Southern Tablelands Farm Forestry Network |
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STFFN newsletter - Winter 2005 [Print this newsletter - pdf 734kb]
Replanting ACT Forests – update In recent weeks, ACT Forests and the ACT Government have come under some public pressure not to replant Pinus radiata plantations in the Cotter Catchment following the 2003 bushfires. Some criticism has come from people who were originally supporters of the plan to replant the Cotter catchment with pines, and now appear to have changed their opinion. The 2003 bushfires burnt 10,500 hectares of pine plantations. A comprehensive plan has been prepared to replant 8,000 hectares of this area. The remainder will become parks, some residential development, and streamside buffers. The plan incorporates a re-designed roading network to lessen erosion, and native streamside riparian zones to enhance water quality. The proposed plan was endorsed in the “Shaping the Territory’s Future” report, and was found to have sound land management principles, and also made good fiscal sense. Greening Australia formed a partnership with ACT Forests for the planting of native trees and shrubs in the riparian zone, and also on steeper slopes where it was considered that future harvesting of pine plantations was not a viable option. Greening Australia has also come under some unjust, ill considered and unwarranted criticism for the role they are playing. Greening Australia has used over 1,000 volunteers for this planting, and the efforts of the volunteers and Greening Australia have been unfairly denigrated. Although the private plantation industry has been able to supply the ACT processing industry at present, the ACT processing industry will require the ACT Forests plantation estate to be replanted to ensure its long term ongoing existence. The long term ongoing existence of the ACT processing industry is also essential for the private growers in the Southern Tablelands region who have young plantations they will wish to market in future years. Thus replanting the ACT Forests estate will have long term economic, social and environmental benefits for the region. For these reasons, STFFN has written to the ACT Government and the Greens urging that the plantations must be replanted. A positive response has been received from the ACT Chief Minister giving an assurance that the pine plantation estate will be replanted in the ACT. To allow members to observe first hand what is being undertaken by ACT Forests, it is intended that the 2005 STFFN Annual General Meeting will be a tour of ACT Forests work in the Cotter catchment, looking at the roading re-alignment work, riparian zone planting with native species and the replanting of the pine estate. The tour will then look at the proposed Stromlo Forest Park, including the new arboretum site, and the heritage listed cork oak plantation. Details will be in the next newsletter. Direct seeded windbreaks on the Southern Tablelands of NSW: effectiveness and development Background STFFN has long recognised the commercial potential of direct seeded windbreaks in the Southern Tablelands region. To investigate the potential commercial benefits from direct seeded windbreaks, STFFN sponsored an ANU Forestry honours student, Meghan Whitbread, to undertake to this important study. The following is the abstract from Meghan’s honour thesis. Abstract The importance of having trees on farms has been recognised by landholders for centuries. Trees can offer shade and shelter for the protection of livestock, crops and pastures, reduce soil losses from erosion, stop unwanted weeds from neighbouring properties, reclaim barren landscapes and offer the potential for the production of farm timber, to mention some advantages. Direct seeding of windbreaks in Australia has been used as an efficient and economic way of revegetating the landscape to deal with a wide range of objectives. Direct seeding is a way of directly sowing seeds into prepared ground. In this study, direct seeding has been used to establish native mixed species windbreaks to provide shade and shelter, with the possibility of obtaining timber from the stands. Previous research has shown that the maximum shelter benefit of a windbreak is related to porosity and tree height. Porosity is the proportion of space that is taken up by vegetation or left as open gaps. To achieve an optimum windbreak there needs to be a balance between the vegetation and open gaps. If the windbreak is too dense (all vegetation) it acts as a barrier and turbulent eddies form on the lee side. If the windbreak is too porous (many gaps) it does not reduce wind speed to a great extent and stock and pastures will not be as protected. Optimal windbreak porosity for reducing wind speed is one that has uniform porosity across the windbreak to a value of approximately 35% to 45% (optical porosity). Experimental sites were established in windbreaks on farms at stand ages 4,5,6,8,9,12, and 16 years old. Photographs were taken to obtain an estimate of optical porosity, total tree height and Diameter at Breast Height measurements were taken, and presence and absence data was collected on each species sown at each site. It was demonstrated in this study that none of the windbreaks had uniform optical porosity across the upper, middle and lower layers of the windbreak. Vegetation was concentrated in the middle layer and did not occupy multiple growing spaces across the height ranges. The consequence is the creation of gaps. Over time the windbreaks are not maintaining sufficiently even stand structure to optimally provide shade and shelter for pastures and livestock, while maintaining the possibility of farm timber. The sample of windbreaks used in this study is small, however it does demonstrate that the age classes sampled do not follow the usual successional trend in native forest stands of acacia species dominating early, slowly being replaced by eucalypts. Although this trend occurs distinctly between the 4 and 16 year old windbreaks, others between these ages do not follow this trend. Possible differences in site factors and environmental conditions at the time of sowing could be reasons. Thus a manager cannot assume that because acacias are usually pioneer species and faster growing than most eucalypts, that acacias will dominate a stand early on. The younger age classes (years 4,5 and 6) have a distinctly different species composition than the older windbreaks (years 8,9 and 12). Essentially the species composition change occurs around age 7. Younger sites are dominated by Acacia mearnsii and Eucalyptus ovata, whereas older sites are dominated by E. blakelyi, E. mannifera, E. melliodora, A. implexa, A. cardiophylla, A. boormanii, A. falciformis, and Callistemon citrinus. However, Eucalyptus viminalis and Acacia decurrens occur in every site. Revegetation programmes should take into account the competitive aggressiveness of the latter two species if the outcome is to encourage a diversity of species. The ability of these species to out compete all other neighbours provides evidence of their capacity to dominate revegetation areas. When determining species mixes the competitive nature of some should be considered and they should be sown at lower densities to ensure the resulting plant communities are diverse. In direct seeding projects the resultant vegetation is not completely representative of the seed mixture. Dominance by any one species varies from site to site. This may be influenced by rainfall events in combination with environmental and site conditions (availability of light, water, soil and nutrients) both at time of sowing and subsequently. There is the potential for farm timber options in direct seeded windbreaks. However, whether the farm timber operations will be economically viable or not is another matter and needs to be the subject of further research on farms. Important factors include access for management options, particularly harvesting, access to markets and potential buyers. Windbreaks can be planted for many multiple benefits, including