Farm Forestry New Zealand

Piloting the aggregation of small forests

Howard Moore, New Zealand Tree Grower November 2019.

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Many small forests generate disappointing returns which put their owners off replanting and foster the idea that small-scale forestry is uneconomic. It has been happening for a long time. In the past there have been several attempts to improve grower returns by aggregating forests for economies of scale but all have failed. Although some harvesting and marketing companies aggregate for scale, they are not obliged to pass the benefits back to growers.

Overseas, successful models of small forest aggregation seem to have originated for mutual defence, for example, threatened forest owners have grouped together for strength against a common enemy. Here we have no common enemy. We have shared benefits but no shared threat, and also to date the impetus for aggregation has come from someone outside the group.

Starting the project

In September 2018 some of us decided to see if forest owners might form a group without outside impetus. Perhaps they did not want organising as much as informing. We persuaded the Ministry for Primary Industries to fund a pilot study to test this, under the Sustainable Farming Fund programme.

Using the NZFFA address database we found that there were over 250 forest owners in the Greater Wellington region with forests of between 15 and 1,000 hectares. We did not know how old their forests were, but Canterbury University analysed the Regional Council’s lidar data to give us an idea of age from the height of the trees. We then posted invitations to the forest owners to help with our research, saying basically −

‘Got any fresh ideas for logging small forests? MPI is funding our research to improve returns to small-scale forest owners. We would like to brainstorm this with interested growers.’

A total of 13 forest owners responded, a five per cent response, and after learning more about it, seven offered information on their forests. Specifically, they offered forest address, species, area by age class, management regime, nature of country such as hauler or tractor, and harvest yield per hectare if known. From this it was easy to see which forests were relatively close to each other and whether harvesting could be scheduled so that the age classes could be cut in sequence without unduly moving machinery from one address to another.

A lot of questions

Of course, there is no standard production rate for hauler or tractor country. Forest Growers’ Research has done some work on productivity benchmarking, but in the last few years there have been big improvements with the implementation of tethered harvesters. From the forest information we found that if we assumed high productivity of 200 and 250 tonnes a day for hauler and tractor country respectively, one contract gang could work the seven forests for three-and-a half years.

If we assumed average productivity of 120 and 150 tonnes a day respectively, one gang could work the forests for six years. Given those results there was no need to visit each forest, assess the terrain and get an accurate figure. Either way, it would be a long contract offering security to the contractor and economies of scale to the forest owners.

The benefit to the owners had earlier been shown to be a possible increase in stumpage by $10 to $20 a cubic metre, or $5,000 to $10,000 a hectare – see the article ‘Economies of scale in forestry’ in the May 2015 Tree Grower. This benefit could make the difference between profit and loss for some, and double the returns for others.

While those are substantial benefits, this is a desk exercise. Because some of our seven growers had already committed their trees to third parties before they learned of this research, they cannot aggregate their forests. However, they understand the concept and this is making them think.

If all the blocks were to be harvested in a particular sequence, on a particular schedule, they as a group would have to agree on how and when. Would they need an organisation? If so, what sort? If not, what arrangements would they make? How formal? Who would run it? What would it cost? What about log prices changing over the period? What about site specific costs, such as access, roads and tree quality? How could you ensure fairness? How would each member be protected? Would there be tax implications?

Some answers

We can offer answers to some of these and other questions but that is not the point. If we can get sensible answers from the growers, their answers will show a business model, one that they have designed to address their concerns. Whatever form that takes, there will be an appropriate legal structure they can adopt to protect one another if, over time, circumstances change or agreement fails.

Locking in a harvesting contractor for three to six years should remove some of the forward risks, but there will always be more. Forestry regulations are changing almost daily. Future markets are uncertain. Biosecurity threats are as unpredictable as earthquakes. Members of the group might die or want to sell.

Our original plan was to have this work done by October so that this article could tell the full story. As it happens, we were delayed and do not yet have the answers. At the time of writing we are about to start the brainstorming process. We will probably need more than one session, and may well fail.

Maybe the group will not agree. Maybe we should aim for more groups to get a bigger sample size. Maybe our message is unattractive. Maybe the hassle of cooperating outweighs the benefits. However, if this self-selected, enthusiastic bunch of growers does reach agreement on how it could work, and if others can adjust that model to suit their own needs, it will be a major step forward.

Howard Moore is one of the members of the project group.