New Investments

The first crop rotation of Radiata pine has changed the nature of the soil. The fungi and microbes now present have created an improved soil environment that best suits a pine treecrop for another rotation. Land suitability for pine will continue to improve with each rotation.

There have been significant genetic improvements in the treestocks available today compared with those planted for the first rotation. The genetic gains are known to produce more volume at the same age, and also to have the wood quality characteristics the market prefers.

Following harvest of the first rotation forests, they will be replanted consistent with how it was harvested. This means that the second rotation crop will be of the same age in each harvest area. The age of the first rotation treecrop when harvested is often mixed as it was originally planted to convenient boundaries (usually historical fence lines), with no regard to how and when it would be harvested.

By the completion of the first rotation harvest, many kilometres of harvest roads plus multiple landings and other permanent infrastructure will have been built in the forests, a substantial investment made (and mostly expensed) by the first rotation forests.

The existence of the roading and other infrastructure will materially reduce the related costs for the second rotation harvest. Also, the improved forest access provided by the roading network will considerably assist the management of the forest through to harvest.

Under Forest Enterprises management, the existing forest properties comprising our new group forests have proven that:

1. a Radiata pine plantation forest can be successfully established and grown on the land
2. it is possible to successfully harvest the forest properties and extract the logs produced to a public road
3. the regional distribution infrastructure exists to successfully transport the logs by truck, rail and ship to their ultimate customers

The best practice management of a Radiata pine plantation forest continues to evolve over time. The second rotation forest will be managed in a manner consistent with current best practice and this will contribute further volume and quality gains to the second rotation.

The scale achieved by grouping forests together for their second rotation has the benefit for investors of mitigating risks and saving on costs.

Risk Mitigation

Adverse Event
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.

Market Exposure
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.

Cost Savings

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.