shade and shelter for pastures and livestock, enhancing farm aesthetics, increasing biodiversity, creating a fodder resource and can be used to diversify income through farm timber. This study has shown that all of these outcomes are unlikely if the stand is left unmanaged. Early management will be critical to maintain the integrity of the windbreak so that the original goals set by the landowner can be achieved during the later stages of stand development. Future research on management of direct seeded windbreaks of native Australian plants is needed, particularly on optical porosity and thinning trials. Forestry reports will bring balance to timber debate Australian Forestry and Conservation Minister Senator Ian Macdonald has launched three new reports on the important issues of sustainability, the barriers to investing in timber plantations and the availability of plantation grown hardwood sawlogs. The publications, Eucalypt Plantations for Solid Wood Products in Australia, Impediments to Investments in Long Rotation Timber Plantations and Forests for Tomorrow were launched at the Regional Forestry Workshop for Central and North Queensland in Mackay. Senator Macdonald said recent media claims incorrectly suggesting there is enough plantation grown hardwood available to replace those logged in native forests proves the need for facts in the debate. “These reports clearly dispel some of the myths being pushed by the radical Green groups,” Senator Macdonald said. “In fact, the Eucalypt Plantations for Solid Wood Products in Australia report highlights that by 2035, plantation logs are likely to make up only about 18% of the total log availability.” “The report brings together all the information on Australia’s hardwood supply, as well as its potential for value added timber products. It recommends a greater focus on research, particularly in the areas of:
Senator Macdonald said the second report, Impediments to Investments in Long Rotation Timber Plantations, identifies the barriers to investing in these types of plantations, and ways of overcoming them. “The right investment environment is crucial to any industry’s long term growth and survival,” he said. “The Australian Government believes it is especially important with regard to long rotation timber plantations, and we contributed $20,000 towards this report in the hope some of the recommendations will help the industry move forward.” The final publication, Forests for Tomorrow, examines how timber products are used and produced, and also provides a range of views on the important issue of sustainability. “As the report states, people love wood, and love forests, but sometimes struggle to agree on how to have both,” Senator Macdonald said. “These three reports make an important contribution to the debate on sustainability in Australia’s forest and wood products industry, the investment climate during a very capital intensive period, and the future of the plantation hardwood sector.” Impediments to investment in long rotation timber plantations This article is the Executive Summary from a document of the same name prepared by the Forest and Wood Products Research and Development Corporation. Over the last decade in Australia investment in short rotation plantations has greatly exceeded investment in long rotation plantations. URS Forestry estimates that only around 20% of the estimated 450,000 hectares of new plantation established in Australia over this period was for long rotation plantations. There is already emerging evidence that lack of investment in long rotation plantations will result in insufficient supplies to meet the future demand of processors. The aim of this study is to assess whether or not there are impediments that are resulting in under investment in long rotation plantations. The study does not aim to recommend actions that would lead to preferential treatment of long rotation plantations versus short rotation investments, but rather to identify different factors that have acted to limit investment and to propose a series of measures to overcome impediments that are assessed to be distortionary from a national economic point of view. The most significant development in generating investment in new plantations in Australia in the last decade has been the very rapid expansion of the hardwood plantation estate. The most important driver of this investment has been the growth of the Managed Investment Schemes (MIS) that have successfully provided a mechanism for attracting retail investors to plantation investments. Most of this investment has been in short rotation plantations and it appears that retail investors are less interested in long rotation investments. The other major development has been the entry of the Timberland Investment Management Organisations (TIMOs). These companies have responded to market opportunities presented by the privatisation of publicly owned plantations as well as the desire by processing companies to move out of plantation ownership. There is also a growing interest by institutional investors generally in plantation investments. These wholesale investors are generally more interested in existing plantation assets than new plantation establishment, although there is evidence of an increasing interest in new plantation establishment by larger institutions. Major Impediments The study included a survey of the existing literature on impediments, ranking of those impediments, and targeted consultation with relevant stakeholders including institutional investors, asset consultants, MIS companies, financial advisors, state governments, forest product processors (industry) and equity and debt providers for plantation investments. This consultation component culminated in a workshop for selected stakeholders that focussed on taxation issues relevant to the functioning of secondary markets for plantations and the potential for alternative investment vehicles for long rotation plantations. The key factors identified as inhibiting investment in establishment of green field long rotation plantations were: Limited development of secondary markets for plantation – secondary markets refer to the sale of plantations between parties during the rotation. Although there is a developing secondary market in plantation sales in Australia, the market is characterised by relatively few trades of larger assets. This limited nature of secondary markets reduces the liquidity of plantation investments and makes long term forestry less attractive as part of an investment portfolio, particularly for wholesale investors. The lack of secondary markets also limits the ability of plantation owners to value their maturing plantation assets over the life of a rotation which is more important for long rotation plantations; Lack of readily available market information – compared to other countries and other commodities there is relatively little available information on log transaction prices in Australia. This makes assessment of plantation investments difficult and creates uncertainty; Non market based log pricing and allocation – reliance on non market based mechanisms for log pricing and allocation adds to the uncertainty created by lack of log price information; Limited understanding of investor needs and the forest sector – there is a limited understanding by potential investors of the forest sector and the nature of plantation investments. Similarly, many participants in the forest industry do not have a good understanding of investor needs, and; Limited knowledge of hardwood sawlog plantations – while the technical aspects of softwood and short rotation hardwood plantation establishment are well understood the technology associated with long rotation hardwood establishment is much less well developed in Australia. In addition to these “primary issues” other issues that were identified as potentially inhibiting investment in long rotation plantations included the limited development of markets for environmental services and perceived sovereign risk associated with a lack of certainty over rights to harvest