Friday Offcuts – 18 September 2009
As reported in the media and in recent end of year company reports, the collapse of agribusiness investment managers, Timbercorp and Great Southern, has had a significant impact on investment in retail forestry, the image of plantation forestry in Australia and the regulation of agribusiness MIS. Both the Australian Plantation Products and Paper Industry Council (A3P) and National Association of Forest Industries (NAFI) have welcomed the Committee's finding recommending that the current taxation arrangements for forestry projects be maintained. The Committee said that the "inherent disincentives to invest in long-term forestry warrant the retention of the existing tax deductibility arrangements for forestry managed investment schemes". Also, that as these arrangements are relatively new (legislated in 2007), they should be given the opportunity to work. Richard Stanton, CEO of A3P in a recent statement said that industry also supported the Committee's finding that "the government should continue to monitor the effectiveness of Division 394's integrity measures closely against industry practices and amend them if required". "These integrity measures provide certainty to retail forestry investors that their money will be used appropriately in establishing, managing and harvesting the timber plantation projects, rather than being spent on marketing, fees and commissions," said Mr Stanton. The industry should welcome the inquiry's findings and recommendations. We should also be encouraged that the regulatory framework will provide an adequate level of protection for investors in retail forestry projects and perhaps help restore some of the battered confidence in the plantation forestry industry. In another related story this week, Alan Cummine, Manager - Plantation Investment for A3P details some of the reasons why the expanding plantation estate from retail forestry investments in Australia is just so essential to the sector. Retail forestry now accounts for over a third of Australia's plantation estate of almost 2 million hectares and private investment regularly is funding over 80% of all new plantations each year, as well as a substantial proportion of replanting in harvested areas.
This week we have for you:
Forest field measurement & mobile computing innovations
ESRI's (one of the world's leading GIS Software companies) Forestry Manager, Peter Eredics, who is based in the US, will be presenting at ForestTECH 2009. He'll be providing an overview of international global geo-spatial technology developments and their application in this part of the world. In addition to data capture and inventory, forest management information systems, estate planning and wood and stand quality assessments will be covered in ForestTECH 2009. Linking wood quality resource descriptions to future forest management is increasingly being used by forestry managers. In addition to using acoustics to segregate wood to meet end users requirements, the Forest Products Commission has just completed studies in WA that looks at salvaging timber damaged by wildfires. Acoustics are being used to assess the rate of degrade after fire (with intensity) and to monitor degrade so that vulnerable areas are salvaged before areas that are likely to remain stable. This enables forest owners to maximise their returns through salvage operations. Details on this and other studies using acoustics as a management tool will be outlined at ForestTECH 2009. ForestTECH 2009 includes an integrated series of practical presentations, managed exhibitions, demonstrations and field visits. Major themes for ForestTECH 2009 include; - Forest Sampling & Inventory - Data Collection Tools - Forest Mapping - Remote Sensing - Forest Management Information Systems - Estate Planning, and - Assessment of Wood & Stand quality. ForestTECH 2009 will run in Rotorua on 10-12 November and again for Australian forestry staff in Albury, NSW on 16-18 November 2009. Full details including the full programmes for this technology event can now be downloaded off the event website, www.foresttechevents.com
Lessons from world experts in sawing technologies
Sawmillers have been treated to eye-opening presentations on technologies that have been developed and used commercially in sawmills throughout the world. Presenters from Sweden, Finland, France, Austria, Germany, Canada, the USA, Australia and New Zealand detailed tools and technologies that were appropriate to local sawmilling operations and the wood resource being processed. Primary log breakdown, secondary processing, saw machine centre improvement, lumber trimming, sorting and stacking technologies and the very latest in circular and band-saw saw designs have been profiled and discussed by around 200 sawmillers over the last couple of weeks. For those who missed the series, limited copies of the full sets of proceedings which can be used as a ready reference on the new technology on offer can be ordered here.
New President elected for NAFIVictorian hardwood sawmiller Greg McCormack has been elected new president of the National Association of Forest Industries (NAFI). He replaces Bob Pearce, executive director of the Forest Industries Federation of Western Australia, who stepped down as NAFI president at the annual general meeting on September 8 after holding the post for two years. Mr McCormack will be joined on the NAFI board by vicepresident Vince Erasmus, ITC chief executive, and treasurer Brian Tisher, executive general manager of Boral Timber.
