market opportunities for farm forestry in australia
TRANSCRIPT
Market Opportunities for FarmForestry in Australia
RIRDC Publication No. 08/105
NaturalHeritageTrust
Helping CommunitiesHelping Australia
Market Opportunities for Farm Forestry in Australia
by URS Forestry
July 2008
RIRDC Publication No 08/105 RIRDC Project No URS-2A
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© 2008 Rural Industries Research and Development Corporation. All rights reserved. ISBN 1 74151 693 5 ISSN 1440-6845 Market Opportunities for Farm Forestry in Australia Publication No. 08/105 Project No. URS-2A The information contained in this publication is intended for general use to assist public knowledge and discussion and to help improve the development of sustainable regions. You must not rely on any information contained in this publication without taking specialist advice relevant to your particular circumstances. While reasonable care has been taken in preparing this publication to ensure that information is true and correct, the Commonwealth of Australia gives no assurance as to the accuracy of any information in this publication. The Commonwealth of Australia, the Rural Industries Research and Development Corporation (RIRDC), the authors or contributors expressly disclaim, to the maximum extent permitted by law, all responsibility and liability to any person, arising directly or indirectly from any act or omission, or for any consequences of any such act or omission, made in reliance on the contents of this publication, whether or not caused by any negligence on the part of the Commonwealth of Australia, RIRDC, the authors or contributors. The Commonwealth of Australia does not necessarily endorse the views in this publication. This publication is copyright. Apart from any use as permitted under the Copyright Act 1968, all other rights are reserved. However, wide dissemination is encouraged. Requests and inquiries concerning reproduction and rights should be addressed to the RIRDC Publications Manager on phone 02 6271 4165 Researcher Contact Details Mark Kelly URS Australia Pty Ltd Level 6, 1 Southbank Boulevard Victoria 3006 AUSTRALIA Phone: 03 8699 7500 Fax: 03 8699 7550 Email: [email protected]
In submitting this report, the researcher has agreed to RIRDC publishing this material in its edited form. RIRDC Contact Details Rural Industries Research and Development Corporation Level 2, 15 National Circuit BARTON ACT 2600 PO Box 4776 KINGSTON ACT 2604 Phone: 02 6271 4100 Fax: 02 6271 4199 Email: [email protected]. Web: http://www.rirdc.gov.au Published in July 2008 by Union Offset
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Foreword
Farm forestry provides a valuable economic, social and environmental contribution to rural farms in Australia, by diversify the country’s traditional farming landscape, while helping to protect the future of agriculture from environmental and economic risk. It also provides an alternative source of income for farmers. Products range from hardwood and softwood sawlogs, posts, poles and pulp, to niche markets such as sandalwood, and emerging markets such as carbon and bioenergy. This report evaluates the range of markets that offer potential for farm forestry investment and ranks the market opportunities across Australia. It is the culmination of significant market research, regional investigation and consultation across a wide range of stakeholders. Market opportunities for existing larger scale markets are ranked on a region by region basis. Opportunities in smaller scale or niche markets and emerging markets are ranked at the national level. The report also considers the varying opportunities for investment in products across regions, and identifies where farm forestry sits alongside large industrial plantations in supplying markets. The scope of market opportunities identified suggests that there is considerable potential for further development of farm forestry around Australia. This report is one three published from the project ‘Agroforestry Industry Evaluation’ commissioned by the Joint Venture Agroforestry Program (JVAP). The project updates estimates of farm forestry extent throughout Australia (report 1), identifies market opportunities with scope for future development (report 2) and overviews the results to analyse investment needs for market development in farm forestry (report 3). The project complements another project commissioned by JVAP, ‘Prioritisation of Regional Opportunities for Agroforestry Investment’, which is being undertaken concurrently by Ensis. Both projects will help to understand the products and markets likely to hold the greatest value for future investment in farm forestry. This report will provide a valuable resource to landholders, investors, extension providers, policy makers, and the forestry and forest products industry. The outcomes of the this report will be of value to policy makers at all levels concerned with farm forestry, and to the farm forestry sector itself who will be able to use the information to maximise the value of farm forestry investments. This will in turn help develop the potential of this growing industry. This project was funded by the Natural Heritage Trust and the Joint Venture Agroforestry Program (JVAP), which is supported by three R&D Corporations - Rural Industries Research and Development Corporation (RIRDC), Land & Water Australia (L&WA), and Forest and Wood Products Research and Development Corporation (FWPRDC). The R&D Corporations are funded principally by the Australian Government. This report is an addition to RIRDC’s diverse range of over 1800 research publications. It forms part of our Agroforestry and Farm Forestry R&D program, which aims to integrate sustainable and productive agroforestry within Australian farming systems. The JVAP, under this program, is managed by RIRDC. Most of our publications are available for viewing, downloading or purchasing online through our website: • downloads at www.rirdc.gov.au/fullreports/index.html
• purchases at www.rirdc.gov.au/eshop
Peter O’Brien Managing Director Rural Industries Research and Development Corporation
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Acknowledgments The Florasearch project collaborated with URS Forestry in this project. In particular the assistance of Trevor Hobbs is acknowledged. FloraSearch is co-funded by the Joint Venture Agroforestry Program and the Cooperative Research Centre for Plant-Based Management of Dryland Salinity. This analysis and ranking of market opportunities during this project benefited from consultation and the constructive feedback of a range of stakeholders. This included representatives from regional farm forestry networks, the forestry industry and from various government organisations. In particular URS Forestry would like to thank the generous contributions of David Skelton, Graham McKenzie, Sean Ryan, Jim Burgess, Rowan Allen, Craig Morris, John McGregor-Skinner, David Thompson, Allan Wilson, Bernard Young, Phil Clements, Charles Hajek, Ian McArthur, Louise Maud, David Fisken, Andrew Lang, Rob Willersdorf, Kevin Piercy, John Kellas, Peta Crewe, Peter Bulman, Malcolm Boxall, Julia Levinson, Leonie Offer, Ted English, Phil Bellamy, Monica Durcan, Peter Beatty, Paul Brennan, John Bartle, Adrian Chegwiggen, Nenad Ninkov, Leo Kerr and Peter Taylor. Members of the JVAP committee and project steering committee provided comment on the draft report, and Rosemary Lott (RIRDC) provided review and editorial comment on this report.
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Abbreviations ABARE Australian Bureau of Agricultural and
Resource Economics pa Per annum
ABS Australian Bureau of Statistics PFDC Private Forestry Development Committees
ALFA Australian Lot Feeders Association PNF Private Native Forests APLPI Australian Pine Log Price Index RFA Regional Forest Agreement APVMA Australian Pesticides and Veterinary
Medicines Authority SOx Sulphur Oxides (generic)
BCTMP bleached chemi-thermo mechanical pulp VPC Victorian Plantations Corporation
CCA copper chrome arsenic VRET Victorian Renewable Energy Target
CIF cost in freight CMA Catchment Management Authority CO2 carbon dioxide CRC Cooperative Research Centre Units of Measurement DAFF Australian Government Department of
Agriculture, Fisheries and Forestry bdt
bone dry tonnes – dry weight of wood (excluding moisture content)
ESL engineered strand lumber m3, km3 cubic metres, thousand cubic metres
ETS Emissions Trading Scheme ha hectares FAO Food and Agriculture Organisation of the
United Nations kg kilograms
FEA Forest Enterprises Australia t, kt, Mt tonnes, kilo tonnes, mega tonnes
FOB free on board Mtoe mega tonnes of oil equivalent FPC Forest Products Commission, Western
Australia ML megalitres
FPQ Forestry Plantations Queensland Mj megajoules FWPRDC Forest and Wood Products Research and
Development Corporation (now Forest and Wood Products Australia – FWPA)
MWh megawatt hours
GGAS Greenhouse Gas Abatement Scheme GTFP Green Triangle Forest Products HDB hardboard Geographical HVP Hancock Victoria Plantations AU Australian IWP integrated wood processing ACT Australian Capital Territory JHI James Hardie Industries Ltd EU European Union JVAP Joint Venture Agroforestry Program NSW New South Wales LSL laminated strand lumber NT Northern Territory LVL laminated veneer lumber NZ New Zealand MDF medium density fibreboard PNG Papua New Guinea MIS managed investment scheme QLD Queensland MRET Mandatory Renewable Energy Target SA South Australia NAFI National Association of Forest Industries TAS Tasmania NOx nitrogen oxides (generic) US United States of America NPI National Plantation Inventory VIC Victoria NRET NSW Renewable Energy Target WA Western Australia OSB oriented strand board
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Contents Foreword ............................................................................................................................................... iii Acknowledgments................................................................................................................................. iv Abbreviations......................................................................................................................................... v Executive Summary ............................................................................................................................. ix Introduction ........................................................................................................................................... 1
Definition of farm forestry and farm forestry products....................................................................... 1 Report structure ................................................................................................................................... 3
Market overview.................................................................................................................................... 4 Softwood sawn timber......................................................................................................................... 4 Hardwood sawn timber ....................................................................................................................... 7 Veneer, plywood and LVL................................................................................................................ 12 Log exports........................................................................................................................................ 13 Posts and poles .................................................................................................................................. 18 Composite wood products ................................................................................................................. 19 Woodchip exports ............................................................................................................................. 21 Pulp and paper ................................................................................................................................... 23 Firewood............................................................................................................................................ 25 Fibre cement ...................................................................................................................................... 26 Sandalwood ....................................................................................................................................... 27 Eucalyptus oil .................................................................................................................................... 29 Activated carbon................................................................................................................................ 31 Fodder................................................................................................................................................ 32 Industrial carbon................................................................................................................................ 35 Engineered strand lumber.................................................................................................................. 37 Bioenergy .......................................................................................................................................... 38 Biofuel ............................................................................................................................................... 41 Carbon sequestration ......................................................................................................................... 43 Other environmental services ............................................................................................................ 45
Ranking of market opportunities....................................................................................................... 47 Regional opportunities for existing larger scale markets .................................................................. 47
Summary of regional opportunities ............................................................................................... 48 Central and North Queensland ...................................................................................................... 49 South East Queensland.................................................................................................................. 51 North Coast, New South Wales..................................................................................................... 53 Northern and Central Tablelands, New South Wales.................................................................... 55 Murray Valley ............................................................................................................................... 56 Southern Tablelands, New South Wales ....................................................................................... 57 South East New South Wales........................................................................................................ 58 North West Victoria ...................................................................................................................... 60 Central Victoria ............................................................................................................................. 61 Gippsland ...................................................................................................................................... 63 Green Triangle............................................................................................................................... 64 Mt Lofty Ranges and Kangaroo Island ......................................................................................... 66 South West Western Australia ...................................................................................................... 67 Tasmania ....................................................................................................................................... 69 Northern Territory ......................................................................................................................... 71
National opportunities in smaller scale and ‘niche’ markets............................................................. 73 Firewood........................................................................................................................................ 73 Fibre cement .................................................................................................................................. 73 Sandalwood ................................................................................................................................... 74 Eucalyptus oil ................................................................................................................................ 74
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Activated carbon............................................................................................................................ 74 National opportunities in emerging markets ..................................................................................... 75
Engineered strand lumber.............................................................................................................. 75 Woody fodder................................................................................................................................ 76 Industrial carbon............................................................................................................................ 76 Bioenergy ...................................................................................................................................... 76 Biofuels ......................................................................................................................................... 76 Carbon sequestration ..................................................................................................................... 77 Other environmental services ........................................................................................................ 77
Conclusion............................................................................................................................................ 78 Measuring opportunities over time.................................................................................................... 78 Scale of processing infrastructure ..................................................................................................... 78 Adoption............................................................................................................................................ 79
References ............................................................................................................................................ 81
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Tables and Figures Table 1: Overview of market opportunities for existing larger scale forest product markets .............xi Table 2: Summary of regional ranking of market opportunities for farm forestry for existing larger
scale products ...................................................................................................................... xiii Table 3: Overview of market opportunities for existing smaller scale and ‘niche’ forest products .. xiii Table 4: Public native forest sawlog supply and trends ...................................................................... 8 Table 5: Nutritional values of alternative fodder sources.................................................................. 35 Table 6: Average cost of electricity and direct CO2 emissions from a range of energy sources ...... 39 Table 7: Ranking of market opportunities for farm forestry by region in Australia ......................... 48 Table 8: Market opportunities and ranking for farm forestry in Central and North Queensland ...... 50 Table 9: Market opportunities and ranking for farm forestry in South East Queensland.................. 52 Table 10: Market opportunities and ranking for farm forestry in the North Coast, NSW.................. 54 Table 11: Market opportunities and ranking for farm forestry in the Northern and Central Tablelands,
NSW .................................................................................................................................... 55 Table 12: Market opportunities and ranking for farm forestry in the Murray Valley ........................ 56 Table 13: Market opportunities and ranking for farm forestry in the Southern Tablelands, NSW ..... 58 Table 14: Market opportunities and ranking for farm forestry in South East NSW............................ 59 Table 15: Market opportunities and ranking for farm forestry in North West Victoria ...................... 60 Table 16: Market opportunities and ranking for farm forestry in Central Victoria ............................. 62 Table 17: Market opportunities and ranking for farm forestry in Gippsland ...................................... 63 Table 18: Market opportunities and ranking for farm forestry in the Green Triangle......................... 65 Table 19: Market opportunities and ranking for farm forestry in the Mt Lofty Ranges and Kangaroo
Island ................................................................................................................................... 66 Table 20: Market opportunities and ranking for farm forestry in South West WA............................. 68 Table 21: Market opportunities and ranking for farm forestry in Tasmania ....................................... 70 Table 22: Market opportunities and ranking for farm forestry in the Northern Territory ................... 72 Table 23: Indicative scale required for competitive forest product processing facilities .................... 79 Figure 1: Apparent consumption of sawn timber in Australia.............................................................. 4 Figure 2: Index of real (1998=100) movements in softwood sawlog and sawn timber prices ............. 6 Figure 3: Apparent consumption of hardwood sawn timber in Australia............................................. 8 Figure 4: Apparent consumption of hardwood sawn timber in Asia .................................................. 10 Figure 5: Real prices for domestic hardwood sawn timber in Australia............................................. 10 Figure 6: Apparent consumption of plywood and LVL in Australia.................................................. 12 Figure 7: Volume and source of softwood log imports by China and Korea ..................................... 14 Figure 8: Volume of log exports from Australia................................................................................. 15 Figure 9: International prices for softwood export logs...................................................................... 15 Figure 10: Imports of hardwood logs into China ................................................................................. 16 Figure 11: Indicative prices for hardwood sawlogs on international markets...................................... 17 Figure 12: Real movements in preservation, pulp and salvage softwood log prices............................ 18 Figure 13: Apparent consumption of MDF and particleboard in Australia ......................................... 20 Figure 14: Volume of Japanese woodchip imports by source.............................................................. 21 Figure 15: Australian woodchip export prices ..................................................................................... 22 Figure 16: Australia’s apparent consumption of pulp .......................................................................... 24 Figure 17: Australian feed grain prices ................................................................................................ 34 Figure 18: Electricity demand, population density and existing supply distances............................... 41 Figure 19: Summary of farm forestry market opportunities by forest product .................................... 78
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Executive Summary
What the report is about This report examines market opportunities for products relevant to commercial farm forestry development in Australia, ranging from hardwood and softwood sawlogs, posts, poles and pulp, to niche markets such as sandalwood, and emerging markets such as carbon and bioenergy. The report analyses existing and potential product markets into which farm forestry can supply resources, and the regions where this is most achievable. Based on this analysis market opportunities are ranked – on a region by region basis for larger scale markets, and on a national basis for smaller scale or niche markets and for emerging markets.
Who is the report targeted at? This report on market opportunities has been prepared to inform investment priorities of the Joint Venture Agroforestry Program (JVAP), government and industry. It will be of interest to landholders, investors, extension providers, policy makers and the forestry and forest products industry.
Background Australia has a large and well developed forest product processing industry, which utilises both plantation and native forest resources to produce a range of products, including sawn timber, pulp and paper, composite wood products and engineered wood products. There are also a number of new forest product markets developing in Australia, such as carbon sequestration and bioenergy. Growth in the area of farm forestry in Australia has been largely been drive by government programs and by expanding areas of MIS plantations. Government programs have usually been aimed at supplementing declining native forest resources or providing environmental benefits. A number of such programs have been based on developing plantations for emerging markets e.g. mallee eucalypt plantings in WA. Government programs illustrate the potential for subsidies to assist plantation development. The expansion of MIS plantations, on the other hand, illustrates the potential for private investment to drive farm forestry where market opportunities are identified. The remaining areas of farm forestry in Australia have developed largely as smaller scale, fragmented investments by small growers. Many of these plantations have been based on providing supplementary supply to existing large scale industrial processors. This approach is most attractive in regions where this is an existing plantation and forest processing industry. However planting a resource is only part of the equation. The resource needs also to be commercially viable for landholders, by selling as products or enhancing the farm enterprise. By examining market opportunities this report will help inform potential directions for new farm forestry investment.
Aims/objectives This report aims to:
• identify market opportunities for ongoing investment that could drive continuing expansion in the area of farm forestry around Australia
• take account of different scales of production that are relevant to farm forestry investment • inform priorities for future investment in research and development by JVAP, industry and
other existing and potential investors in farm forestry.
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Methods used There are two main components to this report. The first examines the market situation and outlook for all of the commodities considered to have potential for farm forestry. These include existing and emerging forest products and markets. The second component of the report provides rankings of market opportunities for these products. These rankings are provided for: • existing larger scale markets such as sawn timber , pulp and paper, and composite wood products; • existing smaller sale and ‘niche’ markets such as firewood, sandalwood and Eucalyptus oil; and • emerging markets such as carbon, bioenergy and biofuels. Existing larger scale market opportunities are ranked on a region by region basis, reflecting the need for scale in production and the influence of existing processors in determining market opportunities. In these markets a ranking of ‘high’ represents a product that has a favourable market outlook and where there is generally an existing processor or readily identifiable market in the region for farm forestry resources. A ranking of ‘medium’ represents a wood product where market opportunity exists but there is significant risk or uncertainty in accessing the market or in the market situation itself. A ranking of ‘low’ represents little or no market opportunity for farm forestry.
Existing smaller scale and ‘niche’ markets have less reliance on existing processors for capturing market opportunities and often provide opportunities beyond existing forestry regions. Rankings for these products are therefore at the national level. However, where opportunities are considered specific to a region these are identified. A ranking of ‘high’ represents a market that presents a favourable outlook and provides immediate opportunity for farm forestry investors to supply small scale resource on a cost competitive basis. A ranking of ‘medium’ represents a potential market opportunity but entails significant risk or uncertainty in developing the market. A ranking of ‘low’ represents little or no opportunity for viable farm forestry investment.
The developing nature of emerging markets means that opportunities generally are not region specific. Therefore, similar to smaller scale existing markets, these are ranked at the national level with any region specific opportunities identified. A priority of ‘high’ represents an emerging market where there are already strong signs of transactions and the outlook for market development is good. A priority of ‘medium’ represents a market that shows significant opportunities for development, but where there is still some uncertainty as to where and how markets will develop. A priority of ‘low’ represents a very speculative market that would require significant research and development to become established.
