Forest Enterprises harvested approximately 350,000 tonnes from our Wairarapa harvest this year. We are able to satisfy demand from local sawmills with approximately 35% of our Wairarapa volume and the balance, approximately 230,000 tonnes, was exported via CentrePort in Wellington.

CentrePort has released its 2019 Annual Report.  The port has experienced a 27% increase in log export by volume on the previous financial year, evidence of the significant growth in the region in log production and export.

“The supply chain for us is a real key part of making the job work. CentrePort has been a real key to us being able to increase our productivity. Rail is simply a very efficient way to move logs”, says Forest Enterprises CEO Bert Hughes.

CentrePort and KiwiRail have enabled an increase in rail capacity from 30 to 45 wagons per day. Transporting an additional 100,000 tonnes of logs by rail from the Waingawa Rail Hub near Masterton down to CentrePort will reduce a further 6,000 truck trips every year through SH2. Growth is planned to 60 wagons per day by March 2020.

Additional advantages of rail are that it reduces road maintenance costs and has 66% fewer emissions per tonne compared to trucks.

READ THE ANNUAL REPORT HERE.

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Each year, the New Zealand Forest Owners Association, in conjunction with the Ministry for Primary Industries, publishes a highly informative overview of the performance of the New Zealand Plantation Forest Industry, called Facts & Figures.

The 2018/2019 edition of Facts & Figures is available and free to download and read.

Highlights:

• 1,725,476 is the estimated net stocked are at 1 April 2018 – an increase of 19,047 ha from 1 April 2017
• Another record harvest of 37 million cubic metres was achieved in the year ended March 2019
• $6.93 billion was the export value to June 2019 – $3.85b of logs and $3.08b of other forest products
• MPI anticipates that the value of forest product exports will be $7b in 2022
• $3.55 billion is the total contribution of the forest industry to NZ’s GDP – $1.39b from forestry and logging, and $2.16b from downstream activity

Visit the Facts & Figures page of the Forest Owners Association website for previous editions.

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The latest Winter 2019 issue of the New Zealand Forestry Bulletin was published on 23 July 2019.

In this issue –

• Log price volatility
• 50 Shades of Green and the realities of land use economics
• The myth of indigenous versus exotic trees for carbon storage
• Tolaga Bay one year on
• The laws around genetically modified organisms
• Port Blakely bat protection project
• KiwiRail and forestry growth
• Forest Grower’s commodity levy vote, what happens now?
• InZone bus at Fieldays

The Bulletin is published three times per year by the New Zealand Forest Owners Association.

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The recent drop in log prices has understandably generated interest from investors about how we respond. It’s important to put price changes into the context of your investment.

Forestry investment is long-term

Forestry is a long-term investment which is why people like it.

Investing in alternative assets like forestry is complementary to equities, fixed income and property for diversifying and lowering the risk of an investment portfolio. Forest investment performance is not correlated to the share market.

“Time IN the market is the objective – not timing the market”, says Bert Hughes, CEO of forestry investment company Forest Enterprises.

“The longer you’re in the market, the more likely you are to achieve the long run average log price. Periods of low prices in a several-year harvest programme has less impact on returns than if harvesting over a short period”, says Hughes.

Logs prices fluctuate

As a commodity, log prices are cyclical. The recent price drop is not unprecedented.

“You never know where you are in the cycle, so it’s important you have a plan, and stick to the plan”, says Hughes.

“We can only make plans with the knowledge that the trend is for price and demand volatility”, says Hughes.

Anyone with shares will see the stock market go up and down too.

Good management is vital

Log price is a key risk in forestry investment because it determines returns, so good management is important.

“Our managed forests have a programme set out over several years, and returns are calculated using long run average price rather than using current price”, says Hughes.

“It’s important to react to price changes sensibly and not hinder the long-term goals of our harvest programme”, he adds.

“Forest Enterprises has long-term contracts with our teams cutting and delivering logs so our response to price is measured. Stopping logging and cartage would breach contracts and damage infrastructure which is required long-term”, Hughes explains.

“We are slowing down crews, targeting domestic log grades and taking managed time off. These actions reduce costs in the short term but enable us to continue harvesting as conditions improve.”

Diversity is key

Diversification applies to marketing logs as much as it does to any investment portfolio.

Forest Enterprises believes in supporting local customers to reduce risk in log pricing and routinely supplies domestic sawmills.

“Wairarapa index log price is less affected than Gisborne because we have more local sawmill customers in the Wairarapa. However, we now have two domestic sawmill customers online for Gisborne and trial loads are underway for a third.”

“Currently, returns from domestic customers are better than current export returns but lower than the long run trend price,” Hughes goes on to explain. “In simple terms, greater customer or product diversity means lower price volatility but does not always give higher price.”​​

Forest Enterprises’ investment in pruning trees produces a price premium for investors, as well as diversifying the product mix from log sales.