planted forests in Australia. Secondary markets and taxation The limited nature of secondary markets for forest plantations is largely a reflection of the size and structure of the industry. While there has been a small number of sales of both large public and private resources in Australia in recent years, there has been a less active market in smaller plantations. The potential of the taxation system to discourage secondary trade in plantations has received considerable attention. Review of that information and consultations conducted as part of this study suggest that the Tax Ruling 2000/8 and in particular Paragraph 48 of that ruling, act specifically to prevent MIS companies from offering long rotation products that include secondary sale. Paragraph 48 is interpreted by MIS companies to mean that of long rotation plantation investment that involve sale of the plantation prior to harvest will not qualify for an ATO Product Ruling. Failure of MIS to get a Product Ruling prevents investors in plantations from accessing the primary producer deductibility provisions thereby removing a major attraction of the scheme to retail investors. As Paragraph 48 is part of a Tax Ruling it represents an ATO interpretation and addressing this issue does not require a change in tax legislation. It appears that changes in the plantation investment sector have removed many of the concerns that originally motivated Paragraph 48. It is therefore proposed that the forest industries approach the ATO to seek re-interpretation and issue of a revised ruling. To remove the bias against long rotation investment, it is suggested that the forest investment should be owned for a specified time (say, 10 years) prior to sale. A 10 year minimum period would prevent tax driven “round robin” sales of plantations and effectively achieve neutrality between long rotation and short rotation investment decisions. The taxation treatment of profit-a-prendre has also been raised in the past as a dis-incentive to development of secondary markets. Profit-a-prendre is the name given to a common law provision that originated in the United Kingdom that allows the partitioning of rights to land. It can be used in plantation investments to separate ownership of trees from the land on which they stand and has proved a useful tool for the development of markets for environmental services. For example, a number of states have legislated to allow separate registration of the title for carbon on land titles. It has been suggested that the taxation treatment of profita-prendre discourages use of this instrument, thereby effectively reducing the scope for secondary sale of trees in this way. It is argued that the full value of the asset created by profit-a-prendre could become subject to capital gains tax in the year created even if no payment is made at the time, and subsequently income tax may be payable on any income derived from the right in the future. However, there is evidence of considerable use of profit-a-prendre in new plantation development in recent years and there is no known incidence of actual imposition of such double taxation. In addition, none of the commercial operators contacted during this study expressed concern over the taxation treatment of profit-a-prendres. This contrasts with the interest shown in other tax issues, such as Paragraph 48, which was repeatedly mentioned. Given that profit-a-prendres are being entered into voluntarily in increasing numbers and are reported helping to provide investors with tradeable plantation rights, there would seem to be little to gain at this stage from pursuing changes. Another taxation related issue that deserves attention is the sunset clause applying to the “12 month prepayment rule.” This rule was introduced in 2002 and under existing legislation is due to end on 30th June 2006. It allows a plantation manager a maximum of 12 months (or no longer than the end of the following financial year) to secure land and carry out “seasonally dependant agronomic activities” associated with plantation establishment for which the grower has paid and claimed the business tax deduction. These arrangements are very important for the effective and efficient operation of MIS. Further, the perceived need for the sunset clause was misguided, since the 12 month rule provides no special incentive or subsidy, for either the grower or the manager. Rather, the 12 month pre-payment rule, as legislated, is merely a timing mechanism that enables the plantations to be established in a seasonally appropriate manner, and does so without an attributable cost to public revenue. If the 12 month rule is terminated it is highly likely to substantially reduce the current rate of plantation establishment (both short and long rotation), as well as the replanting of areas as they are progressively harvested. Continuing uncertainty about the future of the 12 month rule will also discourage new entrants to the MIS plantation sector, including those with an interest in establishing and managing long rotation plantations. Since the MIS plantation sector is currently driving most new plantation investment, it is imperative that that this investment is not threatened or impeded by adverse changes in tax treatment. Lack of information and clear market signals for log pricing and allocation The lack of availability of log price information arises out of the structure of the forest sector in Australia. The relatively small number of buyers and sellers, together with the fact that logs are generally sold by long term contract, means that log pricing information is commonly commercial-in-confidence. While the situation has improved with the publication of the Australian Pine Log Price Index (APLPI), there is considerable scope to improve the extent and availability of log price information to plantation investors. While public agencies have taken considerable effort to introduce more market based pricing for log sales, a large proportion of plantation log sales are still based on administratively determined prices with allocation based on long term contracts that exceed what would be expected in more freely operating markets. It is also argued that the methodologies used by some state agencies to determine stumpage prices have little or no relevance to the market factors that would affect private growers. For example, the Western Australian Forests Products Commission has used a “cost of growing” methodology to price native hardwood sawlogs and other states also have heavily administered price systems for both native and plantation sawlogs. These issues have been addressed over time through corporatisation and privatisation of government owned plantation agencies. For instance, changes have included auctioning of increased log volumes, shorter term contracts, more accurate statement and commitment to log specifications and more commercially oriented log supply contracts. However, in general there is considerable room for improved commercial orientation in these areas. The following actions are proposed as means of enhancing market signals for potential plantation investors: Extend the APLPI to cover all major growers and examine the scope for illustrating regional log price differences; Develop a similar index for hardwood logs. This will be more complex as a result of the various grades but benchmarks should be possible; and Promote increased transparency and ongoing market orientation of log prices and allocation by government agencies through ongoing expansion of the use of a combination of short term tenders and long term supply agreements. These actions would require co-operation between existing private and public sector growers and there is no existing formal organisation with responsibility to drive these changes. In the case of plantation softwood log prices the APLPI is prepared through co-operative arrangements between major public and private forest growers in southern and eastern Australia and any extension of these arrangements would require consideration of existing participants as well as new participants. Given