Results/Key findings Table 1 provides an overview of the market situation and outlook for existing larger scale forest product markets in Australia and the general implications for farm forestry. Table 2 provides a summary of the regional rankings of market opportunities for these products. The rankings of market opportunities are for individual products, not production systems e.g. plantations aimed at producing softwood sawlogs also produce posts and pulpwood but market opportunities for the different products produced from one plantation can vary. A number of regions in Australia have markets for plantation sawlogs but find it difficult to secure markets for all available pulpwood. Therefore while market opportunities may be reported for softwood sawn timber in a region, returns to farm forestry plantation investment in that region may not be attractive if market opportunities for pulpwood are limited. Table 3 provides an overview of market opportunities for existing smaller scale and ‘niche’ forest products and ranking of opportunities.
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Table 1: Overview of market opportunities for existing larger scale forest product markets
Market Current situation and outlook Implications for farm forestry
Softwood sawn timber - Demand for sawn timber continues to grow slowly over the long term. Supply and consumption expected to slow over the next 10-15 years as resource availability peaks.
- Markets will remain competitive due to high competition amongst domestic processors and ability of timber imports to respond to domestic price increases.
- Opportunities exist for sale into domestic markets, and will be greatest in regions where there are existing processors with constrained access to additional resources.
- Farm forestry could achieve price premiums for selling marginal volumes to processors.
Hardwood sawn timber - Supply is becoming increasingly constrained both domestically and internationally.
- Will continue to move to higher value appearance applications due to ongoing competitive pressure from softwood sawn timber and engineered wood products in structural applications.
- Likely to be ongoing consolidation of hardwood sawmills across Australia.
- Opportunities to supply market from private native forests (PNF) and plantations.
- Focus on the production of higher value species and log qualities for production of appearance grade products.
- Greatest opportunities in regions with existing hardwood sawmilling industries and those with developing hardwood sawlog plantation resources.
Plywood and LVL - Consumption of plywood and laminated veneer lumber (LVL) in Australia has grown significantly and this trend is expected to continue as LVL provides a substitute for sawn timber in high strength applications.
- There may be opportunities to construct new mills to meet domestic demand. However, scale requirements for competitive mills mean that new developments may be constrained by available resources.
- There may be opportunities for farm forestry to supplement existing supplies or to provide resources to new mill developments.
Log exports - Demand for hardwood log exports is expected to grow as supplies of hardwoods from tropical countries decrease and there is a growing acceptance of plantation resources.
- Expected restrictions on log supplies from Russia suggest a positive market outlook for softwood log exports.
- Log export markets are volatile and plantation investments based on log exports would involve significant risk.
- The positive outlook for international log markets creates opportunities, however market and price volatility create risk.
- Greatest potential in regions surrounding ports and where farm forestry supplies could complement existing log exports.
Posts and poles - Demand for poles mainly comes from the utilities sector and is steady.
- Demand for posts grew strongly over the last decade as a result of new vineyard establishment, but has now slowed. Demand is expected to remain relatively steady.
- Production of posts and poles is likely to be associated with sawlog production, both in plantations and from native forests.
- Greatest opportunities in regions where there are established plantations or native forest operations.
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Market Current situation and outlook Implications for farm forestry
Composite wood products
- Production and consumption of composite wood products in Australia has been growing rapidly as products substitute for solid wood in a range of applications. It is likely that this trend will continue.
- It is unlikely that a new MDF mill will be built in the near future, however there may opportunity for additional particleboard production.
- Production of pulpwood for composite wood products is most likely to be associated with softwood sawlog production. There is some potential for hardwood pulpwood plantations in emerging markets for engineered lumber products.
- Opportunities for softwood will most likely stem from supplying existing processing facilities. In regions where softwood resources are constrained there may be market access for farm forestry. However, resources would need to be within viable transport distance of processing facilities.
Woodchip exports - Supplies from hardwood pulpwood plantations in Australia will increase dramatically over the next few years.
- It is unlikely that this extra volume will be absorbed into export markets without long term real declines in export free on board (fob) prices.
- Softwood pulpwood is generally produced as a secondary product of a sawlog regime.
- The softwood chip market is likely to remain volatile, with ongoing price fluctuations.
- Limited ability for farm forestry to compete with managed investment scheme (MIS) companies in supplying woodchip export markets. However, MIS have led to significant expansion in the area of farm forestry in some regions.
- Opportunities to lease new land to MIS companies will decline as investment becomes focussed on re-planting existing areas.
- Regions where pulpwood plantations are at an earlier stage of development such as Central Queensland provide the best opportunities to lease additional farmland to plantation companies.
Pulp and paper - Significant pulp imports combined with pulpmill expansions (Maryvale and Tumut) and possible construction of new mills will likely create positive market conditions for softwood and hardwood pulpwood in Australia.
- Construction of hardwood pulpmills will rely on export markets as production will exceed domestic market consumption. Export markets are competitive with volatile prices.
- Opportunities for farm forestry to supply existing and potential new pulpmills. While it may be possible for this to drive further leasing of farm land as has occurred to date, it may also be difficult to compete with large scale MIS developments on purchased land.
- Greatest opportunities likely to be where mills are being expanded.
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Table 2: Summary of regional ranking of market opportunities for farm forestry for existing larger scale products
Region
Softw
ood
timbe
r
Har
dwoo
d tim
ber
Vene
er, p
ly &
LV
L
Log
expo
rts
Post
s &
pol
es
Com
posi
te
woo
d pr
oduc
ts
Woo
dchi
p ex
port
s
Pulp
& p
aper
Central & North Queensland L M/H L L/M M L M L
South East Queensland M H H L M L M L
North Coast NSW L H M L M L M L
Northern/Central Tablelands M/H M L L M L L L
Murray Valley H L M L H H L H
Southern Tablelands M L M L M L L M/H
South East NSW M M/H L M M L M L
North West Victoria L L L L L L L L
Central Victoria H H L M M L M L
Gippsland H H L L M L L H
Green Triangle H L H M M L M L
Mt Lofty & Kangaroo Island M L M L L L L L
South West WA H H H M M M M L/M
Tasmania H H H M M L M M
Northern Territory L M L M L L M L
Table 3: Overview of market opportunities for existing smaller scale and ‘niche’ forest products
Market Current situation and
outlook Implications for farm
forestry Ranking of market
opportunity for farm forestry
Firewood - Markets for firewood are
largely informal and localised, with the majority collected from private native forests (PNF).
- Demand has shown signs of decreasing, as natural gas has become more accessible in some rural areas.
- There are potential opportunities for firewood, mainly in areas with localised supply limitations.
- There are opportunities for on-farm returns for landowners who use firewood for domestic heating.
Medium Opportunity for PNF and as a by-product from higher value sawlog plantations.
Fibre cement - The total supply of pulp
for the fibre cement market in Australia is small at around 25,000 t pa.
- Fibre cement pulp is a specialised product and supply is currently imported from a NZ
- There is little opportunity at present for Australian wood to supply this market, due to strong import competition.
Low
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Market Current situation and outlook
Implications for farm forestry
Ranking of market opportunity for farm
forestry processor who dominates supply of this market.
Sandalwood - Supply of natural
sandalwood is decreasing globally due to restrictions on native harvesting.
- International demand for sandalwood is expected to remain strong. However, prices will be sensitive to the supply/demand balance and could be volatile, particularly if there are large increases in resource availability.
- Production is currently based in WA with some new plantations being developed in North Queensland.
- Farm forestry could contribute to expansion of sandalwood production in Australia.
- The high value of products provides opportunity for small plantation areas and production volumes to be viable in their own right.
- There are several risk factors including potential for over-supply, product substitution and technical risks associated with limited silvicultural knowledge.
Medium Greatest opportunity in South West WA where sandalwood plantations and industry expertise are developing. Opportunities beyond existing developments may be limited by size of market.
Eucalyptus oil - Global consumption of
Eucalyptus oil is estimated to be around 7,000 tonnes pa, of which Australia produces around 3%. China produces around 70% of global supplies.
- Prices have remained relatively stable, but may respond negatively to any large increase in supply unless new products are developed and commercialised.
- Markets are small on a global scale and it is difficult for Australia to compete with the cost structures of other countries.
- Opportunities for farm forestry most likely to depend on development of an integrated wood processing facility that produces a range of products from mallee eucalypts, such as bioenergy and activated carbon.
Low Small markets, international competition and uncertainty over development of integrated wood processing.
Activated carbon - The majority of Australian
activated carbon supply is imported.
- World prices for activated carbon have been increasing significantly over recent years.
- Activated carbon presents an attractive opportunity for farm forestry. However there are no significant wood based processors, and scale requirements for production are uncertain.
Medium There are indications of strong market opportunities. However, there are some uncertainties relating to technology and competitiveness.
Analysis of emerging market opportunities requires a somewhat different approach as markets are not fully developed and transactions have been limited. Consequently, assessing future market potential, returns to investment and issues relating to competitiveness, is partly speculative. The analysis presented in this report draws on information regarding activities in emerging markets in Australia to date, as well as international developments and trends. The emerging markets analysed generally apply across all regions or beyond traditional forestry regions, and as such an overall national ranking was developed, rather than a ranking on a region by region basis. The following points summarise the rankings for the emerging markets considered: • Woody fodder production utilising woody perennial species which is being adopted across a wide
range of agricultural regions is rated as a ‘medium’ opportunity for farm forestry. This ranking
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largely reflects the situation that most fodder production is for on-farm use, and the potential for woody fodder species to compete with existing fodder species in off-farm markets is uncertain. The development of markets for environmental services may increase investment attractiveness.
• Industrial carbon is not yet well developed as a market, but reports on its commercial applications at this stage appear positive. Market development will be assisted by the development of emissions trading. However, substantial R&D in the steel making industry is also focussed on alternative manufacturing processes. Opportunities for industrial carbon are consequently ranked as ‘medium’ for farm forestry.
• Engineered strand lumber (ESL) or laminated strand lumber (LSL) is an engineered wood product manufactured from lower grade wood. Lignor is an ESL product that is being developed in Australia that would compete with solid timber used in high strength and appearance applications. If successful, Lignor could create significant potential for farm forestry investment. However, existing supplies of hardwood pulpwood in Australia and the large scale required suggest that it is a ‘medium’ opportunity for farm forestry.
• Bioenergy production from wood is creating significant enthusiasm internationally and government renewable energy frameworks are developing. Wood based bioenergy appears to have cost advantages over other renewable energy sources. However, other technologies are developing rapidly. Uncertainty over the competitiveness of wood based bioenergy and the potential to utilise existing residues means that this opportunity is ranked ‘medium’ from the perspective of farm forestry.
• Biofuels represent a similar opportunity to bioenergy. The long term potential of lignocellulosic bio-ethanol appears strong and commercial development may only be a matter of years away. However, there are significant uncertainties with future development and so the overall market opportunity of biofuels for farm forestry is ranked ‘medium’.
• Carbon sequestration markets are developing rapidly but are still in their early stages. They are expected to develop significantly in Australia with the introduction of a national emissions trading scheme. Opportunities for carbon sequestration in farm forestry are rated as ‘high’.
• Markets for other environmental services are developing, particularly for water and salinity. While markets for some services such as biodiversity are at earlier stages of development, there have been few transactions or payments to date and government policies are less certain than those for carbon. Market opportunities for farm forestry are rated as ‘medium’.
Implications for relevant stakeholders The market opportunities identified suggest that there is considerable potential for further development of farm forestry around Australia. The market opportunities should be taken into account by policy makers at all levels concerned with farm forestry. They will also inform decisions by all those involved in farm forestry investment including landholders, financiers, extension providers, and the forestry and the forest products industry.
Recommendations This report does not recommend particular products for farm forestry investments. Rather, it provides an information source for investors and other stakeholders. Nevertheless, some recommendations are made as to how farm forestry may take advantage of potential opportunities:
• The opportunities for farm forestry investment to service existing large scale markets are greatest in areas where there are existing growers and processors. There would be benefits from integrating farm forestry developments with larger scale growers in relevant regions.
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• More transparent and market-based approaches to log pricing would benefit farm forestry by providing clear, undistorted market signals to farm forestry investors.
• Emerging markets for carbon, bioenergy and biofuels, engineered wood products and environmental services appear to provide significant opportunities for farm forestry investment, albeit over different time scales. Government assistance to promote development of these markets could benefit farm forestry. Farm forestry investors will likely need to develop approaches to deliver the scales required to capitalise on these market opportunities.
• Related to the need to achieve production scales required by markets, farm forestry investors need to pursue new investment vehicles e.g. the importance of MIS in expanding farm forestry investment in hardwood pulpwood plantations demonstrates the potential for new vehicles to generate investment.
1
Introduction This report provides an analysis of market opportunities for major products (and services) relevant to farm forestry development in Australia. The products examined include commodities, “niche” products (e.g. high value hardwoods) and emerging products such as bioenergy and carbon sequestration. Market opportunities are examined at the national and regional scale. This report is one of several outputs from the Agroforestry Industry Evaluation project commissioned by the Joint Venture Agroforestry Program (JVAP). The project aims to “provide a clear analysis of existing and potential products and markets into which agroforestry can expand or better coordinate, and the regions where this is most achievable.” The other outputs are an update of the areas of farm forestry around Australia (URS Forestry 2008a), regional consultations on market opportunities, and a final report combining outcomes and summarising conclusions and recommendations for farm forestry investment (URS Forestry 2008b). The market analysis aims to identify market opportunities that could drive continuing expansion in the area of farm forestry around Australia. It will inform priorities for future investment in research and development by JVAP, as well as provide information to the range of other investors and stakeholders with an interest in the farm forestry sector. The market analysis complements another JVAP-commissioned project being undertaken concurrently by Ensis entitled “Prioritisation of regional opportunities for agroforestry investment”. That project assesses the viability of alterative farm forestry production systems nationally, using spatial data analysis at broad regional scale including economics. The focus of these projects is on identifying opportunities for farm forestry to produce marketable products or on-farm benefits to existing agricultural production. As a result, farm forestry activities for non-commercial purposes (e.g. biodiversity plantings) have not been included in the reports. Farm forestry market opportunities have been assessed through analysis of product demand, supply and price trends, the scale required for viable market development and infrastructure requirements. Other factors considered at the regional level included the existing industrial and non-industrial resource base, existing processing facilities and markets, and the potential to integrate supply with large scale industrial production. The regions used in the analysis correspond to the regions of the National Plantation Inventory (NPI) and those covered by Private Forestry Development Committees (PFDCs). In general, these regions are the same although some PFDCs cover areas that combine or extend NPI regions. Some of the products considered in the market analysis offer opportunities to extend farm forestry activities beyond the NPI and PFDC regions. The rankings of market opportunities for farm forestry in this report were based on market analysis conducted by URS Forestry and consultations with regional stakeholders. The regional consultations helped to test and extend the understanding of market opportunities at the regional level.
Definition of farm forestry and farm forestry products The definition of farm forestry is that set out in the Farm Forestry National Action Statement (NAS). The NAS defines farm forestry broadly as ‘the combination of forestry activity with cropping and/or livestock production’. According to the NAS the ‘focus of the forestry activity is primarily commercial, although there may be other objectives’ (DAFF 2005). Farm forestry and agroforestry are typically used to describe the system of forestry production. In this sense, farm forestry generally refers to dense traditional forest production (i.e. woodlots) and agroforestry refers to wider spaced plantings more integrated with the agricultural production (e.g. mallee belts, fodder plantings).
2
Agroforestry is also sometimes defined to include food crops (e.g. macadamia nuts, avocados or wattle seeds). However, these products are not considered in this analysis. This report considers a range of established and developing wood and non-wood forest product markets relevant to farm forestry production: • Sawn timber – domestic demand for hardwood and softwood sawlogs is derived from sawn
timber demand. Markets for sawn timber include housing and other construction applications as well as higher value appearance applications including floor boards, furniture and joinery as well as sawn timber exports.
• Veneer, plywood and LVL– market demand for these products is driven by domestic housing which in turn generates demand for both hardwood and softwood sawlogs.
• Log exports – exports of pulp logs and sawlogs drive some demand for plantation grown logs in Australia.
• Post and poles – these markets create demand for both hardwood and softwood logs. Pole demand is driven largely by demand for electricity pole replacement and installation. Demand for posts is largely a function of vineyard establishment and maintenance, farm fencing and public and private landscaping activities.
• Composite wood products – these include medium density fibreboard (MDF), particleboard and hardboard which generate demand for pulpwood. The major demand driver for these products is domestic construction. Most production of composite wood products in Australia is based on softwood. Sources of softwood fibre supply are from pulpwood produced jointly as a part of plantation sawlog production and residues from processing of sawlogs. Hardwood pulpwood for hardboard production is produced mainly from native forest sawlog harvesting and processing residues.
• Woodchip exports – Australia exports large volumes of hardwood and softwood chip for pulp and paper production in importing countries. These are produced from the same range of sources as pulpwood used for domestic pulp and paper production.
• Pulp and paper – domestic pulp and paper production generates demand for hardwood and softwood pulpwood. Pulpwood can be produced in pulpwood specific plantations; as a joint product with sawlog production in both native forests and plantations; and from residues generated through sawlog processing.
• Firewood – the domestic demand for firewood is for use as a heating fuel. Firewood is sourced from native forest or from hardwood plantations either as a harvesting by-product or as a dedicated harvest.
• Fibre cement board – fibre cement board is used in cladding and demand is driven by the housing market and to a lesser extent by industrial needs where it is used in construction. The pulp used in fibre cement manufacture comes from softwood plantations.
• Sandalwood – the demand for sandalwood is for the conversion of solid wood into incense sticks, and for sandalwood oil which is used to produce perfumes and other aromatic products.
• Eucalyptus oil – demand for Eucalyptus oil is driven by the pharmaceutical, cleaning and food and beverage industries around the world. Other potential industrial products from Eucalyptus oil are being researched (Pain, in press) but generally have not yet resulted in commercial outcomes.
• Activated carbon – the market for activated carbon is driven by its use in water filtration, and food, beverage and gold production. Australian market demand is mostly met by imported product. Activated carbon can be produced from a range of sources including coal and wood biomass.
3
Emerging products and markets are also considered in this report. They include fibre production for bioenergy; biofuels; industrial carbon; markets for carbon sequestration; and other environmental services. Fodder based on wood perennial species is also considered as an emerging market as are newly developing wood products such as engineered strand lumber. The market opportunity rankings presented in this analysis are provided on a product by product basis. They do not represent market opportunities for farm forestry production systems e.g. while good market opportunities may be reported for softwood sawn timber in a region, returns to farm forestry plantation investment in that region may not be attractive if market opportunities for jointly produced pulpwood are limited.