Majority gained for passing NZ Emissions Trading SchemePlans for a revised Emission Trading Scheme (ETS) were announced by the New Zealand Government on Monday, which included a promise that forest owners will be able to openly trade their carbon credits internationally. By doing a deal with the Maori Party that promises special treatment for iwi that gained forests in Treaty of Waitangi settlements, the Government has secured the parliamentary majority it needs to pass the amended ETS.NZ Forest Owners Association Chief Executive, David Rhodes, says the proposed changes to the ETS will give investors increased confidence in the potential of carbon farming in New Zealand. Overall little has changed for forestry from the situation that existed a year ago. The association is pleased that the government has not entertained unhelpful suggestions that owners of Kyoto forests be prevented from continuing to trade credits on international carbon markets and be subject to a price cap. "Using taxpayer subsidies to cushion households and energy-intensive industries, including wood processors, on the basis that it is in the national interest, is far more appropriate than asking forest owners to pay. If this had happened there would have been no carbon market, because forest owners would not have been trading anything," Mr Rhodes says. He says the taxpayer through the government will have to wear the cost of a greater level of protection proposed for emitters, but the important thing is that a price signal will be established and this will start to drive appropriate changes in the economy. Agriculture has received the greatest level of protection with its entry deferred by a further two years. This will be something of a dampener to forestry expansion in the short-term due to the maintenance of unrealistic land prices, but forward-looking farm managers will start to plan for being in the ETS. "Other self-funding policy changes are needed to make carbon forestry an attractive proposition," says Mr Rhodes. These are still being considered by officials. A carbon price and yield averaging scheme, for example, would give a land owner a regular income from carbon during the life of a forest on the condition that the forest was replanted at harvest. This would be very attractive to owners of smaller blocks suitable for carbon forestry. Mr Rhodes says the government's decisions do not change the position of pre-1990 forest owners. They will still get limited compensation for not being able to convert their land to a more productive use without paying a very substantial deforestation tax. How will changes to the Emissions Trading Scheme impact on the forestry sector? Post-1989 forests are eligible to earn carbon credits from 1 January 2008 but there is no current domestic market as no emitting sector requiring units has entered the scheme. Finalising sector obligations will create a market and income stream and generate interest in further forest plantings. Foresters will have options to sell units internationally or bank them so will not be overly disadvantaged by a fixed price option. Pre-1990 forests incur deforestation liabilities for harvesting and not replanting. These are unaffected by the changes except in having access to the $25 fixed price option. Allocations for these forest owners will proceed in 2010 and these units will be bankable and able to be sold internationally. No change is made to provisions of the Act with respect to offsetting in Commitment Period 1 (CP1) due to the financial risks to Government and the economy. Minor changes in the Act will be made in respect of tree weeds and some technical aspects of reporting. Read about all of the features of the revised ETS here. Minister for Climate Change Issues Nick Smith says the changes to the ETS will halve the price impact on households for fuel and electricity; the fixed price option will provide certainty and stability to enable carbon markets to mature; and the changes to transitional support for industry will encourage cleaner technologies without driving jobs, investors and emissions offshore. The Government's aim is to have the Bill passed into law in time for the global climate change summit in Copenhagen in December.
Retail forestry investment integral to forestry industry
Maintaining a stable tax and regulatory environment is essential for large-scale private investment to continue to be available for establishing and replanting these plantations for the value-adding wood and paper products industries in regional Australia. These were the two main messages presented to the Agforce Queensland 2009 State Conference by Alan Cummine, Manager - Plantation Investment with the Australian Plantation Products and Paper Industry Council (A3P). "Retail forestry is now creating the scale of resource needed to maintain future supply to existing mills and to underpin hundreds of millions of dollars of investment in new and upgraded facilities. From about 5% in the mid-1990s, retail forestry now accounts for over a third of the total national plantation estate of almost 2 million hectares. This private investment regularly funds over 80% of all new plantations each year, as well as a substantial proportion of replanting in harvested areas." Mr Cummine explained that it is inherently difficult to attract private investment into plantation forestry, because of the long periods between establishment and harvesting - between 10 years to produce pulpwood and 20-30 years to produce hardwood and softwood sawlogs. This is the reason that all other countries with large plantation industries have used grants, subsidies, bounties, concessionary loans and special tax incentives to encourage investment in the private plantation resource. "The Joint Parliamentary Committee on Corporations and Financial Services, in its recent report on aspects of agribusiness managed investment schemes found that the inherent disincentives to invest in long-term forestry warrant the retention of Australia's existing tax deductibility arrangements for retail forestry, as provided under Division 394 of the Income Tax Assessment Act 1997." "Although these arrangements are now in the form of a specific statutory deduction, they retain the same basic principle that has prevailed for decades - that is, 100% deductibility of eligible expenditure in the year the investor incurs the expenditure. All Australian businesses, including all primary production enterprises, are entitled to deduct 100% of their eligible expenditure in the same way, except that their deductions are under the general business deduction provisions of the Income Act." "The tax deductibility for retail forestry investment does not lead to a direct reduction in tax revenue that the Government could spend on diverse public services and infrastructure. If this standard tax entitlement were to be removed, the lost retail forestry investment would not magically become available to the Budget. Instead it would be redirected into the much larger pool of highly tax-effective negatively geared share and property portfolios and financially engineered products, rather than into rural Australia to create jobs, businesses and wealth." "Further regulatory steps to increase the level of investor protection may result from the Government's consideration of the report of Parliamentary Joint Committee's Inquiry into the recent collapse of major agribusiness companies Timbercorp and Great Southern. The retail forestry sector will be cooperating with the Government in any reasonable moves to enhance the level of investor protection in retail forestry projects." "Regardless of whatever tighter corporate regulation may emerge, retention of the entitlement to deduct eligible expenditure in the year the investor incurs it will remain a necessary condition to maintain the flow of private investment into plantation forestry to support Australia's regionally-based plantation products and paper industries" Mr Cummine said.