Read Forest Enterprises’ latest Log Market Analysis reports:

Log Market Analysis as at 20 November 2019
Log Market Analysis as at 25 October 2019
Log Market Analysis as at 20 September 2019
Log Market Analysis as at 10 August 2019
Log Market Analysis as at 19 July 2019
Log Market Analysis as at 1 July 2019

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Hawke’s Bay Today – Forestry & Land Use Feature, June 2019

The Gisborne Herald – Eastland Wood Council Forestry Awards Feature, May 2019

Wairarapa Times-Age – Rural Outlook, March 2019

Wairarapa Times-Age – Beacons of generosity, 9 July 2019

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The 2017/2018 edition of Facts & Figures is available in electronic format only, free to download and read. The next issue is expected later in 2019.

Highlights:

• 1,706,429 ha is the estimated net stocked are at 1 April 2017 – an increase of 1,682 ha from 2016
• A record 35.4 million cubic metres of timber was harvested in the year 2018, up 10% on the previous year – volumes expected to be high for the next decade
• $6.38 billion was the export value of forest products to June 2018 – $3.3b of logs and $3b of other forest products
• MPI anticipates that in the year to June 2019 returns from New Zealand forest product exports will be $6.66b – ahead of returns from beef and sheep meat combined and horticulture
• $3.55 billion is the total contribution of the forest industry to NZ’s GDP – $1.39b from forestry and logging, and $2.16b from downstream activity (since this edition was published, total contribution has been revised to around $5 billion)

Visit the Facts & Figures page of the Forest Owners Association website for previous editions.

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Napier Port is highly dependent on a vibrant trade in wood products.

Unlocking forestry’s potential

Science, innovation and technology are unlocking the potential of forestry and driving a shift to high tech harvesting and manufacturing. Just as New Zealand earns plaudits for efficient production of meat products, so too are we seen as being good at producing wood – we need to be, given our distance from markets!

While some worry at job-losses implicit in exporting logs, most see exports offering investors real choice and helping keep the domestic processing market competitive.

Forestry has been regarded as a less-than-sanguine work opportunity, but this too is changing. Innovation, continuous training and an uncompromising stance on safety are key. School leavers are recognising here a diverse opportunity for well-paying and interesting careers for skilled workers, technicians and professionals. Those on the inside value their jobs and agree that Hawkes Bay would be a poorer place without forestry.

People who work in forestry are safe, valued and well-trained.

Forestry key to carbon-zero

From a national perspective, New Zealand needs to transition to a more sustainable future and a low emissions economy. The Government sees this involving an increased role for commercial plantation forestry.

Carbon sequestration is key to mitigating climate change, and fast-growing exotic tree plantations are the most effective for this.

The very high cost to New Zealand of not achieving the 2050 zero carbon target as galvanised the One Billion Trees planting programme which is expected to lift the total land under tree plantations from 1.7 to 2 million hectares across New Zealand by 2028.

Community resilience, together

The One Billion Trees initiative is seen by some as triggering a rush of sheep and beef farms being sold for conversion to forests. The thing is, we have seen a reduction in farms as a general trend for many years – there are a number of factors at play here, including farm amalgamations, urban spread and an aging population. What this suggests is not an alarming shift but a more gradual redistribution in land use.

Tree plantations offer opportunity to build greater resilience for rural communities, environmental shocks and a changing climate. The need for such resilience is perhaps gaining traction now with awareness of possible catastrophic economic and livelihood impacts from the emerging global market for ‘meat’ substitutes, for instance.

Whichever way we look at it, farming and forestry are partners in our future success: all will lose if we allow an ‘us versus them’ approach. We need to work together to get the best outcomes for the land and water and for the good of our communities. Now is the time to step up and focus on the opportunities of further diversifying our land use.

Together we can make meaningful change at the right pace, and in so doing reinforce our reputation as a world leader in sustainably-grown, low emissions, high value natural products.

Retirement just got a whole lot better for Hawkes Bay residents Keith and Marie Dolman.

By Keith Dolman, General Manager of Hawkes Bay Forestry Group – kdolman@novapsi.net.nz

Forest Enterprises is a member of Hawkes Bay Forestry Group. For more information: http://hbforestrygroup.org

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There was no easy solution to continue the pastoral land use and this was a very tough time for farming families. There was no better offer in the market for farmers than to sell to Forest Enterprises. The change in land use occurred because Forest Enterprises was able to offer a compelling proposition to investors, to make sustainable returns from this land and a forest crop.

Grass is shallow rooted and turf has limited capacity to absorb water or mitigate run off in high intensity rains. Forest canopies intercept rainfall and with deeper roots have a larger impact on soil stability. We didn’t buy this land just to supply environmental benefits to our downstream neighbours; that benefit is just another arising from good forest practice.

Our purpose is to create an economic return for our investors, and in doing so the many benefits of forests leave the countryside healthier and more resilient than we found it. The forests also provide significant community benefits through employment in well-paid jobs, as well as creating sustainable timber for building materials.