the mix of public and private growers it is suggested that the Australian Plantation Products and Paper Industry Council (a3p) drive the proposed extension to APLPI. For hardwood sawlogs the vast majority of sales are from public agencies. It is therefore suggested that the proposal to prepare a hardwood sawlog index be further considered and driven by the Forestry and Forest Products Committee of the Primary Industries Ministerial Council. Similarly, this Committee would appear to be the appropriate body to promote increased transparency and ongoing market orientation of log prices and allocation by government agencies. In addition, it is recommended that state governments give consideration to ongoing commercialisation and preferably privatisation of government owned plantation assets. The sale of publicly owned plantation assets offers the opportunity to substantially increase investment in long rotation plantations and thereby build familiarity with the sector among investors. It is also considered that increased private ownership of plantations has the potential to provide significant economic benefits by providing more commercially focussed management and log pricing mechanisms. Understanding investor needs and forest sector characteristics As part of the stakeholder consultations it has become clear that several participants in the forest industry (including MIS companies) that have been actively seeking funds from institutions such as superannuation companies do not adequately understand the industry with which they were trying establish a business relationship. Similarly, there was strong interest in the plantation sector from the investment community but a lack of understanding of its financial drivers. It is important to note that the decision makers within financial institutions and their advisors (asset consultants) are not proactive in seeking investments, whether they are in forestry or other sectors. The number and quality of proposals presented to these organisations are such that staff are fully employed evaluating proposals that come across their desks. There can be significant differences in the investment philosophies of various organisations and it is therefore critical that any plantation manager that is making a “pitch” for funding takes time to understand the objectives and philosophies of the particular institution. Examples of approaches by the forestry sector that did not progress for reasons other than underlying financial returns included reasons such as inappropriate investment structures, inadequate understanding of assessment and reporting procedures, and corporate culture. The lack of understanding between industry participants and investors is already being addressed to some extent through increasing contact between the sectors via projects such as this and industry conferences that have greater appeal to the investment sector. As an example, the International Investment Seminar as part of Austimber 2004 specifically targeted the domestic and international investment community. However, there is scope for the forest industry to put a greater emphasis on providing information to potential investors and there is a role for industry associations to organise a combination of formal (eg seminars) and informal gatherings to facilitate this change. Hardwood plantations Research and development into long rotation softwood and short rotation hardwood plantations is well developed in Australia, as well as other regions where the same species are grown. However, the Australian forestry industry has previously enjoyed access to a public native hardwood estate and the same research effort has not been extended to the establishment and management of long term hardwood plantations. Senate Rural and Regional Affairs and Transport Committee inquiry into Australian forest plantations – A Review of Plantations for Australia: The 2020 Vision highlighted the need for a co-ordinated approach to research and development in the hardwood sector that focuses on a broad range of issues including plantation health, wood quality characteristics, and silvicultural systems that shorten the rotation and technologies that utilise small logs. While this has not occurred in Australia, there is a considerable body of research available on long rotation hardwood plantations, particularly in South America and South Africa. There appear to be opportunities for the establishment of plantation eucalypts in Australia from a market perspective, but the level of technical knowledge suggests a need for caution in the creation of any specific incentives that promote the rapid establishment of a broad scale long rotation hardwood estate. Emphasis should be placed on a coordinated effort to undertake the research and development necessary to make well considered forestry and investment decisions. While some of the information gaps can only be filled by establishing long term trials and breeding programmes, it appears that considerable progress could also be made through a co-ordinated review of the available data sets from existing plantations and by collating relevant research from overseas. It is understood that the Forest and Wood Products Research and Development Corporation (FWPRDC) is currently funding a study that should provide a useful first step by assessing available research and development relevant to producing solid wood products from hardwood plantations. It is also understood that the report of that study will identify a need for coordinated research and development. It is therefore proposed that the FWPRDC consider further funding for cooperative approaches to relevant research and development for long rotation hardwood plantations. Markets for environmental services The environmental services that can be provided by plantations are of interest to potential investors with the sustainability of forestry investments often highlighted as an attraction to investing. However, markets for environmental services in Australia are only in their infancy and subject to considerable uncertainty, which in turn inhibits investment. A diverse range of market based schemes has been introduced in Australia over the previous few years, including transferable water entitlements, renewable energy tradeable certificates and tax rebates for landcare. Markets for environmental services for land under forestry are less advanced, however there has been some recent interest in investment resulting from the NSW Greenhouse Gas Benchmarking Scheme, the potential for carbon trading, and the increasing social and environmental awareness of organisations. There has also been a pilot salinity credit trade where downstream irrigators paid for additional transpiration by re-afforestation projects. The commercial environmental forestry project currently being undertaken by CSIRO and funded by the Commonwealth Government offers potential for further definition and evaluation of the environmental benefits of planting trees in lower rainfall regions for environmental benefits. Regardless of current Australian government policies and emissions trading systems, it is understood that a number of industrial companies currently have funds available for investments that may provide a carbon offset against industrial activities. Some of these investors have been looking closely at the forest sector as a means of providing a commercial return and sequestering carbon. There is also a strong preference for plantation investments that provide other environmental benefits. However, in most cases such investments do not meet minimum rates of return for investors. Providing a subsidy to corporate investors that are prepared to establish plantations in particular regions that have defined environmental benefits could better leverage government funds currently being spent directly on environmental tree planting activities. Sovereign risk The two main aspects of sovereign risk relating to long rotation plantation investments are the lack of certainty over rights to harvest planted forests in Australia; and inconsistent