Report structure This report has two major components. The first presents a market overview. It considers the market situation and outlook for each of the forest products. The products/markets considered are both traditional wood products markets that are well established and clearly focussed regionally (e.g. sawn timber, woodchip export, pulp), and smaller scale wood and forest products/markets that are either less developed or emerging and less focussed in a regional sense (e.g. eucalyptus oil, biofuels, activated carbon). Factors considered for each product include the supply and demand situation, price trends, market competitiveness and supply scale issues. The second component ranks market opportunities. It examines the potential for farm forestry to supply each product market and ranks the relative ‘attractiveness’ of each. Larger scale, more established markets are assessed on a region by region basis, as the scale of resource, demand and existing processing infrastructure determine market attractiveness. For each region a summary of existing resource markets, number and scale of processors and farm forestry status is provided. Other smaller scale or less developed and emerging markets are assessed for investment attractiveness at a national level as market opportunities are less determined by existing processing infrastructure. However, where there are clear region-specific opportunities in these smaller scale markets they are identified.
4
Market overview This section provides an overview of current and emerging forest product markets in Australia and the potential opportunities for farm forestry to supply these markets.
Softwood sawn timber Softwood sawn timber accounts for 75% of national sawn timber production in Australia. The sector is focused on Pinus radiata (radiata pine) produced in temperate climates and P. elliottii (slash pine), P. caribaea (Caribbean pine) and related hybrids in sub tropical/tropical regions in Queensland and northern NSW. There are also smaller volumes of other coniferous species including Araucaria cunninghamii (hoop pine) grown in tropical regions of Queensland, P. pinaster (maritime pine) grown in drier regions in WA and native cypress pine in drier regions of eastern Australia.
Market summary for softwood sawn timber
• Demand for softwood sawn timber is primarily driven by the housing market, where it is used for structural purposes. Some hoop pine and cypress pine is also used for appearance uses e.g. in flooring, and internal and external wall cladding.
• Total sawn timber consumption (softwood and hardwood) in Australia has been growing slowly at an average rate of 0.8% pa since the mid 1980s and has generally fluctuated between 4-5 million m3 pa depending on housing cycles (Figure 1). Over the period shown population has grown by an average 1.3% pa and consequently per capita consumption of sawn timber has declined.
• Consumption of softwood sawn timber, however, has been increasing at an average rate of 2.5% pa since the mid 1980s (Figure 1). Over the same time period domestic production of softwood sawn timber has grown at an average 5.5% pa. This reflects the greater volumes of softwood logs that became available for harvesting over this period. It has led to softwood timber steadily substituting hardwood timber in house framing.
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Hardwood sawn timber Housing commencements (rhs)
Source: ABARE (2007)
Figure 1: Apparent consumption of sawn timber in Australia
5
• The harvest volume of softwood sawlogs in 2005/06 was approximately 9 million m3 (ABARE 2007). Harvest volumes of softwood sawlogs have been increasing steadily over the last two decades, but have now almost peaked. The NPI presently forecasts that over the next 25-30 years there could be 1.5-2 million m3 of sawlogs available for production (BRS 2007).
• Further increases in softwood sawlog supply over the next 20-25 years will be constrained by the low levels of new plantation development in recent years. The area of new plantation development has reduced by almost half since the mid-1990s to around 5,000-10,000 ha pa. Growth of the softwood plantation estate is below the level of new plantation establishment as some harvested areas are not being replanted. The allowance for secondary markets in recent tax changes relating to Managed Investment Schemes (MIS) may help to address this lack of investment.
• Over the last few years Australia has imported approximately 600,000-700,000 m3 pa of softwood sawn timber, primarily from New Zealand. Although New Zealand has the resource capacity to supply greater volumes of sawn timber in the future, its focus has been on log exports and exports of clear softwood sawn timber (mouldings and better grade lumber) to the US. The appreciation of the $NZ against the $US has adversely affected the attractiveness of these markets in recent times. The nature of the resource in New Zealand which is generally faster grown with lower stiffness, also acts against the production of structural sawn timber for the Australian sawn timber market. However, the resource characteristics can vary from region to region. Notwithstanding these considerations, New Zealand remains a major competitive threat to the Australian softwood sector.
• Exports of softwood sawn timber from Australia have traditionally been very small. However, volumes have increased over the last 2-3 years. This reflects exports of hoop pine from Queensland to China and also the export of softwood sawn timber as part of tsunami reconstruction efforts in South East Asia.
• 55% of softwood plantations in Australia are currently under public ownership. Although still high, the level of public plantation ownership decreased significantly following the sale of the Victorian Plantations Corporation (VPC) in 1998. The structure of the softwood industry in Australia and the significance of public ownership of plantations, mean that softwood log prices are generally determined administratively and logs are allocated under long term contracts. Specific arrangements vary from state to state but under long term contracts log price movements are typically linked to movements in timber prices, the consumer price index and other relevant variables. A lack of transparency in log prices and the predominance of long term contracts can act as disincentives for small growers to enter markets.
• Softwood log prices for eastern Australia are reported in the Australian Pine Log Price Index (APLPI). APLPI represents the average pine log stumpage prices achieved by Forestry Plantations Queensland, Forests NSW, ACT Forests, HVP Plantations and Forestry SA. APLPI has reported prices since 1995 and since that time softwood log prices have declined in real terms (Figure 2).
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Source: ABARE (2007)
Figure 2: Index of real (1998=100) movements in softwood sawlog and sawn timber prices
• Figure 2 also illustrates that prices for softwood sawn timber have been decreasing in real terms over the last decade. This reflects increasing competitiveness in the sector as log supply and sawn timber production have expanded.
• The softwood sector has a more consolidated processing base than the hardwood sector. Sawmills vary in size with the largest processing volumes in excess of 600,000 m3 pa log input, as operators compete to reduce unit costs. There are a number of smaller processors who operate by either adapting quickly to market movements or specialising in niche products.
Market situation and outlook for softwood sawn timber
The rate of increase in softwood sawn timber consumption is expected to slow over the next 10-15 years, as the rapid expansion in available plantation resources has come to an end, and domestic demand for sawn timber continues to grow only slowly. Opportunities for softwood sawn timber to continue to substitute for hardwood are expected to be increasingly limited. Ongoing substitution for hardwood in structural uses is expected to come more from engineered softwood products rather than sawn timber. While constraints in supply may have positive effects on log prices, any increase in real prices is likely to be balanced by potential increases in imports (from New Zealand and other countries). History suggests imports respond to domestic price movements. Softwood sawn timber markets will continue to be highly competitive, with strong competition amongst domestic processors.
Implications for farm forestry – softwood sawn timber
Market opportunities exist to produce softwood sawlogs for sale into existing domestic markets as future increases in domestic supply will be limited and there are opportunities to replace imports. The commercial feasibility of farm forestry softwood plantations will depend strongly on the proximity of plantations to existing sawmills, as new large scale softwood sawmills are unlikely to be
7
established in Australia. It is also unlikely that current farm forestry based resources would provide a sufficient base to attract a new processor. Opportunities for farm forestry production of softwood sawlogs are likely to be greatest in those regions where there are existing sawn timber processors with constrained access to additional resources. As processors will continue to expand capacity to meet ongoing competitive pressures, farm forestry production could provide valuable supplementary resources. In this situation marginal supplies may be able to achieve price premiums, if high quality logs can be produced. These considerations have influenced regional rankings provided in the following chapter (Table 7). This will depend on the ability of plantation owners to market their products and the cost effectiveness of harvesting arrangements.
Hardwood sawn timber Hardwood sawn timber accounts for 25% of national sawn timber production. At present the majority of hardwood sawlogs are sourced from native forests with only small volumes of lower quality sawlogs produced from plantations in Australia. However, hardwood sawlog plantation establishment has expanded in Tasmania, South East Queensland and Northern NSW, largely as a result of government programs.
Market summary for hardwood sawn timber
• Demand for hardwood sawn timber is primarily driven by the housing market where it is used for appearance (e.g. flooring) and higher strength purposes (e.g. large beams, lintels, stair treads). In the past hardwood sawn timber was used primarily for house framing for which demand was driven by housing starts. However, expansion in production of softwood sawn timber has seen hardwood sawn timber production focused on higher value appearance and strength uses. This has seen hardwood demand being driven by alterations and additions rather than new housing construction.
• Consumption of hardwood sawn timber has steadily declined over the last 20 years, at an average rate of 2.3% pa (Figure 3). This decline is a function of the rise in the use of softwood sawn timber in house framing as well as reductions in supply of native forest logs. More recently, softwood engineered wood products (laminated beams and LVL I-beams) have created increased competition for hardwood sawn timer in higher strength applications. This has seen hardwood move into appearance applications.
• Hardwood sawn timber is used extensively in appearance flooring, and its use for furniture and joinery production is growing and expected to increase in importance in the future. The solid wood flooring market is likely to face increasing competition from engineered products such as laminated flooring and hardwood engineered strand lumber.
• The furniture market and appearance mouldings market are often cited as opportunities for further value adding of domestic sawn timber. Local hardwood sawmills report strong demand for furniture timber. While it appears that there will always be a strong market for higher value solid timber hardwood furniture and mouldings, in general these markets in Australia are subject to intense competition from imports. Imports of both of these products have been increasing in recent years and will make it difficult to expand domestic markets.
• The steady reduction in supply of native hardwood logs over the last twenty years has resulted from government decisions to withdraw areas of native forest available for commercial production. This policy trend is expected to continue in the future with harvest volumes continuing to decrease. Table 4 illustrates current and expected future harvest volumes of hardwood sawlogs from public native forests in Australia. Projections for future supply of plantation hardwood sawlogs estimated that there will be an additional 800,000 m3 pa available over the next 15-20 years, of which about 60% will be from Tasmania (BRS 2007).
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Figure 3: Apparent consumption of hardwood sawn timber in Australia
Table 4: Public native forest sawlog supply and trends
State Harvest volumes Future
NSW • 560,000 m3 pa sawlogs committed under Wood Supply Agreements
• 340,000 m3 pa low quality logs potentially available
• 665,000 m3 harvested in 2005/06
• Some concern that commitments can’t be met. Expect some decline in harvest volume over the next 10-20 years. Plantation resources may compensate but unlikely to be sufficient
Vic • 450,000 m3 pa of sawlogs (D+ grade)
• 130,000 m3 pa of low quality sawlogs (E grade)
• Volumes recently reduced due to impact of alpine fires. Extent of further volume reductions from 2006/07 fires currently unknown
Tas • 650,000 m3 pa RFA sustainable sawlog harvest
• Legislative requirement for production of at least 300,000 m3 pa of high quality Eucalyptus sawlogs
• Future decline in native forest supply to be met by increasing plantation resources
WA • 131,000 m3 pa of jarrah sawlogs
• 54,000 m3 pa of karri sawlogs
• Volumes were reduced to these levels at the end of 2003. These volumes appear sustainable and the risk of future change is minimised by the inclusion in existing contracts of provisions for compensation should resources not be provided
Qld • 250,000 m3 pa from public forests currently harvested (about half hardwood, half cypress)
• Most native forest harvesting on Crown Land will cease by 2025, to be replaced by plantation resources
• Supplies of hardwood sawlogs from private native forests (PNF) have increased in importance as
harvest volumes from public forests have declined. Very little is known about the extent and sustainability of PNF across Australia.
• PNF supplies around half of the native forest sawlog volumes processed by sawmills in North East NSW and in South East Queensland. A survey of NSW processors completed by the Northern Rivers Private Forestry Development Committee (2006) estimated a PNF harvest
9
volume of around 600,000 m3 pa across NSW most of which was from North East NSW. It is estimated that around 200,000-250,000 m3 pa of sawlogs are harvested from PNF in South East Queensland.
• In Tasmania it is estimated that PNF supply around 10-15% of the native forest sawlog harvest. In 2005/06 around 70,000 m3 of sawlog was harvested from Tasmanian PNF. This fell from around 90,000 m3, reflecting a downturn in market conditions.
• Decreasing public native forest supplies and uncertainty over PNF supplies suggest that there are opportunities for hardwood plantation development in Australia. Hardwood sawlog plantations in Australia to date have been driven mostly by governments as part of efforts to compensate for reductions in native forest harvest volumes. The largest of these programs have been in North East NSW, South East Queensland and Tasmania. Supplies from these plantations will come on stream over the next 20 years. However, the characteristics of younger plantation grown sawlogs compared to older native forest sawlogs require different sawmill processing technologies to efficiently saw logs (Waugh 2000). Pruning will also be important to generate plantation hardwood sawlogs suitable for sawn timber production (Nolan et al. 2005).
• The focus on appearance uses of hardwood sawn timber, together with declining supplies of high quality sawlogs from tropical native forests, has encouraged recent investment in plantations of higher value hardwood species. High value hardwoods include native species such as red mahogany (Eucalyptus pellita) and blackwood (Acacia melanoxylon), and several exotic species including teak (Tectona grandis) and the African (Khaya sp.) and Brazilian mahogany (Swietenia macrophylla).
• High value hardwoods have been established in small scale plantings in tropical areas of Australia. Some MIS companies have also offered plantation investments based on higher value hardwood species, but these have attracted only a relatively small amount of investment compared to short rotation plantations. Recent changes to clarify the taxation status of long rotation plantation investments through MIS, if sold prior before final harvest, should help attract more funding.
• Internationally, the consumption of high value hardwoods from Asian countries has been decreasing as a result of the declining availability of native resources and moves towards sustainable forest management (Figure 4). Declining availability of hardwood sawlogs is particularly evident in the major tropical hardwood countries such as Malaysia and Indonesia.
• In recent years there is some evidence of increasing imports of hardwood sawn timber into Australia, which appears to reflect the increasing scarcity of domestic native hardwood sawn timber. Malaysia and Indonesia are the largest sources of hardwood sawn timber imports into Australia and imports from Indonesia have been growing in recent years. It is expected that constraints imposed on access to resources in these countries will limit the ability of tropical hardwood imports to capture an increasing share of the Australian market.
• Exports of hardwood sawn timber from Australia are only very small, with around 40,000 m3 pa exported in recent years.
• Prices for hardwood sawlogs in Australia have traditionally been set administratively with the pricing arrangements varying considerably around the states. Victoria is moving to market-based systems for the pricing and allocation of native forest logs through the introduction of log auctions. Victorian auctions have so far provided preliminary evidence that logs sold through open market processes will receive prices significantly above administered prices.
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Figure 4: Apparent consumption of hardwood sawn timber in Asia
• International hardwood sawn timber prices have increased in recent years. These increasing prices can be attributed to the reduction in tropical hardwood harvest throughout Asia combined with continued strong world demand for tropical hardwoods.
• Domestic hardwood sawn timber prices in Australia have been relatively stable in real terms (Figure 5).
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Standard strength (F17) structrual hardwood Flooring Sydney Blue Gum low feature
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Source: FAO (2007)
Figure 5: Real prices for domestic hardwood sawn timber in Australia
11
• Hardwood sawmills are typically much smaller than softwood sawmills. The largest hardwood sawmills in Australia have log inputs of approximately 150,000 m3 pa. However, most hardwood sawmills are smaller, with average annual inputs of less than 50,000 m3.
• The competitiveness of hardwood sawmills varies considerably from mill to mill. Hardwood sawmills tend to focus on particular product markets and design their processing operations to meet the needs of those markets as well as the nature (size and quality) of the log resources they have access to. Consequently, hardwood sawmills generally do not require the same scale as softwood sawmills to be competitive.
• There has been extensive industry rationalisation in the hardwood sawmilling sector as log supply has reduced. Many smaller sawmills have closed, consolidating production capacity into fewer locations. It is likely that there will be further rationalisation, the extent of which will be affected by any future reductions to sustainable native forest harvest volumes.
• Increasing reliance on plantation wood together with further value-adding is likely to require hardwood sawmills with larger processing capacities and different sawing set-ups to traditional native hardwood sawmills. Different sawing technologies are required to deal with growth stresses in younger plantation timber (Waugh 2000) and to operate efficiently these mills require larger throughput volumes. Nevertheless, it is likely that some small sawmills which produce niche type products will maintain their operations.
Market situation and outlook for hardwood sawn timber
Ongoing constraints on the supply of native forest hardwood, both domestically and internationally, provide the basis for a positive outlook for hardwood sawn timber. It is expected that hardwood sawn timber prices will, at least, be maintained in real terms. The greatest market opportunities for hardwood sawn timber lie in higher value-added appearance applications, particularly furniture, joinery and flooring. Markets for hardwood sawn timber in more commodity-oriented structural uses are expected to be subject to ongoing pressure from softwood sawn timber and engineered products (both softwood and hardwood). There may be potential to produce structural hardwood sawn timber utilising young hardwood plantation grown wood (e.g. as Forest Enterprises Australia is producing in Tasmania). However, such production is likely to be subject to intense competition from softwood and face resistance in housing markets where softwood is the preferred material. Notwithstanding these opportunities the need for domestic processors to maintain international competitiveness will remain, particularly in the face of increasing competition from imports of furniture and mouldings. These pressures, together with the need for larger scale in processing plantation hardwood, are likely to see ongoing consolidation of hardwood sawmills across Australia. While this does not mean that all small mills will disappear (some mills have specific market niches that will continue to provide profitable businesses) in general there will be fewer, larger hardwood sawmills.
Implications for farm forestry – hardwood sawn timber
The market situation and outlook for hardwood sawlogs suggests that there are opportunities for farm forestry to supply hardwood sawlog markets, both from PNF and plantations. The greatest opportunities lie in production of higher value species and qualities of logs suitable for production of appearance grade sawn timber. Decreasing public forest supply will strengthen opportunities for PNF to supply hardwood markets. Opportunities for production from PNF are likely to be focussed in areas where there are existing hardwood sawmills. This already exists in North East NSW, South East Queensland and Tasmania.
12
Opportunities for plantation grown hardwood sawlogs suffer greater market uncertainties as plantation logs are likely to require larger sawmills with new processing equipment (Waugh 2000), of which there are currently few in existence. Similarly, achieving plantation scale (say around 10,000 ha) to supply a competitive hardwood plantation sawmill is likely to be challenging for farm forestry. It is therefore likely that the greatest opportunities for farm forestry will be in those regions with developing hardwood plantation resources where farm forestry supplies can supplement those from other sources. These regions mostly correspond to those that currently produce native hardwood sawn timber (i.e. Tasmania, North East NSW, South East Queensland and South West WA). In addition MIS companies are developing high value species hardwood plantations in Central and Northern Queensland which could provide impetus for complementary farm forestry investments.
Veneer, plywood and LVL Plywood and Laminated Veneer Lumber (LVL) are both structural panels engineered by gluing together sections of wood veneer to form a high strength product. Consumption of plywood and LVL is driven by the construction market where it competes against solid timber products in a range of applications. Plywood is used across a number of construction needs whereas LVL is used primarily for high strength structural purposes such as floor bearers, beams, lintels and I-joists.
Market summary for veneer, plywood and LVL
• Apparent consumption of plywood in Australia has grown at an average of 3.8% per annum (pa) since the late 1980s (Figure 6). LVL consumption has expanded rapidly from virtually nothing in the late 1980s and since 1995 has grown by an average of approximately 19% pa. LVL is increasingly competing with hardwood in high strength applications.
Plywood LVL
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Source: ABARE (2007) Source: ABARE (2006), URS Forestry estimates
Figure 6: Apparent consumption of plywood and LVL in Australia
• Plywood and LVL are not exported from Australia in significant quantities. However, imports supply a significant proportion of domestic consumption. Hardwood plywood is mostly imported from Malaysia and Indonesia whereas softwood plywood is generally imported from New Zealand. Imports of LVL are mostly from New Zealand. Imports of LVL have increased more than three fold since 2000.
