Capital could grow on trees

Peak industry body the Australian Forest Products Association (AFPA) has warned against "throwing the baby out with the bath water" as the Senate Standing Committee on Economics inquiry into forestry MIS progresses.

The inquiry is due to hand down a report next March.

AFPA believes there has not yet been time to fully judge the success of reforms to the MIS structure introduced during the past decade, which have included improving transparency, constraining the practices of financial advisers selling products and allowing greater liquidity of plantation assets through secondary market trading.

The national target of lifting the area of commercial wood plantations to 3 million hectares by 2020 - necessary to sustain a globally competitive Australian timber industry - had been derailed by the collapse of forestry MIS companies, said AFPA chief executive Ross Hampton.

In the early to mid-2000s, the MIS structure was attracting about 75,000ha of new plantations a year but now, the Australian plantation area was in decline due to low rates of new plantations and the conversion of existing plantations to other agriculture after harvest, he said.

"We now have 2.1m ha under plantation, with about 25 per cent of that likely not to be replaced after harvest," he said.

"Australia is already bringing in $4 billion worth of timber imports a year.

"It doesn't make any sense not to be growing our industry at a time when domestic demand for consumer wood fibre goods such as tissue and paper, and timber for new housing, is moving back toward pre-GFC (global financial crisis) levels.

"In addition, analysts predict the US will again build up to some 1.5m housing starts and that is dwarfed by the potential in China which will soon be 15m a year."

Mr Hampton said governments across the world had provided a range of assistance measures such as taxation incentives to promote plantation development for wood production and other benefits such as carbon sequestration.

The global financial crisis was devastating for forestry MIS companies but the structure had been very successful in leveraging private sector investment in plantation development, he said.

In the past three to four years, almost all MIS assets - about 500,000ha of trees - from collapsed companies like Great Southern Plantations, Timbercorp, Willmott Forests and Gunns had been snapped up by institutional buyers, mostly superannuation funds looking for long-term assets that can be realised at any stage.

As much as 80,000ha of Forest Enterprise Australia country was still on the market.

The latest activity was last month's acquisition by investment manager New Forests of a 7000ha, 28-property blue gum package across south-western Victoria.

The country will be managed as part of Limestone Plantations by New Forests' Australia New Zealand Forest Fund 2, which closed in March with more than $700 million of capital from institutional clients.

New Forests chief executive David Brand said the latest acquisitions were "attractive, high-productivity forestry properties".

He said New Forests would seek to certify the forests with the Forest Stewardship Council as third-party verification of the sustainable environmental, social and economic management of the plantation.

Mr Hampton said the restructuring to institutional ownership was beneficial for the long-term outlook.

"These big buyers are now spending hundreds of millions of dollars managing properties, creating year-round jobs in regional areas in the process - we have vast areas of forest that are now being properly managed," Mr Hampton said.

Amidst the collapse of so many large-scale commercial tree plantation companies, one forward-thinking Northern Rivers family has placed themselves well down the track of a much smaller, yet promising, hardwood timber supply operation.

Their farming business, Super Forest Plantations, incorporates cattle production and biodiversity and targets high-value, niche timber markets.

Its success has hinged on a willingness to take risks.

The Wright family has 2050 hectares across seven Northern Rivers properties and since 2001 has planted 500ha of native hardwood species, and runs 600 Brahman-cross breeders for veal and steer fattening.

They grow tallowwood, red and white mahogany and ironbark in a mixed manner to replicate a native forest for the environmental benefits and to provide insurance against one species not performing.

This also means they have the option of hitting numerous markets, so while their target is to supply timber for electricity poles when trees are 30 years old, they can be flexible if other markets become more attractive.

Mark Wright said it had overcome the issue of "patches" in one-species stands, increasing biodiversity and a more balanced insect regime, more food year-round for wildlife and a more environmentally-friendly image for the forestry game.

The Wrights are also big proponents of thinning, which they say equals larger trees faster.

Red mahogany at their Nimbin property "Cabbage Palm", which has an annual rainfall of 1200 millimetres, is averaging 2.3mm in diameter a year.

The Wright properties were part of tours run in conjunction with the 2014 Australian Forest Growers conference, held in Lismore last month.

Mr Wright is pictured right with forest worker Lewis King and "Cabbage Palm" operations manager Reuben King.