government regulations for plantation establishment, particularly with respect to codes of practice and local government regulations. Forest rights legislation has now been implemented in all Australian states but there are no such rights in the territories at this stage. Despite this, there is some concern that long rotation plantations of native species will at some stage be exposed to environmental protection claims. Australian Forest Growers (AFG) cites examples in NSW, and a Hardwood Sawlog Forum conducted by the Victorian Government in 2002 also expressed the same concerns. However, there is little evidence that this is a major limitation on new plantation investment. Local government regulations can act as a significant restraint on plantation development and the issue has been raised at a number of forest industry regional investment workshops over the last 18 months. These workshops have been convened on behalf of the Forest and Forest Products Committee of the Primary Industries Ministerial Council. In addition, the report of the Senate Rural and Regional Affairs and Transport Committee inquiry into Australian forest plantations – A Review of Plantations for Australia: The 2020 Vision, clearly recognised the potential impact of local government regulations on plantation development. A number of submissions to the inquiry also raised the issue eg, the Forest and Forest Industries Council of Tasmania list local government obstacles as the critical impediment to achieving the aims of the 2020 Vision in Tasmania. The council claimed that local government manifests the uncertainty created by anti plantation and that planning and zoning ordinances are inflexible and excessively regulated. Submissions from other states to the Senate inquiry also listed local government as a major obstacle to plantation development. Recommendations for action While governments are investing in some expansion of the long rotation plantation estate, it is clear that the private sector will be more important to the expansion of the plantation estate in Australia than it has been in the past. The MIS companies have been very effective in mobilising retail investment in short rotation plantations but their investors have less interest in long rotation plantations. At the same time TIMOs and other institutional investors have a strong interest in long rotation plantations but have a preference for purchasing established plantation estates. These preferences create a logical pattern of ownership throughout the rotation that utilise both retail and wholesale sources of investment funds. MIS investors could establish the long rotation plantation and this could be on-sold to a TIMO or financial institution during the rotation. From the primary investors point of view the transaction needs to be no different to that of an investor in a short rotation plantation, except that they are selling standing timber rather than harvested logs. There are two initiatives that could be taken immediately to address this and create opportunities for increased investment in long rotation plantation: Firstly, redressing the issues associated with Paragraph 48 of TR2000/8 would result in MIS companies preparing investment projects to raise retail investment funds for green field long rotation plantations on a similar basis to short rotation plantations. It is expected that this would lead to a significant increase in retail investor interest in long rotation plantations; and Secondly, there is potential to capitalise on the growing interest by wholesale investors in green field plantation establishment. Improving the availability of regular market information could most readily facilitate this, and ongoing development of market based pricing and allocation. In addition, the potential application of the sunset clause for the 12 month pre-payment rule applying to MIS runs the risk of severely reducing their ability to attract investment in both short rotation and long rotation plantations. Action to remove the sunset clause must be taken immediately. Specific priorities for action to achieve these outcomes are:
Discussion paper for the plantations and water roundtable The National Water Initiative (NWI), as agreed by COAG (except Tasmania and Western Australia), and the requirement on State Governments to develop implementation plans to achieve the objectives of that agreement, present a significant number of challenges for Australia’s plantation sector. Paragraph 55 of the Intergovernmental Agreement for the NWI identifies large-scale plantation forestry as a landuse change activity occurring without a water access entitlement, but with the potential to intercept a significant volume of surface and/or ground water. The agreement goes on to state that the impacts of plantation forestry should be assessed and, where necessary, appropriate planning, management and/or regulatory measures should be introduced by catchment managers to protect the integrity of the current and future budgeted water access entitlements (paragraph 56). While there appears to be no justifiable reason for having plantations or native forests recognised as a significant interceptor of water, the NWI is quite clear in its content. A change in landuse to large-scale plantation forestry will be regulated by catchment managers through a process that is similar to the management of water interception by farm dams. There is no doubt that plantations, like all other dryland activities, use water. However, the impact of plantations on catchment water yields is extremely variable and there continues to be little recognition of the many economic, social and environmental benefits that can be generated by supporting the future growth of the plantation sector. In lower rainfall areas, for example, it is more than likely that plantations will deliver a more efficient use of the available water than other agricultural activities. The National Water Commission will therefore have an important role in determining whether the treatment of plantation forestry, to be presented in the State’s implementation plans, is consistent with the objectives of the NWI. Governments should not attempt to over-regulate the plantation sector by detailing the species that can be grown or the silvicultural practices, and when introducing rules which refer to plantation planning approvals, that there is some means for assessing the economic and social impacts of those regulatory controls. The Plantations and Water Roundtable will consider definitions for some of the terms contained in the NWI, the options for using a balanced approach to assist catchment managers determine how water should be distributed across each landuse, and the options for securing credits arising from more efficient water use or improvements in water quality. It is anticipated that these important matters can be drawn together in an industry position statement on plantations and water, and will be pursued by an industry working group after the Roundtable. The following draft statement is provided for discussion during the course of the Roundtable. The plantation sector is willing to assist water regulators and catchment managers:
Background on the National Water Initiative (NWI) and National Water Commission The NWI as agreed on 25th June 2004, established the objectives, outcomes and actions to be completed as part of the national water reform process. This agreement identified the need for reform in water access entitlements and planning, integrated catchment management, water resource accounting, building improved knowledge, and establishing a system of community partnerships and adjustment. It is intended that this process of reform will optimize the economic, social and environmental outcomes from the nation’s water use, based around a transparent and legislated system for water planning in each State and Territory, and facilitate efficiency improvements in the use of water. As part of the NWI, large-scale plantation forestry was recognised as a significant interceptor of water with the water use entitlements for this landuse to be considered separately from the entitlements for all other dryland landuses. The State Government processes for regulating plantation forestry should therefore be contained in the draft implementation plans that the States will present to the National Water Commission by mid-2005. In the first instance, the Commission will be required to undertake an initial assessment of Australia’s water resources and water management practices. Two additional roles for the Commission will be advising COAG on progress with the implementation of the NWI and the administration of the Australian Water Fund. There will be two programs under the Australian Water Fund – Water Smart Australia and Raising National Water Standards. Water Smart Australia will accelerate that introduction of new water use technologies and practices. The Raising the National Water Standards program is designed to improve Australia’s capacity to measure, monitor and manage its water resources. Plantations and Water – an overview The opinions surrounding the level of water use by plantations has been over-simplified to a point where there is a commonly-held perception that plantations use 1-2ML per hectare per annum more water than the pastures they replace. This additional interception of water may lead to a reduction in stream flow, leaving a smaller amount of water available for other water users and the environment. At the present time, each State’s Code of Forest Practice provides an important link between forestry and water policies. In each Code of Practice, the planting of trees around drainage lines, creeks and rivers, is heavily restricted. For example, in Victoria, the Code of Practicecontains a ‘water yield protection requirement’ that may require plantation managers to protect water yields by adopting longer rotations, controlling stand density by thinning, or by placing limits on the area that can be harvested each year. Unfortunately, the new management and design requirements contained within the Codes of Practice are not fully reflected in the current models of plantation water use, which use data from older plantation designs that are likely to over-estimate the amount of water being intercepted. It is important that catchment managers are aware that plantation water use is driven by a number of factors that extend well beyond the area or proportion of a catchment that contains plantations. Research from the CRC for Catchment Hydrology has indicated that there are significant differences in plantation water use between the uplands and lowlands of catchments. In some cases, as in the Commercial-Environmental Forestry project being undertaken for the Goulburn-Broken catchment (Victoria), it is predicted that plantation establishment can be targeted in the landscape to deliver a significant reduction in the volume of saline groundwater discharged into rivers while having a limited impact on surface water run-off. For other catchments, such as the Denmark River catchment in southwest Western Australia, a change in landuse from agriculture to plantations is leading to improvements in the river’s salt loads. Although it will take some time for the water quality to return to potable levels in that catchment, there is a long-term positive trend associated with the expansion of the plantation resource. While there is little doubt that plantation use water, the correct assessment of how much water is intercepted, whether it is significant and whether that use of water has other positive benefits, has only been assessed in a small number of cases. If in the major plantation regions around Australia, tree crops cover less than 10% of the agricultural land area, but produce up to 30% of its economic output and provide more than 25% of its employment, should this be viewed as a good use of water? If so, should this water use be supported through legislation and catchment management plans that reflect such benefits? How should the water entitlements for each landuse, including plantations, be determined? Improvements in water quality must be considered alongside the impacts on water yields, government policy priorities and other regional economic and social outcomes, when assessing the water use and entitlements for plantation growers. For example, the Victoria’s draft Plantation Investment Strategy recognises the importance of having a viable and growing timber industry in that State. However, with the reduced access to native forest resources in that State, the industry will become increasingly dependent on plantation resources, which may in turn, impact on water yields and run-off. It is therefore important for State Governments and catchment managers to recognise and resolve the conflicts between water use and other policy priority areas. Reviews of the current literature on plantation water use indicate that the impacts of plantations on stream flow are specific to their respective region and ecosystem. For example, in some areas plantations use less water than native forests (Leon Bren, personal communication) while in others, plantations use groundwater from shallow water tables (Richard Benyon and Tanya Doody, CSIRO Technical Report No. 148, 2004). Given the specificity of these research results, decisions on water allocations for particular landuses, such as plantation forestry, should be made at the Water Management Planning level based on the principles of a nationally-consistent framework, rather than through prescriptive State Government legislation and regulations. However, at this time, no government or catchment has developed a system that will help guide the decisions of catchment managers over their water allocations, entitlements and management options for all of the landuses within their jurisdictions. A comprehensive approach for assessing the water needs and setting entitlements is outlined in Figure 1. By taking account of all these factors, it may then be possible to determine what are efficient uses of water, what is significant interception and what is largescale plantation forestry. During the Plantations and Water Roundtable, there will be some consideration of the processes that catchment managers could utilise to assess the amount of water being used and to determine the sustainable water entitlements across the various landuses within their jurisdictions. The processes adopted by catchment managers should have the capacity to take into account the:
Certification is another means for improving the efficiency of plantation water use If the plantation sector can be guaranteed access to a certain volume of water within each catchment, then issues over water use efficiency, species selection and silvicultural options become of strategic importance to the future growth of the industry. Forest managers who have achieved certification are already required to consider these matters as part of their commitment to on-going improvements within their sustainable forest management practices. For example, under the Australian Forestry Standard, one of the indicators is for forest managers to work with relevant landholders and water managers to monitor the impacts of forest management activities on water yields. Appropriate actions for forest managers may include increasing water yields by thinning or by maintaining a mosaic of age classes across catchments. However, some thought may need to be given to the impacts on water yields where a substantial proportion of any one catchment is planted with tree crops across one or two years. The requirements of certification, in addition to the requirements stipulated in the State’s codes of forest practice, have the potential to drive improvements in water use efficiency. Other options for improving water yields may be to leave the plantation sites fallow for a year (and sell the increase in surface water run-off for that period) or to include late-age fertilisation as a means of increasing the volume of timber grown for each megalitre of water consumed by plantations. Unless water managers and regulators are properly informed about current water use, projected use and the options for improving the efficiency of water use across all landuses, it will be difficult to derive an equitable and consistent system for allocating water entitlements. In this context, the research priorities of the plantation sector which need to be completed to assist this process, will be discussed during the Plantations and Water Roundtable. Water regulation driven by various sources of legislation Clauses 55 and 56 of the NWI clearly identify water interception by plantations as an important issue that needs to be addressed. In addition to the water resources legislation in each State and Territory, it is possible for plantation water entitlements to be regulated through a range of other mechanisms which have been designed to minimize any threats to ground and surface water yields, including:
This list indicates that there are many different ways to control the impacts of plantations on surface water run-off and catchment water yields. In addition, there is already some talk of introducing new measures that could, if not thoughtfully implemented, have a significant and unnecessary impact on the future growth of the plantation sector. These new measures might include mandatory water efficiency or water-saving targets, set on a catchment-by catchment basis. However, they should not be introduced until they can be applied to all landuse activities within the respective catchments. Will the improved management of water resources lead to new opportunities for the plantation sector? To improve the returns from plantation forestry projects, one option is for catchment managers to consider the development of salinity credits. These credits could apply to some of the multi-purpose plantations that will be established in areas such as the Denmark River and Goulburn-Broken catchments. In addition to the salinity credits, catchment managers might also consider supporting some positive economic returns for the introduction of practices that lead to a more efficient use of water. In the Pratt Water Murrumbidgee Project, The Business of Saving Water, it is stated that ‘our water crisis does not stem from an overall shortage of water. Our water crisis arises from our failure to make better use of the water resources we have.’ Instead of the water debate focusing on a choice between agricultural growth and the environment, there is a requirement to have a national water policy and trading system to ensure that water flows to its highest-value uses, which should also incorporate the unique and lengthy growth periods of the forestry sector. The Pratt Water Project provides some examples of the water savings that could be delivered from a better use of our existing water resources. Out of the 4.3 million ML of water conveyed through the Murrumbidgee catchment each year, around one-third of the water is lost from the system without generating any economic, social or environmental benefit. It has been estimated that up to 945,000 ML of these water losses could be saved and used for productive purposes and environmental flows. If these water savings can be delivered, it will open up the potential for a range of new agricultural investments in this particular catchment, including the establishment of additional plantations. The report indicates that at least 30,000 hectares of new plantations are required to meet the growing demands of the region’s timber processing sector and should be established over the next 10- 15 years. Even if these plantations were to use 1ML of water each year over and above the amount of water used by the pasture they replace, this would only represent around 3% of the possible water savings for the catchment. There also continues to be some discussion on the introduction of water saving targets for catchments and the introduction of a trading system for ‘saved water certificates’, which could be recognised as a new and tradeable category of water. For plantation growers, it may be possible to be part of this system if water-saving certificates can be generated through changes in silviculture or by leaving the plantation areas fallow for an extra year between harvesting and replanting. In this latter case, plantation growers could receive water-saving certificates for the increase in water run-off that occurs during the fallow period. Industry working group on plantations and water It is anticipated that the Roundtable will identify priority actions to be pursued in working with the National Water Commission and water regulators. These actions will include defining a number of key terms contained in the NWI, outlining a process for determining water entitlements across all landuses on the basis of the economic, social and environmental outcomes they produce, outlining the options for salinity or water-saving credits, and identifying the research priorities for plantation managers. Nominations will be sought from people attending the Plantations and Water Roundtable for the establishment of an industry working group on plantations and water. Terms of reference for guiding the activities of this working group on plantations and water issues will be based on the outcomes of the Roundtable. Estimating site index for Pinus radiata on the Southern Tablelands, NSW Background STFFN has been providing advice to potential plantation growers in the Southern Tablelands area since 1996. Although there have been some maps available indicating potential growth, these have been very generalised maps lacking in detail. In 2004, STFFN sponsored and ANU Forestry honours student, Andrew Ford, to undertake a plantation suitability study for the Southern Tablelands region. The result is that STFFN now has a detailed map showing site index for all land in the STFFN area, and also showing site index on cleared agricultural land. The map and report can now enable STFFN to provide an indication to private land holders the potential growth of Pinus radiata in their area. It is intended to undertake further study by providing an economic analysis of the STFFN area, and then to extend the original work to show the growth potential of native species that could be established on a commercial basis. Introduction The productivity, or quality, of a site is an important factor in the evaluation of plantation establishment investment. Site Index, an index of site productivity, is one of the most important silvicultural parameters influencing plantation profitability. Thus, it is useful to have and estimate of the Site Index of a new plantation before it is planted. A number of models have been developed to spatially estimate the quality of a site using climate and soil factors. However, the input data and technical understanding required to initialise and run the models can limit their application. For this reason, the honours project aimed to determine whether the Forest Productivity Model, developed by the Australian Greenhouse Office to indicate growth potential of native forests across Australia, can be used to estimate Site Index across the Southern Tablelands region. The land capability and suitability assessments completed in this project should greatly assist potential plantation investors to identify the most productive areas of land for plantation establishment. Summary The Forest Productivity Model, developed by the Australian Greenhouse Office, was trialed as an indicator of site quality for Pinus radiata plantations across the Southern Tablelands region of NSW. A significant correlation was found between Site Index, an index of actual site quality, and the modeled 25 year average Forest Productivity Index. However, strong regional variations were found in the relationship between these two indices. A regression model including parameters for Forest Productivity Index value and region yields a strong correlation for the regions of Tumut, Tallaganda, Lake George and Bombala Tablelands. However, the cause of the regional variation is unknown, thus defining regional boundaries was problematic. The Lake George and Bombala Tablelands regions are similar in their