13
• Domestic plywood prices vary according to grade but grew steadily across all grades between 1999 and 2004 increasing at an average of 3% pa in nominal terms. LVL prices are currently slightly above prevailing prices for hardwood structural timber but there is an increasing level of acceptance of and preference for LVL in the market due in part to its ease of handling and lighter weight.
• Plywood mills in Australia are generally old mills with scales of production ranging from around 5,000-45,000 m3 per annum, considerably lower than what would be considered competitive at a world scale. There is only one hardwood plywood producer but six softwood plywood producers.
• Hardwood plywood is preferred in appearance uses and in applications where strength is a major consideration, such as concrete formwork and flooring. However, softwood plywood and oriented stand board (OSB) have been replacing hardwood plywood as supplies of the latter have become scarce due to reductions in tropical native hardwood availability.
• Two new hardwood veneer mills are currently being developed in Tasmania. These mills will be based on native hardwood logs that were previously exported and the veneer produced will be exported for plywood manufacture overseas.
• There are two LVL producers in Australia, the Carter Holt Harvey (CHH) mill at Nangwarry, SA and the newly constructed Wesbeam mill in Perth, WA. The CHH mill utilises plantation radiata from the Green Triangle and the Wesbeam mill utilises P. pinaster grown in plantations by the WA Forest Products Commission (FPC). The WA government has developed joint venture farm forestry plantations with land owners to supplement supplies from publicly owned plantations for this resource.
Market situation and outlook for veneer, plywood and LVL
It is expected that consumption of veneer, plywood and LVL will continue to grow. With significant and growing consumption including imports there would appear to be opportunities for the construction of new mills in Australia to satisfy domestic demand. However, with world scale log input for plywood mills of around 200,000 m3 pa and LVL of 200,000-300,000 m3 pa the potential for development in most regions is constrained by available resources.
Implications for farm forestry – veneer, plywood and LVL
With growing markets and consumption, there appear to be good opportunities for increased production of veneer, plywood and LVL in Australia. Given supply constraints of both hardwood and softwood sawlogs there may be opportunities for farm forestry to supplement existing suppliers and or provide resources to new mill developments.
Log exports There is a large global trade in hardwood and softwood logs. Russia’s natural forests supply most of the softwood sawlogs traded internationally. Other notable supplies come from countries with significant softwood plantations, particularly New Zealand. International trade in hardwood logs is based mostly on the harvest of tropical native forests from South East Asia, in particular Malaysia, Papua New Guinea (PNG), Myanmar and some African countries, such as Gabon (FAOSTAT 2006). The relative importance of Indonesia and Malaysia as hardwood log exporters has declined over the last ten years with supplies increasing from the South Pacific (particularly PNG and Solomon Islands) and Africa. Australia exports predominantly softwood logs and is a relatively small player internationally. Total softwood roundwood removals in Australia in 2005/06 was 14.3 million m3 and of this 725,000 m3 or 7% was exported as logs (ABARE 2007).
14
Softwood log export market summary
• Most of Australia’s softwood log exports are to South Korea (52% of export volume) and China (32%), but Australia’s share of those markets is relatively small (GTIS 2007). India accounts for around 9% of Australia’s softwood log export volume.
• China is a growing source of demand for softwood logs and imports have increased dramatically since 1998 fuelled by rapidly growing demand from industry, and central government imposed restrictions on domestic forest harvesting (Figure 7).
China South Korea
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Figure 7: Volume and source of softwood log imports by China and Korea
• In 2003/04 softwood log exports from Australia were more than 1.1 million m3 however export volume dropped in 2004/05 by almost 50% before recovering slightly in 2005/06 (Figure 8). Factors that contributed to the recent decline in exports include the strengthening Australian dollar, increased shipping costs, more cost competitive resources from Russia and a slow down in South Korean demand.
15
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Source: GTIS (2007)
Figure 8: Volume of log exports from Australia
• Prices for softwood log exports are volatile. They are set in $US at the export port (free-on-board prices – FOB). Prices are therefore influenced by currency exchange rates and costs of shipping. International prices for plantation radiata softwood log exports are most readily available from New Zealand. Figure 9 illustrates price movements over the last decade. The influence of currency exchange rates is illustrated in that between 2001 and 2005 $US prices increased but $NZ prices fell. However, since 2005 both $US and $NZ prices have increased.
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Figure 9: International prices for softwood export logs
16
• The outlook for softwood log export prices is expected to be positively influenced by further strong demand from China and potentially India, and the effect of log export taxes in Russia. The Russian government announced in 2006 its intention to increase log export tariffs from 6.5% of FOB values progressively up to 80% of FOB values by 2009. The first stage of this increase has recently been implemented. It is uncertain yet as to whether the tax increases will be implemented in full, however if so, it is expected to have a significant impact on log export markets and lead to increases in softwood log export prices.
• India potentially presents an opportunity for increasing log exports in coming years reflecting its growing economy and reported wood shortage. Present Indian trade policy encourages imports of unprocessed lumber through a graduated tariff system that penalises the importing of processed products.
Hardwood log exports
• The hardwood log export market is dominated by trade in logs from tropical native forests. In the past this trade was dominated by Indonesia and Malaysia but as resources have become increasingly constrained other sources of supply in the Pacific and Africa have increased in importance.
• Japan has historically been the largest importer of hardwood sawlogs which it utilised primarily in its domestic hardwood plywood industry. However, the Japanese plywood industry has moved to softwood and Japan now only imports relatively small volumes of hardwood sawlogs. China’s import volumes have increased rapidly over the last decade (Figure 10).
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Source: GTIS 2007
Figure 10: Imports of hardwood logs into China
• Hardwood log prices vary significantly among exporters and can be volatile, but the trend in recent years has been for increasing prices for hardwood log exports (Figure 11). This largely reflects increasing scarcity of native forest hardwood logs.
17
Nominal price for Malaysian meranti logs Nominal price for Myanmar teak logs
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Figure 11: Indicative prices for hardwood sawlogs on international markets
• Australia has exported only relatively small volumes of hardwood logs. Some logs have been exported by Tasmania in recent years largely for production of veneer. However, the construction of two new hardwood veneer mills in Tasmania has largely put an end to this trade.
• It is difficult to identify trade in plantation hardwood sawlogs but it is small globally. For instance, there is some export of plantation hardwood logs by Kolumbangara Forest Products in the Solomon Islands and some plantation logs from PNG.
Market situation and outlook for log exports
Declining supplies of high value hardwoods from tropical countries and the growing acceptance of plantation resources internationally is expected to create market opportunities for export of hardwood logs. Future opportunities for softwood log exports will largely depend on conditions in Russia. Expected restrictions on log supplies from Russia as a result of tariff increases suggest a positive market outlook. However, log export markets are volatile and plantation investments based solely on plantation log export would involve significant risk.
Implications for farm forestry – log exports
Restricted supply and ongoing demand create a positive outlook for international log markets, suggesting that exports could provide opportunities for either softwood or hardwood logs produced from farm forestry. However, volatility in log export markets, particularly for softwood logs, makes plantation investments based on log exports risky. In addition, resources would need to be within economic haulage distance of a port and the smaller scale of farm forestry is unlikely to support a log export operation in its own right. Despite these limitations, export markets may well provide opportunities for marketing logs produced from farm forestry plantations, particularly for logs that cannot readily be sold in domestic markets e.g. lower quality or larger plantation softwood logs. The greatest potential is likely to be in regions surrounding ports and where farm forestry supplies could complement existing log exports.
18
Posts and poles Poles are used primarily by the electricity supply industry for supporting telecommunication and electrical wires. Hardwood is the preferred material for poles in Australia reflecting its greater natural durability than softwood. Hardwood poles can require treatment but generally with relatively benign chemicals compared to softwood. The major uses of posts are in the agriculture industry for farm fencing and the vineyard industry where large volumes are used for vine trellises. There is also substantial demand from the landscaping market. Softwood poles require treatment to achieve adequate durability. The most common treatment in Australia at present is Copper Chrome Arsenic (CCA) but concerns over the environmental effects of CCA are leading to its replacement with alternative treatment chemicals.
Market summary for posts and poles
• Demand for poles largely comes from the utilities sector where there is a steady need for poles to maintain and expand infrastructure.
• Demand for posts is driven mostly by establishment and replacement of rural fencing and vineyard posts, and the landscaping market.
• Posts and poles are generally produced as a secondary product of a sawlog regime. Preservation logs, which are used for posts, are normally produced as a by-product of plantation sawlog harvest from off-cuts or lower quality logs, and from plantation thinnings.
• The market for preservation logs is generally based around regionally-located preservation plants. Preservation logs generally represent only a small component of overall log production volume but can be important to plantation returns by providing a higher value market than pulpwood. Reliable information on this market is not readily available but growth in vineyard establishment in Australia over the last decade has contributed to strong markets for preservation logs. Figure 12 outlines movements in preservation log prices compared to pulp log and lower quality (salvage) logs.
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Preservation Pulplog Salvage
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Figure 12: Real movements in preservation, pulp and salvage softwood log prices
• While demand for posts has grown strongly over the last 5-10 years particularly as a result of large increases in new vineyard establishment, demand appears to have slowed. ABS statistics
19
show land established with new vineyards has declined from 16,000 ha in 1999 to 5,000 ha in 2006 (ABS 2006). While this will decrease growth in the post market, there will still be a high underlying level of demand through the maintenance and replacement of existing structures.
• A factor likely to influence future demand for preservation material is the ongoing use of CCA as a preservative. In March 2005 the Australian Pesticides & Veterinary Medicines Authority (APVMA) delivered its final report on CCA notifying its use in picnic tables, exterior seating, play equipment, patio and domestic decking and handrails would be phased out by April 2006. Alternative softwood treatments are available.
• Sales of poles by forest growers are based around regional processors who arrange treatment and supply to utility companies. Poles must have high strength to support overhead loads, including being able to withstand the additional loading caused by strong winds. Queensland and NSW hardwoods tend to be the preferred species as they are more durable than Victorian and Tasmanian hardwoods. Poles are sold in three durability classes, as well as export or non-standard poles.
• Poles receive a significant price premium over sawlogs and are selected individually for their suitability (size, length, straightness) prior to the commencement of harvesting.
• There is also an export market for small poles to South East Asia where the specifications are less exacting than in Australia.
• Koppers, a major provider of poles to the Australian electricity industry, have indicated that they currently pay around $A 150 to $A 160 per m3 for poles delivered to mill door. Koppers also export poles to a number of countries including the Philippines, Samoa, Fiji and Bangladesh.
Implications for farm forestry – posts and poles
Because posts and poles are generally produced as joint products through native forest and plantation sawlog operations, it is likely that any production of posts and poles through farm forestry would be associated with sawlog production. This would include opportunities for PNF as well as plantations. Therefore the greatest opportunities will lie in regions where there are established plantations and native forest operations.
Composite wood products Composite wood products produced in Australia include medium density fibreboard (MDF), particleboard and hardboard. Composite wood products are made by combining wood particles with resin, to produce a strong, uniformly finished wood product. Consumption of composite wood products is driven by a range of sectors including the construction, manufacturing and furniture sectors. Product applications include furniture, mouldings, weatherboards, kitchen and bathroom units and flooring.
Market summary for composite wood products
• Production of composite wood products in Australia is based primarily on plantation softwood resources. There are only two hardboard producers utilising hardwood pulpwood.
• Production and consumption of both MDF and particleboard have been growing in Australia. Since 1991/92, production of MDF has increased by an average of 6.2% pa, whilst apparent consumption has increased by an average of 3.5% pa (Figure 13). For particleboard, production and apparent consumption have both increased at an average rate of around 2.3% pa and 2.8% pa, respectively.
• Exports of Australian MDF have increased by an average of 6.2% pa over the same period. Around 40% of all MDF produced in Australia is exported.
20
MDF Particleboard
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Figure 13: Apparent consumption of MDF and particleboard in Australia
• Increasing consumption of MDF and particleboard has been driven by substitution of solid wood in a range of markets e.g. MDF has made large gains in both the furniture and mouldings markets. As a result per capita consumption of composite wood products in Australia has been increasing.
• Given the proven ability to export MDF, most of which goes to Asia, the sector in Australia is considered cost competitive. However, it is understood that MDF exports have varied in profitability and that producers have found this market difficult as the $A has strengthened against the $US in recent years. This, combined with limited uncommitted softwood pulpwood supplies, suggests there is limited opportunity for further investment in MDF in Australia.
• Most particleboard mills in Australia are relatively old and are generally considered high cost compared to international benchmarks. While domestic production capacity has matched consumption closely, ongoing growth in the market could provide opportunity for more competitive facilities. However, increasing competition for pulpwood from the MDF, woodchip and pulp markets is likely to constrain investment in new particleboard production.
Market situation and outlook for composite wood products
Consumption of composite wood products is likely to continue to increase in Australia. This may create opportunities for greater domestic consumption of MDF at the expense of exports but it seems unlikely that there would be new MDF mills constructed over the next 10 years or so. However, there may be an opportunity for additional particleboard production capacity, particularly a more modern and cost competitive mill.
Implications for farm forestry – composite wood products
Although the outlook for composite wood products in Australia is positive, opportunities for farm forestry in these markets are limited to supplying existing processing facilities. As supplies of softwood pulpwood are likely to be limited in the future this may create opportunities in regions where composite board manufacturers are competing for limited pulpwood supplies e.g. in the Murray Valley.
21
Composite board manufacturers mostly engage with large plantation companies in long term supply contracts and farm forestry investors would need to produce resource within a viable proximity to facilities and compete with large scale growers for market share.
Woodchip exports Woodchips are used as a raw material for the production of pulp and paper products. Hardwood chip is used primarily for production of printing and writing papers whereas softwood chip is used primarily in the production of packaging paper and paperboard, newsprint and tissue.
Market summary for woodchip exports
• International demand for both softwood and hardwood chip is dominated by Japan which accounts for more than 80% of the Asia Pacific trade.
• Australia is a globally significant exporter of hardwood and softwood chip, currently exporting around 4.5 million bone dry tonnes (bdt) pa of hardwood chip and around 1 million bdt pa of softwood chip. Japan accounted for 85% of Australia’s hardwood chip exports and all of its softwood chip exports in 2005/06. Australia is the largest supplier of hardwood and softwood chip to Japan, supplying 36% of total hardwood import volume in 2006 and 42% of total softwood volume (Figure 14).
Hardwood Softwood
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NB "Fiji" and "Brazil" figures are included in "Other" classification prior to 1995
Source: GTIS 2007 Source: GTIS 2007
Figure 14: Volume of Japanese woodchip imports by source
• Australia’s hardwood chip has traditionally been derived from native forests, however in recent years production of hardwood chip from plantations has begun to increase. This is the result of rapid development of hardwood pulpwood plantations over the last 10 years, driven by managed investment schemes (MIS). Most hardwood pulpwood plantation development has been focussed in WA, the Green Triangle and Tasmania. In recent years there has been considerable expansion in Queensland.
• Production of hardwood chip from plantations is expected to increase from current levels of around 4 million m3 pa to around 10 million m3 pa by around 2010. The large increases in plantation hardwood pulpwood coming on stream in Australia will be significant in terms of woodchip export market volumes. It is likely that plantation woodchips will replace native forest
22
woodchips in the export market, reflecting the preference of Japanese pulp and paper companies for plantation woodchips.
• China’s demand for hardwood chip imports has been growing rapidly as it has expanded its domestic pulp and paper production capacity. China’s hardwood chip imports have increased from negligible volumes in 2001 to almost 0.9 million bdt in 2006. While demand for fibre for domestic pulp and paper production will continue to grow in China, its ability to maintain internationally competitive costs of production will be constrained by the relatively high cost of importing woodchips for domestic pulp production. This will act as a stronger constraint in China than Japan as China’s pulp and paper producers are more exposed to international competition than Japan’s whose markets are protected by non-tariff barriers. It is therefore expected that China will rely more on imports of pulp than woodchips to satisfy its fibre needs. China has already become the world’s largest importer of pulp.
• Over the last twenty years prices for both native hardwood and plantation hardwood chip exports have declined in real terms (Figure 15). Over the last 5 years or so plantation hardwood woodchips exported from Australia have received around a 12% premium over native woodchips. Prices for softwood chip exports have been much more volatile but have also declined in real terms. However, softwood chip export prices increased rapidly in 2006 and 2007. This reflects short term shortages in softwood chip supply created by a depressed housing market in the US (as sawn timber production in the US has fallen the volume of residues produced has also declined) and generally tightening supplies in Australia.
Hardwood (real price) Softwood export prices
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Source: DANA (2006); URS Forestry estimates Source: URS Forestry estimates
Figure 15: Australian woodchip export prices
Market situation and outlook for woodchip exports
Given the impending increase in pulpwood supply it appears unlikely that increasing volumes of hardwood pulpwood in Australia will be absorbed by existing export markets without ongoing real price declines. Increasing supplies from new plantations in South East Asian countries and ongoing supplies from other countries, particularly South Africa, are consistent with this outlook. At the time of finalising this report it was announced that Australian plantation hardwood chip exporta to Japan would receive a significant price increase of $18/bdt in 2008. A number of factors appear to have led to the price increase, including tightening supplies from South Africa and the need for plantation MIS companies in Australia to generate returns sufficient to attract re-investment in harvested plantations. It is not year clear whether this situation reflects a long term shift in hardwood chip markets.
23
The softwood chip market is likely to remain volatile. It is expected that the recent price increases will lead to supply responses e.g. through increased supplies from New Zealand.
Implications for farm forestry – woodchip exports
Growth of hardwood pulpwood plantations has led to a significant expansion of farm forestry as MIS companies have leased farmland as part of their rapid expansion of plantation areas (URS Forestry 2008a). This has particularly occurred in Western Australia and the Green Triangle. As future MIS investment becomes focused on re-planting existing areas after they are harvested over the next 5-10 years, the rate of expansion of the estate is likely to decline and so opportunities for expanding farm forestry through leasing to MIS companies will decrease. However, ongoing investment by MIS generally could be expected to maintain existing areas of farm forestry. The ability of individual farm forestry investors to compete with MIS companies in supplying pulpwood for woodchip export, particularly when there are large volumes becoming available over the next 5-10 years, is limited. Regions where pulpwood plantations are at an earlier stage of development e.g. Central Queensland, are likely to provide the best opportunities for farmers to lease land to plantation companies.
Pulp and paper Pulp is the primary resource for producing paper and paperboard products. Pulp produced from hardwood is used primarily in the production of printing and communication papers. Pulp produced from softwood is primarily used in production of packaging, newsprint, tissue papers and paperboard.
Market summary for pulp and paper
• All pulp production in Australia is integrated with paper mills but paper producers also import significant quantities of pulp. Domestic pulp and paper production is concentrated in relatively few mills. The major hardwood producer is Australian Paper’s mill at Maryvale, Victoria, which manufactures bleached kraft pulp primarily for copy paper production. Softwood pulp is produced by the Visy pulpmill at Tumut in NSW, Norske Skog’s pulpmills at Boyer in Tasmania and Albury in NSW, and the Kimberley-Clark tissue production facility at Millicent in South Australia.
