Investment in Forestry In New Zealand
Content
Why Forestry?
A direct investment in plantation forestry is unlike a
share market investment. You are in control of an asset that grows and
provides many positive impacts on the environment. Subject to
fluctuations in log prices, it will also grow in value. Unlike
other crops, forestry offers flexibility in harvest date. Harvesting
may be brought forward or deferred to capitalize on cyclical high
prices. In the meantime the trees keep on adding value through
biological growth.
A full equity funded forestry investment provides you
with tangible assets, but also with relatively high financial
returns , a combination of low risk and high return.
Financial returns in New Zealand plantation forestry
during the last 60 years have been high relative to shares, property
or bank deposits: an average of 7.1% real, over and above inflation
(Source: NZ Forest Research Institute). Increases in productivity and
better management support projections for future returns that are
attractive relative to other low risk investment options.
The environmental benefits of an investment in
plantation forestry are generally:
- A
sustainable form of land use;
- Preservation of natural forests;
- Production of solid wood products demand less energy
compared to alternative materials; and
- Absorption of carbon dioxide.
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Why New Zealand?
Plantation forestry in New Zealand is very well
developed. While research and development is ongoing, the achievements
to
date with respect to the main commercial species, radiata pine
, are:
- Superior
tree growth;
- Advanced tree breeding; and
- Efficient plantation management.
Radiata pine is a softwood which is easy to work with,
permeable to stains and preservative treatments and very versatile. The
costs of
production are relatively low and its versatility and price make it
very
competitive in the emerging markets of South East Asia.
Compared to other radiata pine producers such as Chile,
Australia and South Africa, New Zealand offers supportive
non-intervention government policies, skilled labour, excellent growth
rates, and a well developed industry infrastructure.
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The Prospects for New Zealand
Forestry
The long term prospects for New Zealand Forestry are
excellent. The growth and profitability of the New Zealand forest
industry depends,
in large part, on production around the Pacific Rim and on consumption
in
Asia.
Supplies of logs for timber and wood based panels from South
East Asia are expected to drop by 50% over the next 25 years (Source:
FAO, FLC Reed). This is a reduction of some 46 million cubic metres;
over double New Zealand's current harvest.
Consumption of wood products rises with increasing population;
the latest trends project the global population rising from the present
6 billion in 1996 to 10 billion by 2040. Consumption of wood also rises
with increasing GDP, particularly so in countries where the starting
GDP base is low. China and India are two countries with large
populations and a fast growing
GDP from a low base. Demand for wood products in these countries is
likely
to increase rapidly. Both countries have also recently implemented
policies to reduce the production of their own forests, because of
environmental
concerns.
The three major suppliers of wood products in the Pacific Rim
are Russia, Canada and the USA. Together they produce 75% of the total
Pacific Rim wood supply. New Zealand produces only 1.3%. Most
of the Pacific Rim supply is from natural forests an,d for the
three major suppliers, average yields per hectare have been declining
and virgin forests cut now are generally more remote and therefore
more costly to exploit. Environmental legislation, particularly in
North America, is reducing supplies and increasing production costs.
Increasing efficiencies in conversion of logs into wood
products has prevented significant price rises in the recent past, but
this is not likely to continue at the same rate. Substitution of wood
with other materials will occur as prices rise. However most
substitutes require high energy input and are more polluting than wood
products to manufacture. While energy is relatively cheap now this may
not be so in the future, especially when
we take into account the environmental effects of increased energy use.
Industrialized countries have already committed to a reduction in the
use of fossil fuels to reduce greenhouse climate effects.
Only Chile, New Zealand, Australia and South Africa have
predictable increases in supplies in the Pacific Rim region. Together
they are expected to increase annual production by 30 million cubic
metres of coniferous
roundwood between 1998 and 2010. Relative to the expected increase in
demand and possible reduced supplies from the big three, the situation
for
New Zealand radiata pine producers looks good.
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Expanding
Investment In New Zealand Forestry
New plantings between 1992 and 1998 averaged 62,000 hectares
per year. These new plantings have been undertaken both by New Zealand
and
overseas based investors.
Since 1990 the New Zealand government has sold most of the
plantations growing on State Forest land. These forests have been
acquired by both New Zealand and overseas interests. Foreign direct
investment in the New Zealand forest industry has been high with
acquisition of company shares and direct investments in forest
plantations and processing plants. These investments indicate a clear
vote of confidence in the New Zealand forest industry.
Domestic capital demands exceed domestic supply and foreign investment
is
encouraged. This situation provides attractive long term investment opportunities for overseas based
investors.
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Buying Land
There is plenty of available land for further expansion of the
plantation forests in New Zealand. Foreign ownership of land requires
the approval of the Overseas
Investment Office for areas over 5 hectares or worth over NZ$10
million.
The Commission "welcomes and encourages foreign investment". The main
criterion is whether the proposed investment will result in substantial
and identifiable benefits to New Zealand. A proposed forestry
development generally satisfies this criterion.
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Our Services
We offer the following services to help you make and manage
your forestry investment:
Before you invest:
- Selection
of most attractive region to suit client objectives.
- Identification of land and/or forests for sale, and advice
on the best buys in terms of price and quality.
- Facilitation of conditional Sale and Purchase Agreement.
- Facilitation of Overseas Investment Commission consent (if
required).
- Project risk assessment including Environmental Impact
Assessments, feasibility report and cash flow forecasts (pre- and
post-tax).
- Forest valuations.
- Advice on legal structure for owning entity.
- Joint Venture or Lease documentation (if required).
Once you own the forest/forest land
- Detailed
planning and budgets for client approval.
- Obtaining Resource Consents (if required for operations).
- Mapping and maintenance of stand records.
- Forest management.
- Arranging, supervising and quality control of operations.
- Harvesting and marketing of forest produce.
- Environmental monitoring.
- Detailed accounting of forest operations.
- Valuation updates as required.
- Exit strategy - selling your forestry interests.
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