Comment: Financial opportunities in forestry for farmers

Comment: Significant financial opportunities are available for sheep, beef and dairy farmers to integrate forestry into their businesses, provided they do their homework and get the correct advice. Sandra Taylor writes about a series of workshops that are helping farmers get more information.

Beef + Lamb New Zealand is rolling out a series of 'Farms, Trees and Carbon' workshops nationally to help farmers understand the financial opportunities available to them from integrating forestry (either pine or native) into their farm.

This includes understanding opportunities under the One Billion Trees fund.

Speaking at a North Canterbury Farming for Profit field day, farm forestry consultants Ollie Belton and David Janett gave an overview of the Emissions Trading Scheme (ETS), the carbon market and how farmers can capitalise on available funding.

They said the price for an NZU – a carbon unit that represents a tonne of CO2 equivalent – had fluctuated over the years, pushed down by bogus units from overseas flooding the market.

But the market has completely changed and the price for an NZU is on the rise, driven by New Zealand's need to reduce CO2 levels by 200 million tonnes by 2030. Price stability for carbon is important to reduce greenhouse gases.

Eligibility issues

Forestry, they said, gives New Zealand the ability to offset its emissions.

To be eligible for carbon credits, the forestry must have been planted after 1990 into land that was not previously in forestry or in native bush.

The onus is on the applicant to prove that the land was clear before 1990 and this is something the Ministry for Primary Industries is very strict about.

Belton said the forest must be at least 1ha, have 30 per cent canopy cover at maturity and be at least five metres high. Trees need to be within 15 metres of each other – so it does not need to be thick plantation forest to be eligible – but the trees do need to achieve 30 per cent canopy cover.

Poplars are eligible – as are shelterbelts, as long as they are linked together to meet the definition of a plantation and are at least 30 metres wide. Fifty to 60 trees/ha is fine – as long as the required canopy cover is achieved.

"It's all about planning, it's important to understand the rules when planning on-farm planting," said Belton, who recommends taking photos to show that the vegetation being planted into is not native species.

Belton and Janett said the eligibility issue is huge and is the most difficult part of the ETS.

There is a huge variation, they said, between the value of species based on growth rates. Exotics grow quickly compared with natives – and are cheaper.

Early sequestration maximises the internal rate of return on investment.

From a simple economic perspective, indigenous species are not a good investment but many landowners will have reasons apart from straight economic returns that dictate what they may wish to plant.

Despite differences in growth rates, economically there is not much variation between regions such as Northland and Canterbury. Growth rates, and hence carbon production, will vary by sites and species.

Growth rates are dependent upon altitude, soil and moisture. Dry, hard sites will grow lower levels of wood and carbon compared with moist, sheltered sites.

Funding support

There is funding support available for farmers through the government's One Billion Trees Programme, but this funding varies depending on the species being planted.

Given the low economic returns of natives, mixed indigenous tree plantings attract the most funding under the 1BT programme, with 30 per cent being paid when the application is granted, 50 per cent once planting is completed and a final 20 per cent when the landowner is able to prove the trees are being actively managed.

The government has made $200 million available for this fund over the next three years, so there is a huge opportunity for farmers to make use of this funding.

"The government doesn't want large-scale farm conversions; this is targeted at landowners who want to plant areas of their farms best suited to trees," said Janett.

"It's about integration."

However, once the land is in forestry, he said, it's unlikely that it will be in trees for the long term, given the potential cost of repaying carbon credits if deforested.

Under the proposed rule change to the emissions trading scheme, timber crops such as radiata will generate a return in the form of carbon payments for the first 18 years; after that there are no payments.

However, there are also no carbon repayment obligations at harvest, provided the forest is replanted. (The average rate of return for timber is 5-7 per cent, but for timber and carbon it is around 9-11 per cent).

The front-end carbon income can help offset costs, but when planting trees it is important to consider the feasibility of harvesting them in 25 years' time.

It's also worth considering that the regulatory environment around harvesting (building roads, health and safety etc) is huge now and will only get more stringent.

Combined, this may mean it may not be feasible to harvest small-scale forestry blocks of between 3-10ha, but this will vary from farm to farm.