• Apparent consumption of pulp in Australia increased after 2000 when the Visy softwood kraft pulpmill was built at Tumut, NSW. Increasing imports of pulp also reflect growing domestic consumption (Figure 16) with domestic production increasing in 2006/07.
24
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Source: Industryedge (2007)
Figure 16: Australia’s apparent consumption of pulp
• Global demand for pulp continues to increase, driven largely by growing demand in China to meet its expanded domestic paper production capacity. Increasing demand for pulp has generally been matched by expansions in global pulp production. Indonesia has been an important source of pulp imported by China and expansions in pulp production in South America have also led to China purchasing pulp from that region.
• The volume of pulp imported by Australia over the past decade has increased steadily and in 2005/06 imports accounted for almost 25% of domestic consumption. Brazil is the largest supplier of hardwood pulp imports into Australia, and New Zealand is the largest supplier of softwood pulp.
• Exports of pulp from Australia have historically been relatively minor. Competitiveness of Australian pulp production is the major limitation to supplying to international markets.
• Prices for pulp traded on international markets are notoriously volatile. While prices have been high in recent years they tend to fluctuate with relative movements in demand and increases in supply capacity.
• As discussed in the woodchip market overview, large volumes of hardwood pulpwood will come on line over the next 5-10 years. There are opportunities for the development of pulp mills (or other processing facilities) that could utilise this resource to value add domestically, rather than exporting woodchips. However, pulp is more exposed to international markets than other forest products and any new mill would need to ensure it matches world competitive cost benchmarks for production.
• Cost competitiveness represents a major challenge to pulp mill development in Australia. International costs of pulp production are low and Australian pulp producers generally operate tight margins relative to other wood product markets. Cost competitiveness is influenced by the price of pulpwood and scale of operation. Plantation woodchip export prices tend to be above those that an Australian pulp mill could pay for pulpwood.
• There are currently several proposals for pulp mill developments and expansions in Australia:
25
- Visy recently announced a significant upgrade to its softwood Tumut pulp mill that will require an additional 400,000 t pa of softwood pulpwood;
- Gunns are proposing the development of a bleached hardwood kraft pulp mill that would require around 3 million t pa of hardwood pulpwood. Most of the hardwood pulpwood in the initial years of operation of the mill would be from native forests, declining to around 25% over 10 years as plantation wood comes on stream;
- Protavia is pursuing the development of a new bleached chemi-thermo mechanical pulp (BCTMP) mill at Penola in the Green Triangle region. Protavia states that the Penola mill would produce up to 2,000 tonnes of BCTMP per day or around 700,000 tonnes pa. This is expected to require around 1.4 million tonnes pa of pulpwood from existing plantations in the Green Triangle region; and
- Australian Paper is currently expanding its mill at Maryvale and will seek additional pulpwood resources from the Gippsland region including hardwood pulpwood plantations being developed in the region.
Market situation and outlook for pulp and paper
Australia’s significant imports of pulp combined with current pulp mill expansions (Maryvale and Tumut) and potential construction of new mills is expected to create positive market conditions for pulp production in Australia. It is expected that new domestic hardwood pulp mills will supply both local and export markets, as the volume of production required for international competitiveness will be larger than volumes that could be absorbed by existing domestic paper producers through replacing pulp imports. While international market conditions for pulp are currently strong, increasing capacity particularly in South America suggests that international pulp markets will remain highly competitive with volatile prices. This emphasises the need for any domestic producers to be internationally competitive.
Implications for farm forestry – pulp and paper
The scale required for new pulp mill development and the requirements for international competitiveness suggest there is little scope for farm forestry on its own to provide the basis for new pulp mill developments. However, there may be opportunities for existing pulp mills to source wood supplies from farm forestry. For instance, the Visy Tumut pulp mill will require additional softwood pulpwood resources, and the expansion of the Maryvale pulp mill may present opportunities to supply hardwood pulpwood from PNF or farm forestry plantations. On the other hand, small scale growers are likely to find it difficult to compete with larger scale growers such as MIS companies who can provide more stable supply volumes over time, particularly in light of the hardwood pulpwood supply/demand balance that will prevail in the coming decade.
Firewood Firewood is mostly used as a domestic heating source and is most common in rural areas of Australia where natural gas is less readily available. It is most commonly produced from native forests. There are some small areas of plantations established primarily for firewood production e.g. in north east Victoria and elsewhere, but firewood production from plantations is likely to be most viable where it is produced jointly with higher value products.
Market summary for firewood
• Most firewood is supplied from native forest. The most common species harvested for firewood in south eastern mainland Australia are river red gum, box and ironbark. In WA, jarrah accounts
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for the largest proportion of firewood supply, and in Tasmania a range of species are consumed (Driscoll et al. 2000).
• Demand for firewood is driven by seasonal heating requirements and by the price of substitute products such as electricity and natural gas. Markets for firewood are larger in rural areas where natural gas (generally the cheapest source of heating fuel) is less readily available and firewood availability is often good. The demand for firewood has shown signs of decreasing as natural gas has become more readily available to Australian households (DNRE 2002).
• Firewood markets are relatively informal and tend to be localised with around 70% of purchases occurring through small businesses without premises. Over half of the firewood harvest in Australia is estimated to be collected rather than purchased from a supplier. The large majority of harvest is unregulated with around 80% reported to be sourced from PNF (Driscoll et al. 2000). There is no known international trade in firewood products.
• In 2000, Australian households burned between 4.5 and 5.5 million tonnes of firewood (Driscoll et al. 2000). NSW consumes the largest volume of firewood (about 1.2-1.7 million tonnes pa), although Tasmania consumed the largest volume per household (4.9-6.8 tonnes pa).
• The price of firewood varies between localities. Delivered firewood prices by VicForests in Victoria in 2006 varied between $A 40-50 per tonne depending on location. Other older estimates of price show that urban centres around Australia have the highest delivered prices for firewood, with Adelaide, Canberra and Perth all reporting high prices (ANU 2001).
Implications for farm forestry – firewood
The firewood market can be attractive to land owners because markets are informal and processing requirements are low, making it possible for landholders to grow firewood in more isolated areas and sell the product directly to local consumers. However as natural gas – a more cost-effective and convenient heating fuel – becomes more readily available in future years, demand for firewood may decrease. This trend may be counter-balanced by development of carbon markets in Australia but market trends will depend on currently emerging frameworks (see bioenergy section p. 38). Price information suggests that firewood production in firewood specific plantations is likely to present only limited opportunities for farm forestry as stumpage prices are very low relative to other market opportunities. Firewood plantations may provide opportunities for farm forestry in specific situations. In areas with unproductive bio-physical conditions where alternative forestry investments are limited, firewood plantations may be a worthwhile investment to provide a source of income and possibly some environmental benefits. Where land owners use firewood on-farm, the benefit of firewood supply is accrued on-farm. The value of having readily available firewood may be relatively high compared to the going market price. Firewood also presents an opportunity for joint production with sawlogs from plantations and native forests, where thinnings and residues can be sold as firewood.
Fibre cement Fibre cement is a composite material produced by combining wood fibre and cement. Its benefits include strength and resistance to water and pest damage. It is mainly used in residential construction for a variety of applications including floor lining, cladding, fencing and decorative purposes. Fibre cement can also be used to produce injection-moulded products (such as seating) and non-pressure reinforced pipes, where it provides a lightweight and strong alternative to regular steel reinforced pipes.
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Reinforcement has been a necessary practice in designing all concrete structures in the past. Generally steel is used for reinforcing larger cement structures although fibre reinforcement over the last few decades has meant cement can be used to produce smaller more versatile construction products including domestic panels. Up until the 1980s, asbestos was used to reinforce fibre cement products, however as a result of health concerns this was substituted by wood fibre in many countries. In Australia this was led by James Hardie Industries Ltd (JHI) who is the largest domestic producer of fibre cement products.
Market summary for fibre cement
• Demand for fibre cement products is largely driven by the housing market.
• Major Australian companies that produce fibre cement products include, JHI, CSR and BGC Fibre Cement. JHI holds the largest market share of approximately 50-60% of supply, and CSR approximately 25% (JHI pers. comm.; www.csr.com.au). The majority of fibre cement mills are located in major centres around Australia, including Sydney and Brisbane.
• Softwood pulp is the main fibrous material currently used to produce fibre cement. Softwood pulp is favoured due to the nature of the fibre, which has long strands and a strong bonding compatibility with cement.
• Carter Holt Harvey (CHH) in NZ has developed technology to produce high quality softwood kraft pulp with long fibre strands suitable for fibre cement production. As a result, CHH dominates fibre supply to the fibre cement market (CSR pers comm.).
• There are no pulpmills in Australia producing pulp for fibre cement products and all fibre used in the fibre cement production in Australia is imported from New Zealand.
• The Australian market for fibre cement pulp is a relatively small market with an import volume of 25,000 tonnes pa (CSR pers. comm.).
• As a result of the small market size and market control by CHH in New Zealand, it is unlikely that there will be future investment into this market in Australia.
Implications for farm forestry – fibre cement
Because there are no domestic processors of fibre cement pulp there is little opportunity for farm forestry to contribute to this market. An investigation into the suitability of farm forestry plantations for fibre cement production was undertaken by Semple & Evans in 2004. This showed that fibre cement was “a potentially appropriate end-product for mallee eucalypt wood waste and fast grown blue gum” (Semple & Evans 2004). One of the biggest challenges to realising this potential is the difficulty of establishing a profitable processing facility based on this new fibre source, and establishing market acceptance for a new fibre source.
Sandalwood There are several different species of sandalwood found throughout Australia. The WA sandalwood species (Santalum spicatum) is the most valuable and has been exported internationally for over a century. WA sandalwood is a drought tolerant species that grows naturally in forests throughout the southern parts of WA. It is a root parasite requiring a host species on which to grow.
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Market summary for sandalwood
• Australia’s sandalwood supply currently comes from the harvest of native sandalwood forests (S. spicatum) in WA (Clarke 2006) and small quantities of different species in Queensland. Plantations (S. spicatum) totalling approximately 10,000 ha have been developed in WA and are expected to add to existing supply in coming years (Geoff Woodall pers. comm.). There are also some trial plantations (of both S. spicatum and S. album) established in other states (Queensland, NSW, SA, Victoria and the NT) accounting for around 400 ha in total (Clarke 2006).
• Australia produces approximately 2,000 tonnes pa of sandalwood comprising a mixture of logs, chips and powder (Henschke 2000). Production is reported to account for around one third of world supply. Nearly all of this harvest is selectively sourced native wood.
• A range of products can be produced from sandalwood. The sapwood is commonly used to produce incense, but is also used as a material for woodcrafts and carvings, particularly in India where it has religious significance. The heartwood contains the highest quantities of oil which is extracted and used in the fragrance industry, particularly as a base in high quality perfumes.
• Approximately half of the Australian sandalwood harvest is exported as logs for overseas processing (Henscke 2000). Most of these logs are destined for South East Asia. The remainder is sent as processed woodchips (mostly to India) for oil production or as other sandalwood products.
• Australia also produces approximately 12,000 tonnes pa of sandalwood oil, of which 11,000 tonnes pa is produced by Mt Romance Australia who hold a contract for 550 tonnes pa of native sandalwood chip supply until 2014 (Clarke 2006).
• India and Indonesia have traditionally been major suppliers of sandalwood, owing to their extensive native sandalwood (S. album) forests. However over-harvesting has reportedly reduced the supply of sandalwood significantly (TED 1998; FAO 1995). In both countries unsustainable harvesting has prompted governments to initiate harvesting and trade restrictions to protect the resource.
• The Asian sandalwood species (S. album) differs from the Australian species with the former producing a higher quantity and quality of oil. It is therefore often regarded as a higher quality product in international markets. Both Australian sandalwood oil and wood products have historically been sold at price discounts to Indian sandalwood. The price for S. spicatum on the world market has been reported to be in the vicinity of one third of the price of S. album (Clarke 2006).
• International demand for sandalwood appears strong. The largest importers of sandalwood oil are the USA, France and the Middle East where consumers pay high prices for the niche product. However, in 2006 there was a drop in demand and oil prices as a result of customers substituting the product for lower quality synthetic sandalwood oil (Clarke 2006). This price correction illustrated how internationally competitive markets can act to limit ongoing price increases.
• The largest markets for sandalwood logs and woodchips internationally are Hong Kong and Taiwan which are reported to account for 60% of exports. China also represents a growing market, and India is also expected to demand an increasing volume of imports due to local supply constraints.
• Accurate price data is difficult to obtain although WA Sandalwood Plantations – an Australian sandalwood plantation company – reports increasing oil prices approaching $A 11,000 per tonne in December 2005 (WA Sandalwood Plantations 2005). Elsewhere, estimated prices in 2004 for solid sandalwood logs and processed wood were been between $A 3,000 and $A 10,000 per tonne depending on wood quality (Clarke 2006).
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• The market for sandalwood is a niche market. Niche markets are typically price sensitive to fluctuations in the supply/demand balance, meaning that returns may be unreliable for investors. Any substantial increase in the supply of Australian sandalwood may therefore have a downward effect on price in the market.
• Although plantings of sandalwood have been increasing rapidly since 2000, plantation production remains in the early stages and silvicultural and management techniques are still being developed. Sandalwood is a complex species to farm and will require significant investment in future to optimise plantation techniques and improve the genetics of plant stock. Identifying the optimal rotation length (to maximise investment returns) may prove pivotal to the feasibility of sandalwood plantations.
Implications for farm forestry – sandalwood
Strong international demand for sandalwood and constraints on international supplies present a good rationale for expanding the production of sandalwood. Australia is an established supplier of sandalwood and sandalwood oil internationally. The low rainfall requirement of WA sandalwood makes it suitable for farm forestry in lower rainfall regions, where it could also contribute environmental services. In addition, sandalwood products demand a high price by weight on the market making it an attractive prospect for smaller scale plantation investors.
However, there are several challenges and market risks associated with sandalwood production. Rapid plantation development could lead to over-supply and associated price volatility/decline. There is also market risk that prices for lower quality WA sandalwood, S. spicatum, currently being planted extensively in WA, will decline due to product substitution in the lower value sandalwood oil market, or through successful plantation developments in other countries.
There are also technical risks associated with the still-developing knowledge of plantation silviculture and management. A lack of data on plantation performance means that there is little evidence of potential returns and risk levels.
There is also a lack of knowledge regarding sandalwood markets and the viability of sandalwood plantations. These information gaps also create high risk for farm forestry investors.
Because the WA sandalwood species is a native of WA, and most of the processing and expertise is based in this region, the best potential for this species at present is expected to be in WA. Market opportunities for sandalwood however may develop in other parts of Australia in coming years particularly in north Queensland and the Northern Territory.
Eucalyptus oil Certain species of Eucalyptus, particularly mallee eucalypts, hold significant quantities of oil within their leaves. This oil can be harvested for a range of commercial applications including products in the pharmaceutical, domestic cleaning and food and beverage industries. Eucalyptus oil is also being explored for potentially valuable bioactive compounds (Foley & Lassek 2006; Dumsday et al. 2007). Eucalyptus oil is generally captured from Eucalyptus leaves by steam distillation, which is a cheap and relatively simple method of production.
Market summary for Eucalyptus oil
• The medicinal application of Eucalyptus oil represents the highest current market demand in terms of volume and trade. The value of oil is determined by the concentration of the active ingredient, cineole. Mallee eucalypts hold a high proportion of cineole in their leaves (Foley & Lassak 2006).
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• Global consumption of Eucalyptus oil is reported to be approximately 7,000 tonnes pa and growing (Pain in press).
• China is the world’s largest supplier producing around 70% of medicinal grade oil. Chinese oil is produced as a by-product of large scale Eucalyptus timber plantations. Australia, Portugal and Spain are also producers and processors of Eucalyptus oil, however accurate production statistics are difficult to source due to re-processing of imported oil and ingredients being obscured by customs coding.
• Australia is reported to produce around 200 tonnes pa of Eucalyptus oil, of which approximately 60-70% is exported (Pain in press, www.oilmallee.com.au). There is some uncertainty about production figures however, as significant quantities of raw oil are imported and re-processed.
• The US is the largest importer of Australian Eucalyptus oil, accounting for around 20% of Australian exports by quantity. Thailand, New Zealand and Canada are also important export destinations (Pain in press).
• To expand production, Australian producers need to be cost competitive against international producers such as China. China’s competitive advantage is due to its cheaper labour costs, its large Eucalyptus plantation areas and because oil is produced as a by-product of these plantations.
• Australia can potentially increase its competitiveness by harvesting Eucalyptus oil as a product of multi-purpose plantations. An example of this is the demonstration integrated wood processing plant (IWP) established at Narrogin, WA in 2000. Based on mallee eucalypt plantations, the facility produced bioenergy, Eucalyptus oil and activated carbon. Reports of trials suggest that full scale plants should be financially viable, but plans for full scale commercial production are yet to be realised.
• The ongoing financial and economic viability of an IWP facility will be sensitive to a range of factors including delivered wood costs, and the prices for oil and carbon and renewable energy certificates (RECs). A full scale IWP plant could be expected to produce approximately 1,000 tonnes pa of Eucalyptus oil (Pain in press, www.oilmallee.com.au).
• Prices for Eucalyptus oil in recent years have been relatively stable, in the region of $US 4,500 to $US 5,000 per tonne. Australian oil has a price premium in the US market being valued significantly higher than the Chinese product (Pain in press). Large scale, additional supplies of oil may cause a downward shift in world oil prices.
• The development of an alternative market for bioactive compounds derived from Eucalyptus oil would increase demand, with the level of that demand influencing the price of oil. While the oil’s chemical structures could be used to derive large-scale industrial products, technology is currently limiting and not cost competitive. Currently, the likelihood of a bioactive market is small, and the probability that a compound could eventually be synthesised in a laboratory, may limit the potential of these markets.
Implications for farm forestry – Eucalyptus oil
Mallee eucalypt plantations for oil production present an opportunity for farm forestry, particularly in drier regions where the species is well suited. However the market for Eucalyptus oil is relatively small on a world scale and it is difficult for Australia to compete with the cost structures of countries such as China. A commercial scale IWP plant may present a financially viable option for the production of Eucalyptus oil, although the small scale of the world oil market presents limitations, particularly as any expansion in oil supply may cause prices to decrease. Returns from an IWP plant will depend on several products, and hence the viability of the operation will be highly dependent on a range of
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uncertain factors, including market prices for various products, distance between plantations and the processing facility, and financial support for the venture.
Activated carbon Activated carbon can be produced from a range of sources including different types of biomass and from coal. Most activated carbon currently sold is made from coal, although a large volume is also made from coconut shell (particularly in Asia) and to a lesser extent peat. Activated carbon produced from wood initially needs to be carbonised and then turned into charcoal. This involves heating the biomass to a high temperature for an extended period in the absence of air. Activation is then achieved by applying steam to the charcoal. Activated carbon can be used for gas and water filtration and is commonly used for water treatment, gold recovery and in the food and beverage industry. There is a growing international market for activated carbon which yields strong prices for a high quality product.
