Brian Fallow

The Economics Editor of the NZ Herald

Small forests get helping hand

An estimated 40 per cent of New Zealand forestry exports are generated from 14,000 individually owned forests. Photo / NZ Herald
An estimated 40 per cent of New Zealand forestry exports are generated from 14,000 individually owned forests. Photo / NZ Herald

A company offering small forest owners less risky options for realising their investment was launched in Wellington today.

United Forestry Group's business model is to consolidate the output of a number of forests in an area to effectively create one large forest which can be harvested over time. Such consolidation, it says, provides advantages for the supply of logs to local mills and enables longer-term contracts for harvesting, transport and international marketing.

Its cornerstone shareholder is a joint venture between international timber marketer Pentarch, which is headquartered in Melbourne and has been operating in New Zealand for more than 10 years, and a Chinese conglomerate, Xiangyu Group.

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United Forestry's chairman is Wellington lawyer and former National Party president Geoff Thompson and the other New Zealand directors are Hamish Levack and Kelly Coghlan.

Pentarch's chairman Malcolm McComb is acting managing director.

New Zealand is already a major exporter of softwood, mostly to China and other Asian markets, where it has to compete with supply from the vast forests of Russia, Brazil, Chile and North America.

McComb said New Zealand's situation was unique, with an estimated 40 per cent of forestry exports about to be generated from 14,000 individually owned forests.

"None of New Zealand's competitors in the international market is sourcing logs from thousands and thousands of small individually owned forests with resulting high costs, inefficiencies and an inevitably weak negotiating position," he said.

"The high harvesting and transport costs faced by the owners of single small forests, and their weak negotiating position with buyers, means the potential value of these forests may not be achieved and the final return to their owners and to New Zealand may be disappointing."

They might try to organise a contractor to do the felling, arrange transport to a port or sawmill themselves, and try to negotiate a price through an agent, McComb said.

"However, failure to manage the significant costs that go with felling a forest and getting it on board a ship, coupled with a weak negotiating position with purchasers, can have a huge adverse impact on the hoped-for return. Small export agents competing against each other in the very competitive Asian markets can actually drive prices down," he said.

"Right now, some mature small forests in New Zealand are not being harvested because the numbers just don't stack up. We think that joining forces with us and other participating owners will be a more attractive option for many than going it alone."

From a national point of view it was desirable for the "wall of wood" to be managed in a way that produced a sustainable yield over as many years as possible.

"Consolidating the output from a number of nearby forests will make a more sustainable approach possible. It will be desirable to harvest these forests over a longer period by cutting to meet firm, profitable orders rather than clear felling an entire forest at once, just to achieve volume," McComb said.

United Forestry would offer growers a range of options including buying a forest outright, with the owner keeping the land for future use, or buying the timber and the land, leaving the owner free to invest elsewhere, or a deal that includes shares in United Forestry Group, giving the owner a stake in the timber industry following the sale of his or her timber.

Consolidating the output of a number of small forests in a particular area would reduce harvesting and transport costs, and enable long-term supply contracts to local mills.

And control of its own shipping services would enable the company to consolidate the felling, transport to port and shipping of the output of a number of forests in a particular area.

Forest Owners Association chief executive David Rhodes said, anything that improved returns to forest growers and makes forestry investment more likely was welcome. "Effectively it is creating the equivalent of a normal forest with a range of age classes. It will have its challenges but the model is there in Scandinavia. It can be done."

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