on the
ground in dangerous situations and go a long way
towards reducing injuries in forestry to the aspirational
target of zero. We were then encouraged to go outside and see some of
these machines in action. The first ones that group I was
Not to be seen in got to see involved the use of drones or unmanned
Before we were allowed outside to look at the big toys aerial vehicles – UAVs for simplicity. These were
on display, we learned about a number of the projects demonstrated by Interpine who are involved in remote
which did not have working examples for us to see. sensing for forestry from satellites and planes but have
There was the steep slope feller buncher – a lot of found that using UAVs mean you can do a lot more at a
which are now being sold. An additional development lower cost at almost any time you want.
is a remote control for this machine which means the We have heard a lot about UAVs already but it was
operator can work it from a safe distance while sitting in good to see them in action and talk to those who use
comfort. them. The smaller drone was one which could go into a
There was also the robotic tree-to-tree felling back-pack and is easy for almost anyone to fly in winds
machine, one of the more futuristic aims of the research up to about 35 kph. It has a 12-megapixel camera,
programme. This is still in the very early stages. which is as powerful as you would want.
Finally, three was something which would have been
great to see, a remote-controlled tree-felling wedge.
Inside the wedge is a power unit which can tip a tree
over. In testing, this worked for most trees, but not every
tree. It meant conventional wedges sometimes had to be
used as well. The aim is to get the tree faller away from
the hazard zone, so if normal wedges have to be used
occasionally, more work needs to be done before it can
be rolled out to other users. The thought of standing 50
metres away pressing a button and watching the tree tip
over sounds like very safe fun, although as we know, it is
Smaller drone in the foreground
a lot more than fun.
New Zealand Tree Grower February 2018 11Harvesting research
For those not used to piloting these machines, there is further $10,000 if you want a thermal camera.
the get-you-home-safely programme built in. If you You may need to be a professional to get the best
lose contact it comes home all on its own and lands on out of this big UAV but it can be set to a locked height
the place it took off from. This small UAV is effectively above the ground so that all the pilot has to do is turn
a flying camera which is as useful for farming as it is for left or right and not worry about where the ground is,
monitoring your forestry work. The price is a mere snip however steep or lumpy. However, these drones are still
at about $3,000. not fully rugged and needs someone to know what they
are doing – in other words a trained professional – if
Bigger and better they are to do everything needed.
We then got to see the true professional drone in action. We were warned that if we used a UAV ourselves we
This one has six rotors but can fly with one missing, had to be aware of risks to property and a simple public
has three GPS units and three computers, a bit like the liability policy probably does not cover you if there is
system you get on an airliner as they check with each a mishap. A UAV is defined as an aircraft, even the very
other all the time to make sure they agree. It is run with little ones. If it falls out of the air from a reasonably
six batteries but can still run on four and can carry a height the batteries would probably cause a fire.
payload of another six kilograms.
Cutover Cam
The process of breaking out – working on a slope with
cables chains and logs − is one of the most dangerous
harvesting tasks. The Cutover Cam is a camera on a pole
placed on the ridge where logs are being hauled out,
and linked to a screen in the cab of the hauler operator.
This negates the need for the use of hoots, whistles or
radios to find out where the workers are on the slope
and let them know what the hauler is doing.
A Cutover Cam in action
The camera can be remotely made to pan, tilt and zoom,
so that the hauler operator can make sure workers,
who are breaking out and attaching logs to a line out
of a direct line of sight, have retreated at least two tree
Preparing for launch and explaining what it can do
lengths away from any danger before the log is hauled
up the slope. In addition, if a chain or log snags, the
We were told an example of how useful they are in the operator can see what the problem is rather than just
aftermath of the Porthill fires. A UAV like this was used using a bit more force to try and clear the problem.
just after the Porthill fires last year flying all night, every The cost of the current Cutover Cam is about
night, for three weeks using thermal cameras to look for $18,000 and has proved to be successful. But the next
any hot spots which could flare up again. the next example was hot off the bench. It is lighter,
The UAV is not waterproof so cannot fly in full rain more robust and smaller with everything, including the
although they are becoming more water resistant all the batteries, built in the glass fibre tube. It as simple to plug
time. The price is not eyewatering, at around $5,500 in and charge as it is to stick in the ground and switch
for the basic model although you will need closer to on. The price of this revised version is around $10,000.
$20,000 when you add all the bits and batteries and a A solar panel can be attached to keep it charged and
12 New Zealand Tree Grower February 2018Harvesting research
save you the problem of taking it back at night, but if it together and bought a mill but then pruned log prices
is left out overnight there is a risk of it being stolen. fell from $1,200 a cubic metre to $400 so the project
failed. In spite of that he struggled through and is now
Remote control again harvesting 10 loads of logs a day, trying to get mills to
We also had a quick look at the snappily named compete with what was the current export price.
Skyshifter twin winch tail-hold carriage. Moving a
Woodlot tree quality
skyline set-up can take a lot of time and can be quite
risky. This carriage allows the work to be done from Woody was concerned about wood quality from
the cab of the yarder. Production trials are now being woodlots and had some examples on display to compare
carried out after prototype testing in the Bay of Plenty. the good with the bad. He was more interested in
getting good pruned logs and explained that as many
large forestry companies are not pruning, there will be a
shortage of pruned trees in the future.
In Woody’s experience, some woodlot owners may
prune their trees, but some do it so late that the wood
quality is a serious problem. Large branches pruned with
a chainsaw leave a large knotty core in the tree. This
means the logs may look good from the outside, but are
uneconomic for producing clear wood with no knots.