Market summary for activated carbon
• Australian consumption for activated carbon is approximately 7,500 tonnes pa with approximately 5,000 tonnes pa used for gold recovery and 2,500 tonnes pa for water treatment and food and beverage processing (Enecon 2001).
• Activated carbon supply in Australia comes from a mixture of domestically produced and imported product. Australia imports around two-thirds of its activated carbon requirements for use in gold production.
• One major Australian company, Activated Carbon Technologies based in Perth, produces activated carbon that supplies 60% of the carbon used for domestic water treatment. Most of this product is produced from coal although some is produced from coconut shell (www.activatedcarbon.com.au).
• Major import sources for Australia include Sri Lanka and the Philippines where the activated carbon is produced from carbonised coconut shell. Coconut shell produces a hard form of activated carbon (www.chemlink.com.au) that is valuable for particular applications. Other more expensive product imported into Australia from the Netherlands is made from peat.
• World consumption of activated carbon is around 700,000 tonnes pa (Enecon 2001). The US is the largest world consumer of activated carbon, accounting for 175,000 tonnes pa of consumption. Approximately 20% of US consumption is used for water treatment. Around 17% is used for wastewater treatment and a further 17% for sweetener decolourisation. The second and third largest consumers are Western Europe and Japan.
• The majority of activated carbon is produced in the US and China (Schaeffer 2007).
• The world market for activated carbon was reported in 1998 to be growing by approximately 4-6% pa (Enecon 2001). Reports from major world suppliers indicate that this type of growth is still being experienced.
• Activated carbon is priced according to quality and size. Price information is not widely reported but was estimated at $A 3,000 per tonne for higher quality pellets and granules and between $A 1,200-1,700 per tonne for lower quality carbon powder (Enecon 2001). Prices are reported to have increased over the past three to four years both in China and the US (Schaeffer 2007). Chinese prices have increased by around 10-20% as a result of coal shortages, shipping costs and currency revaluation. Prices for activated carbon sold by major US based companies have also increased recently by around 15% as a result of rising energy and raw material costs (www.calgon.com; www.norit.com).
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• Activated carbon is one of the products proposed for production through the commercial IWP plant in WA. Based on the successful operation of a demonstration site, activated carbon is planned to be produced along with eucalyptus oil and bioenergy through the processing of mallee eucalypts in WA. Production capacity of a commercial site is estimated to be around 3,000 tonnes pa (Bell & Bennett 2002).
• The quality of activated carbon underpins the viability of an IWP plant, as 60% of plant revenue will come from that product. The quality of activated carbon produced in the demonstration site in WA was believed to be valued at about $1,500 per tonne. However, a price of around $2,500 per tonne needs to be achieved to achieve commercial viability of IWP (Adrian Chegwiggen pers. comm.). Such a price is possible with higher quality activated carbon.
• Judging by the size of the Australian market, and the large number of imports, activated carbon produced on the scale of a commercial IWP plant may be cost-competitive against other products. The integrated nature of production will mean that the plant will be able to maximise efficiency and price competitiveness in the market. Because the product will be based on a new material however, production cost will need to be low relative to coal based products and this remains an uncertainty at present. Technological development to produce adequate quality of activated carbon together with market acceptance of the properties of wood-based activated carbon from mallee eucalypts will also need to be achieved.
Implications for farm forestry – activated carbon
No significant supply of wood-based activated carbon is currently commercially available and the properties of a farm forestry product and potential market performance remain somewhat uncertain. If the product is able to compete well against existing sources of activated carbon (coal, coconut shell and peat) and achieve corresponding prices, then the world demand/supply situation, the large supply of imported product in Australia and current international price trends should make this product an attractive investment. For farm forestry to access this market however, a suitable processor will need to be available on a scale that is large enough to ensure the processor is competitive. No reliable information is available on the minimum scale required to support an activated carbon plant however a large resource is assumed to be a pre-requisite. Based upon this assumption the best location for an activated carbon plant is most likely to be based near the mallee eucalypt resource in WA. An IWP plant may present a good opportunity for competitive supply of activated carbon and by generating multiple products will additionally hedge processors and suppliers against some risk.
Fodder Fodder is used as a feedstock for domestic agricultural production. Fodder encompasses a range of both crop and woody perennial species. In Australia, fodder is most commonly grain (cereals, such as wheat, oats or barley) or pastures (including silage and various types of hay). However some woody perennial species are also used for on-farm fodder. This analysis focuses on the production of fodder from woody perennial plant species. The major species considered include tagasaste or tree lucerne (Chamaecytisus palmensis), saltbush (Atriplex spp.), Leucaena leucocephala, Acacia saligna and Rhagodia preiseii. Tagasaste and Atriplex have been adopted for fodder crops throughout the lower rainfall agricultural zones of Australia while Leucaena leucocephala has been adopted in tropical and sub-tropical regions (URS Forestry 2008a). Other woody perennial crops have been planted, mostly in the drier regions, but to a lesser extent.
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Market summary for fodder
• Demand for fodder is driven by the livestock industries. Fodder production is commonly integrated with a farming operation as a complementary investment. It can be produced either for use on-farm (where no market transaction takes place but production costs are lowered) or sold off-farm to other users such as locally based feedlots or other farmers.
• While the market value of woody fodder crops has not been well established, its nutritional potential is becoming more widely known. Recent research has suggested that sheep grazed on old man saltbush produce meat with an improved colour stability and shelf life due to higher vitamin E content. The research also showed that lambs fed on saltbush produce leaner and more hydrated meat (Pearce and Jacob 2004). Saltbush-fed lamb is also beginning to be marketed as a higher value niche product and has shown equal consumer appeal to grain-fed lamb.
• Many woody fodder crops are salt tolerant and require only low rainfall. This suggests that they may have a role in also supplying the market for environmental services through salinity mitigation. Developing markets for environmental services may help increase returns from woody fodder species.
On-farm use
• Woody fodder is predominantly used as an on-farm resource. Woody fodder production has increased as on-farm production of other pasture/feed has been low in recent years due to drought.
• Woody perennial plantings are currently scattered throughout lower rainfall agricultural zones (URS Forestry 2008a). These crops are commonly incorporated into farms as part of a drought management strategy (NSW Agriculture 2004) although more recent reviews indicate that, rather than drought forage, they are best used routinely to manage pasture feed gaps e.g. summer-autumn in Southern Australia (de Koning and Milthorpe 2008).
• Within high rainfall zones the purchase of supplementary feed sources is not critical for farmers to supply their stock and farmers produce their own hay and silage to feed stock during periods of low pasture growth. In lower rainfall zones (<500mm) however, pasture growth is much lower and it is often necessary to purchase fodder to supplement feed stock. But long transport distances can make the option of buying fodder uneconomic. This suggests that there is potential for more use of woody perennials which are well suited to drier conditions to produce fodder for on-farm consumption.
Off-farm use
• Fodder sold off-farm does not represent a single commodity but a range of commodities that can substitute one another and compete in the fodder market. There are an estimated 20,000 off-farm fodder producers across Australia producing around 5.5-6.5 million tonnes pa. Grain and pasture-based fodder production is concentrated in Victoria and NSW (RIRDC 2004). Off-farm markets for woody fodder are poorly developed.
• The largest market for fodder in Australia is the dairy industry, which consumes 40% of supply, followed by the horse industry (25%), the feedlot industry (20%) and others (15%) (RIRDC 2004).
• There are approximately 600 registered feedlots throughout Australia and the practice of lot feeding cattle is growing in Australia. More than half of feedstock consumed in feedlots is supplied by grain (ALFA 2002). There is limited information available on whether woody fodder is presently supplied to feedlots, although any such trade is likely to be on a very small scale.
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• The importance of fodder as an alternative feed stock has been increasing but markets can be volatile. For example, prices can be influenced by drought as well as international market conditions for grain. The drought of recent years resulted in high prices for hay.
• In 2005/06, Australia exported 750,000 tonnes pa of fodder mostly to Japan, Korea and the Middle East (RIRDC 2007). Japan accounted for around 75% of total export volume, which was mostly composed of hay and chaff. Exports have declined in recent years due to increasing domestic demand and a decline in competitiveness associated with the strength of the Australian dollar (RIRDC 2004).
• Australia imports a very low volume of fodder, with only 79 tonnes reported in 2005/06 (RIRDC 2004).
• Like other agricultural products, the prices for fodder fluctuate widely with movements in supply and demand. While fodder prices have been volatile they have trended upwards over the last decade (Figure 17).
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• It is difficult to establish the value and thus competitiveness of woody perennial fodder crops compared to traditional fodder crops due to the small volume that is supplied to markets. This creates uncertainty over the competitiveness of woody fodder and its capacity for supplying off-farm commercial markets.
• An additional factor that may influence the competitiveness of woody fodder production in future is the extent to which markets for biofuels develop that utilise feed grain as a production input. If the biofuels market were to grow significantly, increased demand could raise the price of feed grain allowing woody fodder to become more competitive. For instance, increased biofuel production in the US has contributed to substantial increases in prices for grain. The Australian government government’s target of expanding biofuel production to 350 million litres by 2010 (CIE 2005) is expected to provide a boost to domestic grain based biofuel production.
• The key measure of competitiveness for fodder production is the cost (or delivered price) per unit of nutritive value. Saltbush is known to have attractive nutritive values compared to other crops, however these values suffer from high variability depending upon the location (e.g. soil type,
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salinity level) from which it is sourced (Table 5). The delivered cost remains uncertain and may be negatively influenced by the lower rainfall and more isolated locations that woody fodder species are likely to suit.
Table 5: Nutritional values of alternative fodder sources
Species Energy – DM (MJ/kg)
Crude protein (%)
Digestible dry matter (%)
Saltbush 5-12 15-25 35-80
Acacia saligna 5 14 34
Barley 12 12 77
Lucerne hay 9 20 60 Source: Hobbs et al. (2008)
Implications for farm forestry – fodder
Woody fodder species appear to have considerable potential to produce on-farm benefits as an agroforestry product. They can be mixed with pasture to provide an alternative feed stock as part of managing annual pasture feed gaps e.g. summer-autumn in southern Australia (de Koning and Milthorpe 2008). Woody fodder crops can also contribute other on-farm benefits including lowering water tables in salinity affected areas, and providing shelter for stock. These opportunities appear to be greatest in the lower rainfall zones. The potential for woody fodder species to be grown for sale off-farm will depend on its competitiveness with existing fodder supplies, in particular grains. The potential for grain prices to increase as a result of demand for their use in production of biofuels may lead to increasing prices for grain and thereby make woody perennial fodder products more attractive. Similarly, the development of markets for environmental services may also increase the attractiveness of investing in woody fodder crop plantations. However it will take some time for markets for the off-farm sale of woody fodder to develop and hence this is seen as a possible future direction for the industry rather than an immediate opportunity.
Industrial carbon Industrial carbon is used extensively in the steel industry as a fuel for blast furnaces and as a reductant (a reducing agent) in the smelting process. It is also used in the sintering process of steel making. The main source of carbon in the industry at present is coke (or metallurgical coal) which is produced by baking coal at high heat in the absence of air. Industrial carbon can be manufactured from wood to potentially substitute the use of coke for industrial carbon in the steel making industry. This can be made from various wood sources including solid timber, wood waste and harvest residues and follows the same process as producing charcoal. Charcoal has some particular advantages over coke as an alternative source of industrial carbon. As a fuel, charcoal is cleaner burning and produces higher energy than coke. As a reductant, charcoal is also more highly reactive than coke, with lower levels of pollutant gases (CSIRO 2006). If charcoal production is based upon sustainable forest production, it is also a carbon neutral product.
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Market summary for industrial carbon
• Coke is currently the major type of industrial carbon used as a reductant in the Australian steel making industry. The industry uses approximately 5.2 million tonnes pa of black coal as the basis for this (Hobbs et al. 2008).
• Simcoa in Western Australia, which utilises jarrah pulpwood to produce charcoal for its own use in production of silicon, is the only industrial scale producer of charcoal in Australia at present. World trade in charcoal has been reported as 1 million tonnes pa (www.oilmallee.com), the majority of which is likely to be used for cooking purposes and some metallurgical application.
• Based on its abundant resources, Australia is a major producer and exporter of coal. Australia exports approximately 120 million tonnes of metallurgical coal for the steel making industry. Japan is the largest importer of Australian metallurgical coal, in 2005/06 importing 44 million tonnes. India is the second largest importer, in the same year importing 16 million tonnes.
• The world price of both hard and semi-soft coking coal has, over the last two years increased significantly (ABARE 2006). Hard coking coal prices were relatively stable in the early part of this decade, but increased from $US 49 per tonne in 2003/04 to $US 117 per tonne in 2005/06. Similar trends were experienced in the market for semi-soft coking coal, reflecting broader energy price increases as a result of increasing global demand (ABARE 2006).
• The use of coke in the metallurgical process has environmental implications that are becoming more of an issue for the steel making industry. High carbon emissions mean that the industry is presently responsible for 26% of industrial carbon emissions and is also one of the largest emitters of sulphur oxides (Sox) and nitrogen oxides (Nox) worldwide (CSIRO 2006; BioForest 2006).
• Increasing energy prices, stricter environmental regulations and increasing environmental awareness in companies are likely to strengthen the opportunity for wood charcoal use in the steel making process.
• Estimates suggest that to supply industrial carbon for steel output of 5 million tonnes would require around 500,000 ha of forest plantations (Scaife 2005). Scaife also estimates a delivered price for charcoal of $500 per tonne which is uncompetitive compared to coke costs. Such a price would be equivalent to $80 per tonne of carbon emissions avoided, considerably higher than existing and forecast carbon prices.
Implications for farm forestry – industrial carbon
There is currently only one industrial scale carbon producer in Australia. Although charcoal appears to be a substitute for coke there are major challenges to supplying the market. Current research has shown that charcoal holds significant processing and environmental advantages over coke in the industrial carbon market. Prices of coke have also been increasing recently, and tightening policies around industrial carbon emissions are likely to increase the costs associated with fossil fuels. At present there are no known consumers of this product in the metallurgical industry and there is little information to indicate price. Investment in processing technologies in the steel making industry is high and the benefits of charcoal will need to compete with many other emerging industry products over time. This, combined with the challenge of achieving product acceptance in steel making industry is likely to present significant challenges to the emerging product and to investors supplying its production.
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If charcoal were to be accepted for market supply, the quantities required would be extremely large and difficult for the present forest industry to supply. Furthermore, a production facility to supply the large quantities of charcoal required for steel making would need to be based on a large, concentrated resource. On this basis, investment into a processing facility based on farm forestry is seen as highly challenging.
Engineered strand lumber Engineered strand lumber (ESL) is an engineered strand-based wood product that is manufactured from lower grade wood fibre to produce wood products with strong physical and mechanical properties. It can utilise both softwood and hardwood. To date commercial production has focused on softwood but processes are being developed that utilise hardwood. ESL or Laminated Strand Lumber (LSL) is made in a similar manner to Oriented Strand Board (OSB) where timber is flaked into strands, oriented in longitudinal direction and glued/pressed into billets that are sawn into required dimensions. Due to the nature of the product, ESL is well suited for high strength applications such as beams, I-joist flanges, flooring supports and rim boards where it can be a low cost alternative to LVL and solid softwood and hardwood timber products.
Market summary for engineered strand lumber
• Engineered wood products are a fast expanding market world wide, with global consumption in 2003 being more than 170 million m3 and valued at over $4.5 billion.
• Most of the global consumption and growth comes from the US market where ESL products have become well established and have strong product marketing. ESL gained a large market share in high strength applications. The major ESL brand established in the US is marketed by Trus Joist (a Weyerhaeuser subsidiary). TimTek® has been developed as an another ESL products and it recently licensed the development of its first commercial production facility. TimTek® has been developed from the ‘Scrimber’ process pioneered by CSIRO in Australia. Instead of the timber being flaked and pressed into blocks, small diameter logs are crushed to form a mat of interconnected fibres, then combined with resin and pressed together to form engineered lumber.
• There is currently no production of ESL in Australia. Small volumes of ESL-type products are currently imported into Australia, of which a large component includes the Trus Joist floor framing product, Silent Floor®.
• Although Australia has a significant plantation resource, the availability of softwood resource is limited by high levels of commitments to existing processors. The rapidly developing plantation hardwood pulpwood resource may provide opportunities for production of ESL, although potential processors will have to compete with hardwood chip export prices of around $A 60-70 per green tonne delivered to export wharf.
• The Australian company Lignor has recently developed an ESL product utilising eucalypt hardwoods. With assistance from the Commonwealth government Lignor has plans to build a large scale production facility in WA. The plant will utilise continuous press technology developed by a specialist German engineering company, Siempelkamp. Lignor is currently seeking finance for its proposed production facility.
• If successful Lignor could create significant competition in domestic markets for higher strength products including hardwood sawn timber and LVL. It is also likely to have considerable export potential once developed. If successful in WA, there may be potential for other ESL mills in Australia in the future, particularly in other regions with a substantial hardwood pulpwood resource.
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Implications for farm forestry – engineered strand lumber
While there is currently no production of ESL in Australia, the product has market potential. The emerging market opportunity will depend on the development of an ESL mill in Australia. The competitiveness for access to softwood resources in Australia means that ESL production is mostly likely to be supplied from the hardwood pulpwood plantations. The proposed Lignor mill in WA will be based on hardwood plantations and currently represents the strongest opportunity for development of this market in Australia. However, there are still significant challenges for Lignor associated with capturing market share for a new product. It is expected that, particularly for a new investment, it would be highly desirable to lock in resource supplies over a longer term with one or two major suppliers. The relatively small scale of most farm forestry operations suggests that the potential to supply Lignor may be limited.
Bioenergy Bioenergy refers to the production of energy based on solid biomass. Bioenergy utilising wood waste is commonly used for heat and sometimes electricity in sawmills and pulp mills around Australia. A range of technologies exist for generating electricity from wood including direct combustion of wood, co-firing with other energy sources, gasification, pyrolysis and fermentation. Growing interest in renewable energy suggests it has considerable potential as an emerging wood product market.
Market summary for bioenergy
• Growing interest in wood bioenergy has been driven by government policy promoting the development of renewable energy. In 2001, the Commonwealth government introduced the Mandatory Renewable Energy Target (MRET) scheme. This mandated that 2% of Australian electricity output will be from renewable sources by 2010 and this level was later extended to 2020.
• State governments are also introducing similar schemes. The Victorian Renewable Energy Target (VRET) scheme mandates that Victoria’s consumption of electricity generated from renewable sources be increased to 10% by 2016. The NSW Renewable Energy Target (NRET) scheme sets a renewable energy target of 10% by 2010 and 15% by 2020.
• Internationally, wood bioenergy production is developing rapidly as a result of the increasingly supportive policy environment for renewable energy. The European Union (EU) has created strong incentives for renewable energy production especially wood based bioenergy. It has established a carbon emissions trading scheme aimed at reducing commercial carbon emissions and has also set a renewable energy target for member countries of 20% by 2020. Other countries are following this lead, for instance Japan has recently established a 3% renewable energy target, to be fulfilled by 2010.