relatively low rainfall and undulating topography. The Tumut and Tallaganda regions both have relatively high, orographically influenced rainfall. The marked variation in rainfall (influenced by topography) between regions is suggested as the cause of the regional variation. Under this assumption, regional boundaries for Tallaganda and Tumut were delineated according to altitude. The regression models and regional boundaries were applied to the 25 year average Forest Productivity Index layer using Geographical Information System software. The resulting map provides and indication of potential Site Index for P. radiata plantations, and forms the basis of a land capability assessment. Areas that were considered to be unsuitable for plantation establishment, such as existing woody vegetation and National Parks, were masked out to complete a land suitability assessment. The predicted areas available for plantation establishment in each Site Index class were calculated and tabulated. Out of 4,742,000 hectares considered in the land capability assessment, approximately 2,749,000 hectares was cleared land suitable for plantation establishment. Of this area, 34,000 hectares were in the top Site Index class, and was mostly in the Tumut region. Preparing for a dry planting season... Those Southern Tablelands tree farmers already committed with tree seedlings for this years planting season will certainly be worried about the dry conditions. As seedling survival could well be at the mercy of dry soil conditions, measures may need to be taken for those who absolutely need to plant this year. Some of us have seedlings on order with nurseries and the like and are committed to planting with either pines this winter and/or natives this spring. In light of this, there are measures in which one could take to help reduce the effect of drought in the early development stage of seedling establishment. Some of these include;
Wagga Wagga effluent plantation project: sustainble water and nutrient management The Problem In recent years, the growth of large blooms of toxic blue-green algae in our rivers has been a problem in many parts of Australia. One cause is the over abundance of nutrients in rivers, particularly phosphorus and nitrogen, some of which comes from the discharge of treated sewerage effluent. Not only does this discharge contribute to a major pollution problem, but river disposal of municipal effluent is a waste of a resource that can be used to promote the growth of trees in plantations. Each year, towns in the Murray Darling Basin generate sufficient effluent to irrigate up to 25,000 hectares of fast growing plantations that otherwise would be unable to survive or produce useable wood products due to low rainfall or lack of nutrients. Recently, environmental pressures have required the implementation of methods other than river discharge to treat sewerage effluent. Irrigation of tree plantations for wood production has become one of the most popular methods for land treatment of effluent. The area of tree plantations for this purpose has grown to more than 2,000 hectares over a five year period. The Project In 1991, CSIRO established the Wagga Wagga Effluent Plantation Project in conjunction with the Wagga Wagga City Council at a site called Flushing Meadows. The purpose was to study the processes of water use, nutrient cycling and salt management in plantations that are irrigated with effluent. The aim was to ensure that the treatment could be sustained without causing serious degradation to soil, rivers or groundwater. The outcome will be authoritative guidelines to help design, establish and manage sustainable effluent irrigated plantations under a variety of Australian effluent, soil and climatic conditions. By irrigating eucalypt and pine plantations at various rates with treated sewerage effluent, the project aimed to:
Awards In 1995, the Wagga Wagga Effluent Plantation Project was awarded the BHP Landcare Research Award for NSW for outstanding achievement in land and water conservation research. In 1996, the project was honoured with the Australian Banksia Environmental Award for Land Management for protecting existing land and water systems from degradation and developing new land management practices that contribute to the sustainable fertility and productivity of that land. In 1997 the project won the Theo Charles-Jones Tree Award for conservation and sustainable development from the Murray Darling Association. Communication This research has lead to the development of a substantial body of technical knowledge that has been widely disseminated throughout the Australian water, wastewater, forestry and environmental industries. In 1994, the first of three stages of the guidelines, entitled Green Rivers or Green Trees was published and 20,000 copies were distributed nationally. In 1994, a comprehensive technical report summarising the first three years results was published. In 1995, a manual entitled Effluent Irrigated Plantations: Design and Management was launched and 10,000 copies were distributed. Final guidelines are being prepared. Communication of the results has focused clearly on the target customers, for example:
Key outcomes
Note: The Flushing Meadows site is now managed by the Wagga Wagga City Council Forestry investors 20 years on: still no money (From the Sydney Morning Herald, 10th March 2005.) Investors in a pine forest planted in the Oberon area could see some money back from an investment made two decades ago, following orders handed down in the NSW Supreme Court that the scheme be wound up. Justice Peter Young has declared that the scheme, known as Lot 3 Hai Welyki, an unregistered investment scheme under the Corporations Act and appointed a trustee to sell the assets. The scheme was run by Pine Forests of Australia Pty. Ltd. The investors, represented by law firm Maurice Blackburn Cashman, owns the land as tenants in common, in lots divided into 500 interests. The minimum investment was $3000, but one investor put in $158,000. Maurice Blackburn Cashman partner Andrew Quiqley said that the pine forest scheme could extend beyond the area that is the subject of the court order, and ultimately could involve thousands of investors who sank money into various schemes in the 1980s and have seen no return on their investment. Justice Young noted that the investors appeared to have entered the contracts as a result of the activities of a salesman who provided them with brochures. He noted “They contain a lot of puffery and pretty pictures of forests against an attractive skyline, happy plantation owners gathered around a camp fire, etc, as well as statements from people who indicate they have qualifications in the forestry industry, extolling the virtue of growing Pinus radiata, milling it and marketing it. The brochures also pointed out the taxation advantages in investing in pine forests, an advantage that would be reaped wholly in the tear of payment.” Lot 3 Hai Welyki is one of 12 adjoining plantations in the Oberon/Jenolan area 200 km west of Sydney. “The plaintiffs must be disappointed that so far they have only received $243 by way of income over the last 20 years, and are justified in feeling that there has been misconduct in the operation of the plantation,” Justice Young said. They are also peeved that ASIC would not assist them in any way in seeking justice. After the judgement, Mr. Quigley said “This is the first step to try and recover a return on the investment for our clients and we are pleased to see that the Supreme Court has moved to protect the investor’s interests.” He said investors have received little or no profits from the scheme for several decades. Mr. Quigley believes more than 3000 investors could have contributed up to $9 million in the various pine forest schemes in the area. “We have been contacted by a number of disgruntled investors who have received no return on their investment since the 1980s. The decision will greatly assist those investors who are relying on the original investment to partly provide a retirement fund,” he said. |