The scale achieved by grouping forests together for their second rotation has the benefit for investors of mitigating risks and saving on costs.
The larger the forest, the greater the area available to absorb the consequences of adverse events such as wind or fire. The loss of 10 hectares in a 10-hectare forest represents total devastation; in a 250 hectare forest a material loss; but in a 600+ hectare forest the impact is relatively immaterial.
The larger the forest (and the wider the spread of age classes), the longer the time in the market. The longer the time in the market, the greater the likelihood that the average log prices achieved will represent the long run average prices. Equally important is the increasing irrelevance of the day-to-day log prices, especially the inevitable periods of low prices, as these are likely to be balanced by periods of high prices. An additional benefit from a group forest structure is that complimentary age classes will extend the harvest profile and consequently enhance the mitigation of market exposure risk.
Harvest Cost Savings
Harvest cost benefits arise when long-term arrangements can be put in place with the harvesting service providers (loggers, truckers etc). The long-term continuity of work for these service providers can remove from their prices the risk of down time from work, or having to invest time securing future work. Also, harvest costs such as the cost of resource consents and the cost of shifting equipment to the forest, are less of a financial burden the larger the forest.
Fixed Investment Cost Savings
The fixed investment related costs such as the financial and forest audits, Supervisor’s fees, and financial markets compliance fees, are less of a financial burden the larger the investment. Even fees such as rates are proportionately less due to there being just one set of fixed charges.