• The strong incentive created in the EU for wood based bioenergy has increased demand for wood pellets (small, easily transportable pellets of dried, compressed wood waste that burn extremely efficiently), and international trade and prices for wood pellets in the EU have increased as a result. Demand for wood bioenergy in the EU mainly comes from domestic heating use and municipal heating and electricity generation. The technology, particularly for domestic wood bioenergy use is advancing quickly and highly efficient and user-friendly ovens and heaters are reported to be developing.
• Despite the MRET scheme, levels of demand for wood bioenergy production seen in the EU have not been experienced in Australia thus far. Recent growth in the wood bioenergy market in the EU can be attributed to government financial support for wood bioenergy in some countries,
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combined with strong new EU targets and support for renewable energy development (EurObserv’ER 2005). Government funding in Australia has been less focussed on particular energy sources. This has meant that to date there has been only limited growth in domestic demand for wood based bioenergy.
• There is developing interest from Australian investors to export wood biomass for bioenergy production to international markets, particularly EU countries in Northern Europe (including Scandinavia). The EU presents the largest international market for wood fuel at present.
• Canada is currently a major exporter of wood pellets to the EU market, shipping pelletised wood waste from the west coast of the country to markets in the Northern Europe. Anecdotal information suggests that Canadian companies earn good returns, as increasing demand in Europe has recently pushed prices to record levels (Daugbjerg-Jensen 2007).
• At present there are reported to be investors in WA and NSW pursuing wood pellet production for export to the EU. Production is reported to be based on forestry and agricultural residues but there is interest in other feedstock such as mallee eucalypts (John Bartle pers. comm.). Resource and capital costs are reported to be low for pellet production although finding a reliable and readily accessible supply of resource may affect the feasibility of these investments. On the other hand, the impact of harvesting forest and crop residues, which would normally form part of the soil nutrient cycle, may have adverse implications for plantation productivity.
• Production of wood pellets for export also raises potential environmental issues which may need to be addressed by Australian exporters in the longer term. The use of wood pellets is driven by the demand for a carbon neutral and sustainable/renewable fuel source. When the full costs of Australian exports to the EU are considered, carbon emissions created to transport the pellets may compromise their environmental benefit.
• The success of wood bioenergy will ultimately be determined by price competition in the energy market, which is directly determined by production costs relative to other energy sources. A significant factor affecting these costs will be government policy supporting renewable energy and the price of carbon under a carbon emissions trading scheme.
• The cost of potential sources of wood for bioenergy production will also be a factor influencing production cost and wood will compete against other fuel sources, particularly bagasse, which is already being used in Australia.
• The cost competitiveness of wood bioenergy in Australia is subject to uncertainty and biomass competitiveness is reported as significantly below that of coal (Table 6). More recent estimates from Verve Energy suggest bioenergy production costs of $120/MWh compared to $90/MWh for wind and $50-60/MWh for coal. Other limitations such as policy uncertainty and the high cost of technology make potential returns on investment uncertain, particularly in Australia.
Table 6: Average cost of electricity and direct CO2 emissions from a range of energy sources
Form of electricity generation
Average cost of generation ($A / MWh)
Equivalent CO2 direct emissions
(kg CO2-e / GJ) Coal 24-43 ~90 Co-firing biomass 42-61 1.3 +a Co-firing bagasse 45-70 1.5 +a Biomass 54-103 1.3 Wind 66-107 0 Solar 182-271 0
a Actual emissions will depend on relative quantities of coal and biomass / bagasse Source: NAFI (2005), DCC (2008)
• Increases in electricity prices and/or the value of carbon in Australia would increase the
feasibility of bioenergy production.
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• Given the high level of risk and uncertainty, co-firing of wood in coal fired power stations is the logical first step for bioenergy production as it allows use of existing electricity generating facilities. Co-firing of wood waste has been investigated and trialled by a number of generators including CS Energy and Tarong in Queensland, Lidell in NSW and Verve Energy in WA.
• There are currently three proposals for bioenergy plants in WA, ranging in size from 20 MW to 45 MW, which will be fuelled primarily by forest residues. Mallee eucalypts are also a potential resource to fuel bioenergy plants, although the suitability of this resource will strongly depend on the development of cost effective harvesting equipment and scale of resource within proximity to the power plant.
Implications for farm forestry – bioenergy
The most immediate opportunity for bioenergy to provide a market for farm forestry outputs is for waste wood associated with plantations or PNF primarily targeted at sawlog or pulpwood production to be utilised in existing bioenergy facilities, particularly for co-firing, or for the production of wood pellets. Utilising waste residues will ultimately increase the cost-efficiency of a farm forestry operation. The capital costs associated with pellet production are reported to be low and as a result there may be an opportunity for farm forestry to supply resources to pellet facilities in the future if they are developed. The feasibility of pellet production and biomass-fuelled power plants will depend on having plantation scale large enough to consistently supply harvest residues to a processing unit of around 20,000 tonnes pa output capacity. The dispersed supply of resources and associated transport costs, market uncertainties regarding price and long transport distances to markets in the EU all represent risks to the feasibility of pellet production for export. Dispersed supply of resources and transport costs are also a significant challenge for biomass-fuelled power plants. Around 10,000 tonnes of biomass is required to produce 1MW of electricity. The suitability of locations for power plants will also be dictated by electricity demand and proximity to a substation. Verve Energy estimates there are about 4 locations in the WA wheatbelt that are suitable for an IWP plant. The Florasearch project has developed maps (Figure 18) illustrating the concentration of existing electricity supply sources and distances relative to population density which provides an indication of potential areas of interest for bioenergy development (T Hobbs pers. comm.). The attractiveness of growing wood biomass specifically for bioenergy generation or pellet production is likely to be highly risky until government policy directions and their impact are clarified (e.g. the impact of renewable energy targets and the development of a domestic carbon trading scheme). The price for carbon and electricity will have an impact on the relative economics of bioenergy and the potential attractiveness of growing wood specifically for biomass.
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Source: Florasearch project (T Hobbs pers. comm.)
Figure 18: Electricity demand, population density and existing supply distances
Biofuel Biofuel refers to the production of a liquid or gas fuel from a biomass source for the purpose of transportation. Biofuel production is an emerging market for forest products arising from concerns about the negative impacts of fossil fuels on the world’s climate as well as limitations in global oil supplies. The major prospect that biofuels hold are as a renewable and cleaner burning substitute for petroleum products to the transport sector.
Ethanol is produced by fermenting the sugars contained in plant biomass. All current world production of ethanol is based on the fermentation of ‘first generation’ feedstocks (direct sources of starch or sugar such as corn and sugar cane). While these feedstocks are readily accessible, there is uncertainty regarding their viability for long term supply. This is due to the strong ongoing competition for these feedstocks from other large consumers including the food and agricultural feed markets.
‘Second generation’ (lignocellulosic) feedstocks include sugarcane bagasse, wheat straw, cotton gin trash, algae and wood. Because second generation feedstocks can include crop and forestry waste, the resource cost is estimated to be much lower than that of first generation feedstocks. However, lignocellulosic production technology is more complex, having initially to break down the woody material into sugars, and is yet to be commercialised anywhere in the world.
Although development of efficient and viable lignocellulosic breakdown technologies has been the subject of research for decades, it has only recently become a very high priority, and is now the target of large scale public and private R&D funding around the world. For instance, the US, China, and Canada all have large scale research facilities dedicated to developing the efficiency of the lignocellulosic process (www.biofuelreview.com). Hydrolysis using enzymes remains the most popular method being trialled, but increasing attention is being paid to concentrated acid hydrolysis.
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Market summary for biofuel
• Biofuel production in Australia is currently relatively small (75ML of ethanol, 50ML of biodiesel) and is based on a combination of primary sources including coarse grains and wheat, molasses and sugar cane (O’Connell et al. 2007). There are extensive sources of these feedstocks and the technical process for producing ethanol from them is well established.
• Biofuel production world wide is based on primary feedstocks and currently stands at over 33,000 ML pa, most of which is produced in Brazil (ethanol from sugarcane) and the US (ethanol from corn), with 3,900 ML pa produced in the EU (biodiesel, mostly from rapeseed oil) (O’Connell et al. 2007).
• World production is currently growing fast as many developed countries invest heavily in supporting biofuel crops, and research and development into production processes.
• The Australian government has introduced a policy to support investment in biofuels and to increase biofuel production to 350 ML by 2010 (CIE 2005). The ongoing development of sustainable energy policies is likely to see continued support for next generation biofuels.
• Lignocellulosic ethanol is not currently supplied on any commercial scale around the world because – despite there being abundant feedstock sources – the lignocellulosic process is not yet cost-competitive with other feedstocks or fuel sources.
• Notwithstanding its cost competitiveness it appears that there are significant potential opportunities for lignocellulosic ethanol based on growth in ethanol production and increasing oil prices. Wood feedstocks are a cheaper source of fuel than grains and do not compete with human and agricultural food demand unlike many primary feedstocks. Furthermore, the high sugar content of wood (contained in the cellulose and hemi-cellulose), if harnessed effectively, could significantly increase the efficiency of production.
• The lignocellulosic process also has other advantages as it is reported to produce fewer pollutants than a primary-fed process and consume significantly less energy (consequently emitting less CO2) (Cummine 2003; NAFI 2005).
• The most significant example of lignocellulosic ethanol production has been a demonstration site developed in 2004 in Canada by the company Iogen (www.iogen.ca). The site has been strongly supported by the Canadian and US governments, but has not yet reached commercial viability. Other ventures are also taking place in China and the US with reportedly positive results (www.biofuelreview.com).
• An Australian designed pilot plant based on concentrated acid hydrolysis is being developed at the Harwood sugar mill in northern NSW. That pilot plant, reported to have strong commercial potential (Cummine 2007), is being constructed by Ethanol Technologies Ltd, which is 51% owned by Willmott Forests (a domestic plantation and wood processing company), and many individual sugar cane growers. The plant will also demonstrate the extraction technology developed by Apace Research Ltd that produces ethanol without using conventional steam distillation, thereby avoiding large volumes of noxious effluent, which has to be treated and disposed of.
• While lignocellulosic ethanol holds some of the best prospects for the future of biofuels, the production process still requires significantly more development before it reaches commercial viability.
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Implications for farm forestry – biofuel
With new techniques being investigated, it may only be a matter of time before lignocellulosic ethanol becomes more cost competitive against other sources of ethanol production. The potential for generating ethanol from wood waste appears to be very good, as resource costs from forestry thinnings and residues should be low.
The greatest opportunity for farm forestry in this context is not at present, but in coming years when commercial processing facilities are likely to be profitably established. The lignocellulosic ethanol market at that point will act as a valuable way for farm forestry investors to value-add to their plantations.
Because any ethanol facilities would need to operate on a large scale to minimise cost, the scale and transportation costs of farm forestry plantations are likely to be significant factors influencing the commercial feasibility of supply. As a result, farm forestry would most likely supply the biofuels market in conjunction with industrial plantations. The cost-competitiveness of other sources of feedstock (e.g. bagasse) will have a major bearing on the viability of forestry residues as a form of supply and on the location of any production facilities.
Carbon sequestration Carbon sequestration, in terms of forestry, relates to the fixation and storage of atmospheric carbon in the woody biomass of trees. Markets for carbon sequestration are emerging as a result of actions to limit the impact of, or offset greenhouse gases. A carbon offset generally refers to an action that counterbalances carbon emissions in another part of the economy (e.g. an energy producer may offset emissions by establishing a forest plantation as a carbon store).
Market summary for carbon sequestration
• The forestry and forest products industry is one of the few industries that is carbon positive, in that it sequesters more carbon than it emits. In 2004, across Australia a net 14.9 million tonnes of carbon were removed from the atmosphere through sustainable forestry and the increase in carbon stored in wood products (FWPRDC and CRC 2006). Furthermore, the use of wood products is consistently more carbon friendly than alternative building materials.
• Markets for carbon sequestration through growing trees and vegetation are developing in Australia, driven by private concerns over global warming as well as developing government policy frameworks. Investments in forests and vegetation driven by carbon have included Japanese electricity generators buying carbon offsets from Forests NSW and other growers, and planting schemes targeted at individual or company offsets such as Greenfleet, Landcare Australia and CO2 Australia. It is common for large development projects involving increased carbon emissions to examine offsets as part of development proposals and existing emitters are showing increased interest in creating offsets for their carbon emissions.
• Carbon trading mechanisms are already in place in various countries and regions around the world, including Australia. The Kyoto Protocol, which provides a global framework for development of approaches to reduce carbon dioxide emissions, is applied in many countries. Internationally, the EU Emissions Trading Scheme (ETS) is the most advanced compulsory scheme operating around the world, however it currently excludes carbon offsets through forest plantations. Voluntary schemes have also been developed in other countries including the US.
• Domestically, the NSW government has developed a Greenhouse Gas Abatement Scheme which aims to limit carbon dioxide emissions by the electricity sector and other major emitters. Under the scheme, electricity retailers are required to reduce their greenhouse gas emissions through a variety of measures, including reducing the greenhouse gas intensity of electricity generation;
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generating low emission intensity electricity; and demand side abatement activities. To date under the scheme, about 1.8 million greenhouse abatement certificates (one certificate is equal to one tonne of CO2) have been generated through forestry. Forests NSW is the largest abatement certificate provider and expects to trade around $A 7 million worth of carbon credits in the year 2006/07 (Forests NSW 2006).
• Australia has a voluntary carbon offset program called Greenhouse Friendly, which is run by the Commonwealth government Australian Greenhouse Office. Under the program, products, services, individuals or businesses can be independently certified as ‘carbon-neutral’, whereby all greenhouse gas emissions associated with product or service have been eliminated or offset.
• The Australian government plans to introduce a domestic emissions trading scheme by 2010. The Garnaut climate change review (www.garnautreview.org.au) includes consideration of medium to long-term policies and policy frameworks to respond to climate change including design of the emissions trading scheme. The review released an emissions trading scheme discussion paper in March 2008 (Garnaut 2008). The potential for forestry to provide carbon offset was recognised in the discussion paper but it was noted that measurement of carbon sequestered in forestry is an issue that needs to be addressed further in the design on an effective emissions trading scheme. It is also not clear whether forestry will be included as covered industry under the initial emissions trading scheme.
• The Garnaut review will release its draft climate change report by 30 June 2008 and a final report by 30 September 2008. The government aims to have the design of its emission trading scheme finalised by the end of 2008 with trading to commence in 2010.
• The Commonwealth government’s 2007/08 budget included taxation provision to support the development of carbon sink forests. Under the arrangements provided for in the budget, carbon sink forest operators will be allowed to depreciate the costs of establishing a qualifying carbon sink forest under the horticultural plant provisions over a period of 14 years, with effect from 1 July 2007. This compares to the current arrangements under the horticultural plant provisions which would only allow depreciation over the effective life of such a forest, a considerably longer period. The new arrangements therefore offer greater incentive for investment.
• There are significant challenges to forestry being incorporated within a national carbon trading scheme. These include the complexity and cost of carbon accounting systems and specialist skills and resources that will be required to develop carbon accounting systems. It also appears that the complexity of international rules for forestry and especially the need under existing arrangements to maintain carbon sequestration activities over 100 years may act to discourage investment in forestry relative to other options. In addition, the current provisions for carbon sequestration under the Kyoto protocol do not recognise the carbon stored in forest products. The Commonwealth government is supporting the development of a more suitable approach to this issue.
Implications for farm forestry – carbon sequestration
The potential for farm forestry as a management tool for carbon emissions will be largely determined when an emissions strategy is developed and legislated by government, and a carbon price established. The development of carbon markets including forestry offsets is expected to present significant potential opportunities for forestry owners to produce carbon credits as a by-product during the production of other forest products, or through dedicated permanent carbon sinks. However, the extent to which these opportunities will develop still depends on a number of factors, the most important of which include: • International developments in relation to carbon trading and associated carbon prices;
• Regulatory requirements for carbon sinks;
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• Efficiency of biomass production;
• Cost of establishment and management of vegetation;
• Cost of implementing carbon accounting systems;
• Price of carbon; and
• Ability to jointly produce other products.
There are also opportunities for farmers to undertake voluntary offsets of on-farm carbon emissions (e.g. livestock methane, machinery carbon emissions) by establishing farm forestry plantations. While no financial credits are yet available for such carbon offsets, there is potential for this market to develop in the future and the non-market benefits of this type of investment may be attractive to some farmers wanting to contribute wider environmental services.
Other environmental services In addition to carbon there is potential for farm forestry to provide other environmental services. In particular, water and biodiversity are two products for which payments and potential markets are beginning to emerge.
Market summary for other environmental services
• Plantations can contribute to addressing localised environmental issues particularly in areas that have had vegetation cleared in the past. Areas experiencing problems with salinity, poor water quality, or reduced biodiversity may all benefit through strategically placed forestry plantations.
• Where these environmental services are valued, they can generate investment. This is most commonly achieved through government agencies providing up front payments for investment in forestry. Environmental services could potentially also be incorporated into a full market system where property rights are issued for the environmental service and rights can be traded. This is the case where a carbon emission trading scheme is in place and permits are traded.
• Planted forests can specifically assist in addressing salinity issues in catchments where rising water tables have affected soil quality. Plantations help to lower the level of water and reduce salinity, aiding the productivity of agricultural and horticultural industries.
• Significant levels of funding have been committed to encourage strategic tree planting for salinity control through the National Action Plan for Salinity and Water Quality. Other state programs have also been initiated such as the Sawlogs for Salinity program in Victoria.
• Funding for salinity control through forestry plantations in general, is most commonly administered through Catchment Management Authorities (CMAs). CMAs may also provide payments for other environmental services based on the environmental circumstances of their local area.
• There is ongoing interest in Australia and around the world to develop markets for environmental services, following the model being set for carbon emissions trading schemes. For salinity, this would involve creating property rights and allocating credits to plantation owners based upon the level of salinity relief they are providing. This would create an ongoing system of payments for farm forestry in salinity affected areas, and provide a greater incentive for land owners to invest.
• Where no financial investment is available from outside sources, environmental services can still accrue benefits indirectly as an on-farm initiative. Non-market environmental services provided by farm forestry can include shade provision, wind protection, reduction in lambing deaths and shade provision on farms. These benefits add to the commercial viability of a farm forestry plantation by indirectly increasing farm returns.
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Implications for farm forestry – other environmental services
The lack of markets for forestry to deliver environmental services means that the viability of farm forestry to supply these markets is uncertain. Direct payments for environmental services are at an early stage of development and hold a promising outlook for farm forestry. At present there are payments made in some CMAs (e.g. Murrumbidgee and Corangamite CMAs) for forestry development to provide environmental services, particularly salinity management. While these benefits are currently available to farm forestry in some areas, at the present time they are only likely to provide a secondary source of income
Environmental service payments are currently most common in areas of land degradation, particularly low rainfall and saline affected areas which generally have lower forest productivity. Such areas are typically outside major processing hubs and away from other significant areas of resource. However, opportunities could still arise in higher rainfall regions to address issues such as erosion or biodiversity.