Streams

The photo below shows one of many streams flowing from Clearview Forest, high up on the plateau off Kanakanaia Road. Trees in this area were planted to within 2-5m of the stream edge.

At Clearview the pines have shaded the stream reducing water temperature. This shading is very beneficial to biodiversity within the stream and on the wetland margins. The tree crop and understorey as land cover has also greatly slowed down the mobilisation of sediment from slips and erosion, which leaves the streams to flow clear and cool. The small insects present find habitat improvement and shelter, and feed on the timber and branches which fall in the streams. Fallen timber in streams slows down water flow and forms pools and areas of cover from predators.

The next rotation crop trees will be set back 10-20m from stream edges to form permanent riparian margins. These margins will be vegetated from the natural regeneration of native species which is now far more common and widespread after grazing stock were eliminated more than 20 years previously.

Ponds and Wetlands

The ponds in Bloomfield Forest (shown below) were established by the previous farming owner of our Parehaka forest group, on Kanakanaia Road inland of Te Karaka. These ponds are manmade and provide a beautiful setting as well as an excellent habitat for birdlife and wetland creatures.

Our goal here is to maintain the natural capital that existed when we took over stewardship of the land and improve it where we can. We have protected the ponds and incorporated them into our management plan for the forests. We can harvest the pine crop from this area using careful harvest systems in such a way as to retain all the beneficial qualities of the ponds and cause no harm.

Native Bush

This hauler site in Hokoroa Forest (below) shows the large areas of kanuka regeneration along the tree crop margins which we are preserving undamaged during our harvest operations.

Kanuka provides a good environment for insects such as weta and other invertebrates. We are retaining these areas of diverse native tree species within our forests as they protect waterways and offer habitat and cover for birds, lizards and insects to flourish. Kanuka and other native tree and shrub species are very resilient to well managed logging practises and we appreciate these diverse areas within our forests.

Our investors want to make a return on their capital, but they want to do so in a way that is sustainable and safe. Environmental benefits often have monetary costs, and we must strike a balance so that we can do well from doing good. If we can strike that balance, then the benefits of commercial forestry will continue to reward us all as a society, as well as individually, for generations.

By Bert Hughes, NZIF Registered Forester – CEO & Forestry Director, Forest Enterprises
For Eastland Wood Council’s ‘Forestry for Life’ feature in the Gisborne Herald
12 June 2019

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Farm Forestry Association Chair, Neil Cullen, says carbon average accounting, where a forester is not penalised for harvesting so long as they replant, will encourage farmers to plant out land in forests, without a concern that this will result in a cash-flow problem for them. The reform reduces ETS compliance costs.

“This reform reflects the reality of how forest land locks up atmospheric carbon – which is after all the whole point of the ETS.”

Neil Cullen says making the system simpler to understand is also crucial.

“I know it’s a complex system, but it needs to be understood by a forester or a farmer without having to go on a course. If it’s too complicated, a landowner will do something else, or nothing. The end result is regional investment opportunities are missed and rural communities are less wealthy. ”

The Forest Owners Association says the announcement is timely and the transition path clear.

President, Peter Weir, says many investors have been seeking transparent, simpler rules for a long time.

Peter Weir says the announcement gives much needed certainty, especially in the context of the Parliamentary Commissioner for the Environment’s report yesterday and the forthcoming report back to Ministers from the Interim Climate Change Committee.

“The critical thing to make a revised ETS work is that there is political will behind it. We simply can’t have politicians shifting goal posts every three years. In the big picture New Zealand needs equity between the land-based sectors, and long-term stability. Without these factors behind it no reform of the ETS will make it work.”

For more information contact Neil Cullen 027 415 8416 or Peter Weir 027 454 7873

Read more:

ETS revamp: averaging accounting for forests – Media Release, 27 March 2019, Beehive

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Log Distribution Limited is a joint venture company which will manage log marketing and shipping, marshalling and stevedoring, road and rail transport and log storage. It will be supported by Forest Enterprises’ log export and marketing agent in Wellington, TPT Forests. Based in Masterton, Log Distribution Limited will commence operations on 1 April 2019.

“The formation of Log Distribution Limited is a great example of positive collaboration in the forest industry that will benefit both community and industry stakeholders,” says Forest Enterprises CEO Bert Hughes.

Forest owners harvesting in the region, like many Forest Enterprises investors, can expect the following benefits from this collaboration:

• improved efficiency and safety of log export operations through increased coordination and scale
• reduced waste across the supply chain
• better use of the rail and port infrastructure
• assist in alleviating bottlenecks in the supply chain as harvest levels steadily increase over the next 5 years
• help reduce the reliance on road transport over Remutaka Pass

Read the press release:

Four NZ forestry companies unite in joint venture to enable operational efficiencies – 21 March 2019

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