Timber is now beginning to regain its Mojo
Prior to the NZ Wood push, wood's share of the framing market had dropped from its previous 98 percent share to 89 percent, largely due to the rise in steel framing and concrete masonry construction. Programme manager for NZ Wood, Geoff Henley, says the programme's message that wood is better for the environment is definitely resonating with consumers. "Our television advertising in particular seems to be really driving the message home. We're unapologetic about emphasising the huge amount of CO2 that wood removes from the atmosphere, and the fact that wood is our only truly renewable construction material." In terms of cladding, the BRANZ report shows brick continuing to have most of the market share at 44 percent. Timber weatherboard's market share at around nine percent is higher than it was in 2000 and 2006, but the alternatives such as fibre-cement weatherboard, EIFS cladding, concrete/masonry panels, PVC weatherboard etc continue to enjoy a fluctuating share of the market. As well emphasising the environmental benefits of wood cladding, the NZ Wood programme is actively developing resources for builders, architects and house owners as to the modern range of choices available, its best applications and information on its optimised maintenance. "Timber is now regaining its mojo," Geoff Henley says. Source: NZ Wood
ArborGen looking to supply GM eucalyptus in the USArborGen LLC, International Paper Co.'s joint venture with MeadWestvaco Corp. and New Zealand's Rubicon Ltd., is seeking permission from the U.S. Dept. of Agriculture to sell the first genetically engineered forest trees outside China, according to an Aug. 28 report by Bloomberg. The Australian eucalyptus trees are designed to survive freezes in the U.S. South. This said David Liebetreu, IP's VP of global sourcing, will provide IP with a reliable supply of lower cost wood as timberlands come under pressure from development and the biofuel industry.If Summerville, South Carolina-based ArborGen gains approval, annual seedling sales could reach 275 million by 2018. The company is also seeking USDA's permission to expand a 57-acre test site to 330 acres, mainly in Texas, Florida and Alabama. The U.S. already permits disease-resistant plum and papaya trees, but ArborGen's eucalyptus would become the first engineered forest tree sold in the U.S. China has planted about 1.4 million biotech black poplars since commercialization in 2002. ArborGen sells about 300 million conventional tree seedlings a year to 2,000 customers in the U.S., Australia and New Zealand. David Knott, who manages US$1.3 billion as CEO of Dorset Management in Syosett, New York, said the engineered tree business could take off faster than genetically modified agricultural crop company Monsanto. Monsanto's genetics were used in 88% of the world's 309 million acres of biotech plantings last year, while sales of seeds and genetics has quadrupled since 2002 to US$6.4 billion last year. AborGen could boost yearly sales from $25 million to $500 by 2017, according to Stephen Walker, head of asset management at New Zealand-based Goldman Sachs JBWere Ltd. Source: www.forestweb.com
Are your products carbon neutral?...and what is your carbon footprint? A project funded by MAF and the New Zealand forest products industry is currently underway to help you find out. A web based tool is being developed to enable forest owners and sawmillers to conduct their own carbon footprint at least cost.We want your input into the development process of this tool. Questions are not commercially sensitive nor do they require you to enter specific data. We want to know your current perceptions of carbon footprinting, and gain an overview of industry practice with regard to reporting production and energy use. Input from industry is critical to ensure the proposed tool is developed in alignment with industry requirements and to ensure the tool will deliver future value. Click here if you are a forest grower and log producer. Click here if you are a Sawmiller or a wood processor.