Woody rapidly went through a range of figures
and costs. In one example, production from Greenock
Forest was used. Currently they get about $127 a cubic
metre. With costs at about $110 the profit is around $17
a cubic metre. For production of 3,000 cubic metres a
The Skyshifter in action
month the profit is just over $50,000. This is for timber
which has plenty of clear wood.
Trees and timber from woodlots
At the end of the visit we heard from Woody Martin
about the trials and tribulations of planting and
harvesting when trying to get it right from the start.
He explained that they planted the trees in his forest at He then showed us examples of a tree milled from a
seven metres by 1.2 metres. To make sure the rows up woodlot, and those from a better forest. The woodlot
and down the hill were straight, every row had a marker tree had very little clear wood and he explained that if
pole. He wanted the stocking to be right and as contour they tried to sell those they would only get about $66 a
planting can be a bit loose, planting was up the hill, not cubic metre gross income and an overall nett loss.
along the contours. In general, this was not news to most farm forestry
They were thinned to seven by seven metres but he members, but it stimulated a good discussion. This had
discovered this was a bit lower than they would have very little to do with the Forest Growers Research, but
liked for the log lengths wanted. Because the trees grew was well worth taking part. Small-scale foresters have the
quite vigorously, they needed to be pruned before age opportunity to add value if they plan their silviculture,
four. The final pruning regime was to prune to 10 cm or lose value if they do not. The market may change
diameter with four pruning lift to around seven metres. over the years, but by planning to harvest at the right
He found no market for his wood so got investors time, pruning is well worth considering.
New Zealand Tree Grower February 2018 13Eastwoodhill
Eastwoodhill arboretum
Alex Davies
Eastwoodhill is a property beyond Ngatapa, 37 km trees, the equipment, the shop, the visitor centre and
from Gisborne. This location is remote relative to most accommodation, as well as education and publicity.
of New Zealand. In relation to the rest of the world It is not easy to define what an arboretum is. The
it is very remote. As the National Arboretum of New word means a place with trees. This would apply to
Zealand its location is hardly well planned with regard almost any garden, and even to commercial plantations
to access. National arboreta in other parts of the world, and regenerating and old growth forests. Eastwoodhill’s
of comparable size to Eastwoodhill, such as Westonbirt curator, Dan Haliday, is helpful with his definition as ‘a
in England, the National Arboretum in Washington collection of rare and unusual trees’ or, as he points out
DC, and the new Australian National Arboretum in in more modern usage ‘a botanical garden containing
Canberra, are only a short distance from the centre of living collections of woody plants’. Anyone who visits
major cities. They therefore have high visitor rates, such Eastwoodhill can see there is an impressive collection of
as half a million a year in Washington DC. trees. Each tree demonstrates nature’s artistry.
By contrast, in the last year Eastwoodhill had However, most of us also recognise that the plant
8,000 visitors. This is a satisfying increase from earlier associations, the seasonal changes and the terrain all
years, but generates negligible income to keep a contribute. The other uses of this garden, such as
large park attractive and functional. With no income making unusual plants accessible for study, saving them
from central or local government, the Eastwoodhill from extinction or providing seed for propagation, are
Trust relies heavily on benefactors and investments not why most visitors travel long distances to see an
for the employment of the five staff who manage the arboretum, and not why an arboretum is created.
14 New Zealand Tree Grower February 2018Eastwoodhill
Creating an arboretum established by Act of Parliament in 1975, ensuring that
the arboretum will endure. The trust board currently has
How is an arboretum created? The story of Eastwoodhill
six members representing the Minister of Conservation,
must be the most fascinating and unlikely of any. It
the Williams family, the Gisborne District Council, the
began when Douglas Cook won a ballot to a tract of
Poverty Bay Horticultural Society, the East Coast Farm
bare or scrubby hill country in 1906. Dismayed by the
Forestry Association and the Friends of Eastwoodhill.
barrenness, he devoted his life to a fetish of tree planting.
This was in spite of the dry, porous soil and prevalence
Separate parks
of droughts and frosts which killed many young trees.
As well as these real and frequent setbacks, Douglas Eastwoodhill is 135 hectares in area. It is mostly hilly,
rising from 120 metres above sea level at the entrance to
Cook also feared that at the end of his life, adjacent
280 metres at the highest point on the back boundary.
farmers would bring the land back into pasture. He was
Stock are excluded from the lower part where the trees
seen locally as an eccentric, who spent staggering sums
are more mature, but higher up sheep are grazed by
on planting good farmland with useless trees and who
arrangement with a neighbouring farmer. This controls
enjoyed gardening clad only in hat and boots.
weeds, but new plantings have to be protected by cages.
Joined by a dedicated assistant, a young Flock House Two small streams, each with several artificial
cadet Bill Crooks, Cook was able to extend his plantings ponds, flow in valleys and join the seasonally flowing
from 1927. Crooks stayed at Eastwoodhill for 47 years, Taumatapoupou Stream. Douglas Cook made his
in spite of the hardship he and his wife endured in plantings in regions which are now indistinctly separate,
bringing up five children in a two-roomed cottage. called parks, beginning with Corner Park in 1927, and
Douglas Cook died in 1967 aged 81 years. He had in stages to when he finished his planting with Douglas
spent an average of £1,000 annually on plants from Park in the 1960s. A major contribution was made in
overseas and New Zealand, mainly funded by sale of the year 2000 with the planting of Millennial Wood, a
part of his original land. 10-hectare hilly area. About 1,000 trees of proven locally
His fear that all his work might be lost was abated by successful species with fine autumn colouring were
the purchase of the property by another tree lover, H B donated and dedicated to family members or to signify
(Bill) Williams, two years before his death. A trust was an event. The effect after 17 years is already impressive.
New Zealand Tree Grower February 2018 15You can also read