Four NZ West coast mills paid $4 millionThe NZ Government is making a $4 million dollar payment to four West Coast timber mills to settle a long running grievance with the Timberlands West Coast SOE. Economic Development Minister, Gerry Brownlee, says an ex gratia payment is being made to address the failure of Timberlands to supply its forecast of timber harvest from 2000 when indigenous logging stopped."The government commissioned an independent assessment by KordaMentha to assess the actions of Timberland. KordaMentha concluded Timberlands may have not acted fairly to the West Coast timber industry over log projections," said Mr Brownlee. "A good faith ex gratia payment has been offered to the mills which made significant investment decisions to process pruned logs based on over-estimated projections," he said. "The affected mills agreed between themselves how they would split the total payment. This is a good outcome that I am pleased resolves a long-standing grievance," said Mr Brownlee.
Bids being lined up for Great SouthernGordon Martin, the millionaire businessman and Curtin University Chancellor's, AU$20 million pitch to take over some of Great Southern's managed forestry projects has been given a major boost. US hedge-fund manager Och-Ziff Capital is reported as set to take a 50 per cent stake in his venture. New York-headquartered Och-Ziff has nearly AU$25 billion of assets under management.Mr Martin set up sole-purpose company Pulpwood Plantations to launch his rescue bid for six of the failed group's projects last month. He had pledged to sink up to AU$20 million in working capital into the schemes to keep them alive but with Och-Ziff's in-principle partnership agreement means a pitch can be made for all 11 Great Southern plantation projects. It was reported that both parties expect to formally sign off on the deal in the next two weeks. In addition to the Pulpwood Plantations move a new bid has been announced, this time from prominent Perth businessman John Poynton and forester Tony Jack, a former director of Integrated Tree Cropping, now ITC, which was taken over by Futuris Corporation, now Elders. Great Southern receivers McGrath Nicol are taking expressions of interest from various parties until next Wednesday. Great Southern has 10 different forestry schemes that each operate over a 10-year period, and involve about 240,000 hectares of plantations.
First OSB plant planned for AsiaDieffenbacher GmbH has announced a contract with Hubei Bouyuan Group of China to supply the main equipment package for a new OSB production plant to be located near Jingmen, Hubei Province, P.R. China. This will be the first OSB line in mainland China and the first of its kind in Asia. Nominal production capacity of the 8 ft. wide and 30 m long continuous press CPS line is 220,000m3 /year. Poplar and pine plantations in the surrounding area will supply the fibre for the plant. Production of OSB is scheduled for start-up in 2010.
Global log & sawmilling costs results releasedWith respect to log costs in 2008, the global average annual delivered log cost to sawmills was US$69/m3. According to the 2009 edition of the Global Lumber Cost Benchmarking Report results, the average delivered log cost to sawmills was approximately US$10/m3 lower in Q1/2009, as market prices for logs and lumber dropped in parallel to the weakening market conditions. The Q1/2009 level is slightly lower than that reported in the 2006 report.The lowest delivered log costs in 2008 occurred in Russia (for companies with their own forest licences, where logs are at cost ), with some regions below US$40/m3. The next lowest-cost region was the Canadian Prairies, followed by Chile (where logs were in the US$40-$50/m3 range). The highest delivered log costs in 2008 were seen in China, for mills that used a combination of imported and domestic logs. The next highest-cost regions were in Europe - led by Germany, Finland and Austria - with log costs ranging up to $120/m3, almost three times the cost of logs available in Russia and the Canadian Prairies. Several regional timber cost trends emerged in Q1/2009 from the cost data that was compiled and analyzed on an apples-to-apples basis: - The returns on timber stumpage (or receipts to timber owners) were highest in Europe and the Southern Hemisphere and lowest in Russia and Canada. - Delivered log costs were lowest in Western Canada and Russia and highest in Europe. For the full-year 2008, average mills in the Baltics, Central Europe, Chile and Brazil had the lowest sawmilling costs versus other regions. During the same period, the highest sawmilling costs were incurred in Australia, South Africa, New Zealand, Russia and Eastern Canada. Sawmills around the world vary in scale, technology, flexibility, log size and product/market strategies, so it is not surprising that global sawmilling operating costs (before considering capital costs/depreciation) also show significant variances. From a global perspective, average sawmilling costs in 2008 ballooned to US$75/m3 from a much lower level in 2006; substantially lower operating rates and higher energy costs were the main cost drivers. In Q1/2009, global sawmill costs were somewhat lower due to cost-cutting efforts and improved currency exchange rates relative to the U.S. dollar. Aside from China, the Baltic States, Brazil and Chile had the lowest sawmilling costs (excluding logs) at average mills in 2008; these regions benefited from below-average labour costs, but were disadvantaged by currency rates. The 2009 edition of the Global Lumber Cost Benchmarking Report, released in the second quarter, benchmarks timber and sawmilling costs in 29 producing regions around the world for 2008 and Q1/2009, for both average and top-quartile sawmills. Source: International Wood Markets Group, www.woodmarkets.com
Green light for Plantation Energy AustraliaPlantation Energy Australia has won a green light from the district council for its AU$25 million industrial wood pellet plant near Mount Gambier in South Australia, The Border Watch reported on 11September. The plant will be only Australia's second wood pellet factory and will export wood pellets via the Port of Portland. The Grant District Council's Development Assessment Panel had attached more than 50 conditions to the approval. Although the plant itself will operate 24 hours a day, seven days a week, as part of the approval truck movements will be restricted to between 7 a.m. and 7 p.m. Source: www.forestweb.com
Safety alert resource for NZ forestry industryThe NZ Forest owners Association has recently upgraded its Incident Recording Information System (IRIS) to include a fully searchable Safety Alert library. The library's objective is to keep the forestry industry informed about the facts relating to recent incidents and to provide lessons to assist others to avoid similar events. The resource will also be popular for NZ forestry contractors looking for information to promote Tailgate or Safety meeting discussion. To view Safety Alerts click here. If you wish to contribute to the library send your alert to your Forest Owner principal, or alternatively to wayne.dempster@rayonier.com
Website promoting forestry draws young peopleIn this part of the world we're always looking for new and innovative ideas to communicate and attract students to look at forestry and wood products as a future career option. Check out a new initiative being used in New Brunswick called Go Forestry! It's a new interactive website aimed at students and career counselors and was launched in New Brunswick during National Forest Week. It drew in visitors from 35 countries in the first four weeks that it was active.The province invested US$120,000 in the development of the website and an accompanying promotion, including a four-week Internet advertising campaign that immediately followed the unveiling. The on-line ads, which focused on popular youth-oriented web and social networking sites, proved very successful. In the first month, there were 3,957 visitors who, on average, looked at three pages on the site. Find Your Career, Ask a Professional Forester and Tree Trivia were popular choices. Information packages went to career counselors throughout the province in conjunction with the launch of the website. A video promoting forestry careers was also prepared and can be viewed on the website at www.goforestry.ca
Sweden consumes more than 20% of the world's wood pellets
The biggest expansion in the use of forest-based biomass has occurred in Europe, mainly as a result of the decision by EU to reduce dependence on fossil fuels and use a minimum of 20% renewable energy by 2020. Sweden is currently the biggest consumer of wood pellets in the world, consuming over 20% of the world's production of wood pellets. In order to meet the demand from a fast growing market, the country produced almost 1.6 million tons in 2008 and imported another 300,000 tons mainly from other countries in Europe but also from Canada. There are no signs of any slowdown in demand for wood pellets, and the annual growth is expected to be between 8% and 10% in the coming years. There are currently over 450 pellet-producing plants in Europe with many new projects planned over the next few years. The United Kingdom, Denmark, Sweden and Germany are some of the countries that are expected to have the fastest growth in forest biomass consumption (both pellets and wood chips) over the next ten years. Pellet prices have trended upward the past seven years, as reported in the Wood Resource Quarterly. Prices in Sweden have generally been higher than in Central Europe, but in 2009, the price fell the most in Sweden, resulting in a convergence with prices in Germany and Austria. Wood fibre costs are expected to increase later this year, which would result in higher production costs for many pellet manufacturers. As a consequence, it is probable that wood pellet prices will start moving upward again this coming winter after a few months in retreat. Source: Wood Resources International LLC, www.woodprices.com
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...and one to end the week on...the tribe
A young Native American woman went to a doctor for her first ever physical exam. After checking all of her vitals and running the usual tests, the doctor said, "Well, Running Doe, you are in fine health. I could find no problems. I did notice one abnormality however." And on that note, have a great weekend. Cheers. We welcome comments and contributions on Friday Offcuts. For details on advertising for positions within the forest products industry or for products and services, either within the weekly newsletter or on this web page, please contact us.
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