There is some prospect for the future of fully fledged markets for environmental services, in addition to the trading of carbon emissions permits. In particular, salinity credits and trading schemes have a high likelihood of being established, and may provide an ongoing source of income for farm forestry investors in future. A better understanding of the environmental benefits provided by trees in particular land systems may assist in developing markets for environmental services and attaching a value to these services.
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Ranking of market opportunities This section presents rankings of market opportunities for the forest products considered in this analysis. The opportunities are ranked as high, medium or low. Established forest products with larger scale requirements are ranked on a region by region basis, reflecting the regional structure of the existing industry. These products include: • Softwood sawn timber
• Hardwood sawn timber
• Veneer, plywood and LVL
• Log exports
• Posts and poles
• Composite wood products
• Woodchip exports
• Pulp and paper.
Established products considered to have smaller scale requirements and to represent ‘niche’ markets are not ranked for each region. This is because in general, opportunities for these products are likely to be equally applicable across a wide range of existing regions. In addition, they may present opportunities beyond what are considered traditional forestry or plantation regions. These products include: • Firewood
• Fibre cement
• Sandalwood
• Eucalyptus oil
• Activated carbon.
Similarly, market opportunities for emerging products are not considered on a region by region basis. This reflects the likelihood that these market opportunities generally are less constrained by existing processing or market infrastructure, and because these opportunities are often available outside what are considered to be traditional forestry regions. Products that fall into this category include: • Fodder
• Industrial carbon
• Engineered strand lumber (ESL)
• Bioenergy
• Biofuel
• Carbon sequestration
• Other environmental services.
Regional opportunities for existing larger scale markets Market opportunities for forest products with established markets and larger scale requirements were based on analysis of:
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• Market situation and outlook in the region (incorporating consideration of existing supplies of forest products, demand and prices);
• Scale required to support a cost competitive processing facility; and
• The suitability of existing infrastructure (e.g. international ports, roads).
A ranking of ‘high’ represents a wood product market that presents a favourable market outlook and may include the flexibility for farm forestry investors to supply small scale resource on a cost competitive basis utilising pre-existing and suitable market infrastructure. There generally must be existing processors or a readily identifiable market in the region for the resource. A ranking of ‘medium’ represents a wood product where market opportunity exists but there is significant risk or uncertainty in accessing the market or in the market situation itself. Successful supply to the market may depend upon industry development, such as greater coordination to meet critical scale in farm forestry supply, or development of new processing facilities. A ranking of ‘low’ represents little or no opportunity for viable farm forestry investment. This may be based on the absence of any existing or potential market in a region. Alternatively this ranking may be due to an unfavourable demand or significant challenges relating to scale and/or competitiveness of accessing or supplying the market.
Summary of regional opportunities
Table 7 provides a summary of the region-by-region ranking of market opportunities for existing forest products. These are based on the regional analysis reported in the following sub-sections.
Table 7: Ranking of market opportunities for farm forestry by region in Australia
Region
Softw
ood
timbe
r
Har
dwoo
d tim
ber
Vene
er, P
ly &
LVL
Log
expo
rts
Post
s &
pol
es
Com
posi
te w
ood
prod
ucts
Woo
dchi
p ex
port
s
Pulp
& p
aper
Central & North Queensland L M/H L L/M M L M L
South East Queensland M H H L M L M L
North Coast NSW L H M L M L M L
Northern/Central Tablelands M/H M L L M L L L
Murray Valley H L M L H H L H
Southern Tablelands M L M L M L L M/H
South East NSW M M/H L M M L M L
North West Victoria L L L L L L L L
Central Victoria H H L M M L M L
Gippsland H H L L M L L H
Green Triangle H L H M M L M L
Mt Lofty & Kangaroo Island M L M L L L L L
South West WA H H H M M M M L/M
Tasmania H H H M M L M M
Northern Territory L M L M L L M L
These market rankings take into account the outcomes of regional consultations which included a range of farm forestry stakeholders as well as forest industry representatives. In general the
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consultations revealed that the strongest links between forest industry operators and farm forestry investors occurred through MIS plantations on leased land where farming operations continue, or through the harvesting of PNF. However, these links were generally less evident for longer rotation plantations. In some instances the regional consultations identified that existing relationships between large scale (often government) growers and existing forest processing industries made it difficult for farm forestry investors to access markets. Growing competition for land, scarcity of native forests logs as well as limited increases in softwood sawlog woodflow may provide the basis for stronger links between the forest processing industries and farm foresters in the future. The following sub-sections provide an analysis of farm forestry market opportunities for each Australian forestry region. These regions generally correspond to the major forest regions of the NPI and those of the PFDCs. Each sub-section begins with an overview of the region including the state of the commercial forestry industry and a brief overview of current farm forestry plantings. This is followed by a summary table and discussion assessing the market opportunities for farm forestry in the region.
Central and North Queensland
Central and North Queensland extends from north of Gladstone to the tropics of Far North Queensland. Wood product markets in Central and North Queensland are limited relative to other Australian forestry regions. The major existing commercial plantations in this region are softwood plantations around Ingham-Cardwell which are owned by Forestry Plantations Queensland (FPQ). These logs primarily supply the log export market from the port of Townsville. MIS plantations have recently been established in the area between Rockhampton and Mackay with a view to supplying the woodchip export market from Mackay. There has also been some development of higher value hardwoods (including teak and red mahogany) by MIS companies further north of Rockhampton. Farm forestry in Central and North Queensland is estimated as approximately 1,400 ha, after significant reductions in area following damage from Cyclone Larry in 2006 (URS Forestry 2008a). These plantations were originally focussed in Far North Queensland with an emphasis on producing high value cabinet timbers. There are only a few wood product processors in Central and Northern Queensland, most being small hardwood sawmills. Table 8 summarises the analysis of farm forestry investment opportunities in the region.
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Table 8: Market opportunities and ranking for farm forestry in Central and North Queensland
Products Processors Total input estimate Regional market opportunities Ranking
Softwood timber 1 sawmill ~28-35,000 m3 The mill is currently supplied from public resources (Ingham area) with little scope for additional supply. Prevailing market prices also limit opportunities for farm forestry.
Low
Hardwood timber Several small sawmills
~50-100,000 m3 High value hardwood plantations: There are established plantations of tropical hardwoods in the region. Potential exists to create a critical mass for supply, in combination with MIS and other resources but there is uncertainty over processing capability in the region.
PNF: There is a good opportunity to expand PNF harvest to supply small sawmills in the region that are currently supply constrained.
Medium – hardwood plantations
High- PNF
Veneer, plywood & LVL
- - Limited opportunities exist due to the lack of existing processors.
Low
Log exports Port of Townsville ~220,000 m3 The market is presently supplied by public resource produced from Ingham-Cardwell plantations and exported from Townsville.
There may be some opportunity in the future for hardwood log exports but a difficult market for farm forestry to compete in given need for scale and volatility in market prices and volumes.
Low/ Medium
Posts & poles Several existing processors
N/A One of the only markets for hardwood thinnings in the region and demand is reported to be high.
The best opportunity for supply is through PNF, and potentially as part of sawlogs plantations.
Medium
Composite wood products
- - Limited opportunities exist due to the lack of existing processors.
Low
Woodchip exports
- - The pulpwood resource being developed in the region by MIS companies presents an opportunity to access this market in the future.
The best opportunity is most likely to be through leasing land to MIS companies.
Medium
Pulp & paper - - Limited opportunities exist due to the lack of existing processors.
Low
This region presents several advantages for high value hardwood plantations, including having a suitable climate and being well placed geographically to service the Asian log export market. Whilst the scale required to feasibly support domestic processing or log export operations of high value hardwoods is smaller than softwood operations, the ability of farm forestry to achieve critical scale of high value hardwood resources presents a significant market risk. However, there is increasing interest by MIS companies in the region who have commenced development of high value hardwood plantations, and this presents opportunities for farm forestry to aggregate with these resources. There may also be opportunities to lease land to MIS companies.
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The existing log export market based at the port of Townsville presents an opportunity for land owners to invest in plantations for log export. The majority of supply is currently contracted from public softwood plantations which may act to limit opportunities for smaller scale private growers. The hardwood log export market presents an alternative market opportunity for farm forestry in future. There are likely to be good returns available in this market through constraints on native hardwood log supply in Asia. To successfully export hardwood logs, farm forestry would need to be within reasonable proximity of Townsville and would ideally need to aggregate supply with an existing export operation. A planned upgrade at the port of Mourilyan may create further opportunities for farm forestry to access the woodchip export market. While the log export market has a relatively positive outlook in general, the characteristically volatile prices of export log trade create the risk of inconsistent returns to farm forestry investors. MIS companies are developing short rotation hardwood pulpwood plantations in the area between Mackay and Rockhampton for woodchip export. This presents opportunities for farm forestry investors to also establish pulpwood plantations in this area to aggregate with this supply and access the woodchip export market. The large increases in pulpwood supply that will come on stream over the next five years however are expected to be more than sufficient to meet demand and market prices may decrease in the longer term. As a result there may be more stable returns for land owners to lease land to MIS companies where there is a large channel of supply and market risk is passed to a more established investor.
South East Queensland
The South East Queensland region extends from the NSW border, north to Gladstone, and west beyond Toowoomba and Kingaroy. South East Queensland is a major Australian forestry region. There are extensive softwood plantation resources in the areas around Beerburrum and Gympie. There is also industry based on native forestry. At present native wood supply comes from a combination of public and private forests. Declining native hardwood sawlog production from public land in Queensland will create opportunities for resource replacement from plantations and PNF. Native hardwood sawlog production has been declining in Queensland since the early 1980’s and will cease in the South East Queensland region in 2025 as part of the State government’s commitment to the South East Queensland Forests Agreement. Hardwood sawlog harvesting from public land in the Western Hardwoods region will cease in 2012. There are developing hardwood pulpwood and hardwood sawlog plantation resources throughout the region. The sawlog plantations are supported by government programs and are aimed at providing a substitute for the State’s hardwood sawmilling industry once public native forests become unavailable. MIS companies have also invested in some sawlog plantations. Associated with the large softwood plantations in South East Queensland is a large softwood processing industry. This includes mills processing sawn timber, composite wood products and plywood. Woodchips from pulpwood and residues produced in the region are also exported from the port of Gladstone and Brisbane. The native hardwood harvest is processed by a number of smaller hardwood sawmills. The area of farm forestry plantations in South East Queensland is estimated at 3,384 ha. This includes 2,178 ha of joint venture plantations across the region under 123 separate government-landowner projects. The major species in these joint venture plantations include spotted gum (Corymbia citriodora), and smaller areas of Gympie messmate (E. cloeziana) and Dunn’s white gum (E. dunnii). Table 9 summarises the market opportunities for farm forestry in the region.
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Table 9: Market opportunities and ranking for farm forestry in South East Queensland
Products Processors Total input estimate Regional market opportunities Ranking
Softwood timber 8 sawmills ~1,200,000 m3 There is strong demand and limited forecast growth in supply from existing plantations. However the large volumes of wood supply under long term contracts with administratively determined prices may act to reduce attractiveness to investment in farm forestry.
Hoop pine generates lower returns due to longer rotation and insufficient price differentiation from exotic pine.
There is some opportunity for cypress supply from PNF. However returns tend to be low reflecting relatively low prices and high silvicultural costs.
Medium-exotic pine
Medium-hoop pine & PNF
(cypress)
Hardwood timber
Several small sawmills ~250,000 m3 There are opportunities for expanding PNF supply due to declining harvest of public native resource. Hardwood sawlog prices have risen over the last few years.
The expanding FPQ plantation resource should supplement declining public native forest harvest. Critical mass should be achieved and farm forestry will be able to aggregate with this resource.
High-PNF
High-plantations
Veneer, plywood & LVL
1 Glulam mill, 1 plywood mill
(softwood), 2 sliced veneer mills
~130,000 m3 The region’s plywood mill is currently supply constrained and this presents an attractive opportunity for farm forestry.
PNF may receive attractive returns through supplying multiple species for appearance grade plywood. There may also be opportunities for hardwood plantations to supply this market in the future.
High
Log exports - - Limited opportunities exist due to the lack of existing exporters.
Low
Posts & poles Several small processors
N/A There are good opportunities in this market, particularly for PNF as demand for hardwood posts is strong in the region.
There is some opportunity for softwood posts although prevailing supply and pricing makes this market less attractive for farm forestry.
Medium
Composite wood products
1 MDF mill, 1 hardboard mill,
1 particleboard mill
~500,000 m3 + ~85,000 t
(hardboard)
This market is dominated by supplies from existing public resources and residues which make it difficult for farm forestry to compete.
Low
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Products Processors Total input estimate Regional market opportunities Ranking
Woodchip exports
Port of Brisbane,
Port of Gladstone
~140,000 m3 + ~100,000 m3
The developing MIS resource in the region presents potential for farm forestry to aggregate supply. However, the overall woodchip market outlook is subject to some uncertainty arising from large increases in supply.
Medium
Pulp & paper - - Limited opportunities exist due to the lack of existing processors.
Low
South East Queensland has a well established softwood industry based mostly on public plantation resources. The two major softwood markets in the region are the sawn timber market and the composite wood products market. There is generally a strong outlook for these two markets, however the market opportunity for farm forestry is constrained by dominance of the existing public resources and administratively determined log prices and allocation. The transition of supply from native forest to hardwood plantations presents a good opportunity for farm forestry plantations to aggregate with FPQ and other private plantations. It is likely that there will be ongoing rationalisation of the hardwood sawmilling industry over the next 20 years, however the current scale of the plantation estate is sufficient to support investment in new hardwood sawlog processing facilities. The quality of plantation sawlogs will affect log prices and returns on investment, this presents risks for investors. The reduction in public native forest harvest provides an opportunity for increased harvest of PNF. South East Queensland has an extensive PNF resource and providing these areas can be managed appropriately they have the potential to provide ongoing supply of high quality sawlogs into the future. Prices have historically been low for landholders with small scale PNF although recent efforts by the local PFDC to increase competition for the resource have resulted in increased prices for sawlogs.
North Coast, New South Wales
The North Coast region extends from Newcastle to the Queensland border along the coast and west to the escarpment of the Northern Tablelands. It is sometimes divided into the upper and lower North Coast. The North Coast of NSW has a large native hardwood sawlog sector, accounting for the majority of native forest harvest in NSW. Supply of native forest sawlogs from public land in NSW has decreased substantially over the last ten years, with the current supply of high quality sawlogs around 50% of what it was in 1999 when the first Regional Forest Agreement (RFA) was signed. Forests NSW have established significant areas of hardwood plantations to supply sawlogs to industry and replace reductions in native forest sawlog supply. Supplies from PNF account for around half of the volume of hardwood sawlogs processed in the region. The softwood sawn timber market in the North Coast region is limited, with a small number of plantations and two small sawmills in the northern part of the region. Farm forestry plantation areas for the North Coast are reported to be 2,481 ha of which around 1,400 ha consists of mixed hardwood species. Forests NSW have also established over 5,000 ha of hardwood plantations through joint ventures with private landowners. It is thought that most of these plantations fit the definition of farm forestry (i.e. they are conducted on land in combination with a farming activity). Forests NSW has also established 5,600 ha of hardwood plantations on leased land, however these areas have not been included in the farm forestry area as it is not known whether they meet the definition of farm forestry.
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Table 10 summarises the market opportunities for farm forestry in the region.
Table 10: Market opportunities and ranking for farm forestry in the North Coast, NSW
Products Processors Total input estimate Regional market opportunities Ranking
Softwood timber 2 sawmills ~150,000 m3 Current processing demand is fully supplied and only low cost sawlogs are likely to be marketable. Unlikely to be significant opportunities in the future for expanding softwood resource in the region.
Low
Hardwood timber
15 sawmills
~800,000 m3 The declining supply from public native hardwood forests is expected to be substituted by plantation resources which have been developed by the state government over the last 10 years. Opportunities exist for farm forestry plantations to aggregate with this hardwood plantation estate and supply the existing processing sector.
The PNF harvest is already significant suggesting limited opportunities to expand harvest but there are opportunities for promoting more sustainable approaches (economically and environmentally).
High – plantations
High – PNF
Veneer, plywood & LVL
1 plywood mill ~150,000 m3 There are opportunities for supplying the plywood mill in the region as prices are currently attractive. Resource would need to be relatively close (<150 km) to Grafton mill.
Medium
Log exports Port of Newcastle Nil Strong ongoing domestic demand means that it is unlikely that either softwood or hardwood logs will be exported from the region in the future,
Low
Posts & poles 2-3 processors N/A There are opportunities for supplying the posts and poles market as a by-product to sawlog operations. However resource would need to be relatively close to processors.
Medium
Composite wood products
- - Limited opportunities exist due to the lack of existing processors.
Low
Woodchip exports
Port of Brisbane ~250,000 m3 There is opportunity to aggregate with South East Queensland plantations, however distance to market and uncertainty surrounding hardwood chip market outlook limit opportunity.
Medium
Pulp & paper - - Limited opportunities exist due to the lack of existing processors.
Low
Declining native hardwood sawlog production from public land creates opportunities for resource replacement by hardwood plantations on the North Coast of NSW. There are opportunities for farm forestry plantations to aggregate with Forests NSW hardwood sawlog plantations. The quality of the plantation sawlog resource however will affect return on investments and there is some uncertainty regarding potential future prices for these logs. It is also expected that some investment in processing technology will be required to efficiently process plantation sawlogs.
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It is difficult to identify the scope for increased production from PNF in the region beyond the already significant harvest because of a lack of knowledge of the resource. There is potential for private native forestry to be managed on a more sustainable basis both in economic and environmental terms. Because of the limited nature of the softwood industry on the North Coast of NSW opportunities for farm forestry in the softwood sector are limited.
Northern and Central Tablelands, New South Wales
The Northern and Central Tablelands cover an area extending from northern NSW to the south west beyond Cowra and Oberon, including Lithgow. There are significant softwood plantations in the region around Bathurst-Oberon including significant areas of private plantations, and some native forest resources scattered across the region. The region has well developed softwood processing capacity, including a world-scale softwood sawmill and an MDF mill. Hardwood sawn timber processing is also undertaken by several smaller sawmills. Like other regions however, uncertainty over future access to native forest resources makes the future of these mills uncertain. Only limited data exists for farm forestry in the Northern and Central Tablelands. Information available at present simply includes records of trial and demonstration areas, and plantations of P. radiata, and indicates a total area of around 2,800 ha (see URS Forestry 2008a). Table 11 summarises the market opportunities for farm forestry in the region.
Table 11: Market opportunities and ranking for farm forestry in the Northern and Central Tablelands, NSW
Products Processors Total input estimate Regional market opportunities Ranking
Softwood timber 3 sawmills 900-950,000 m3 Existing markets in the central tablelands around the major processing hub of Bathurst-Oberon and supply constraints provide a good opportunity to supply sawmills in this area.
Some opportunity to harvest cypress PNF although prices are generally low.
Medium/High
Hardwood timber
4 sawmills 100-150,000 m3 Future demand for long rotation hardwood sawlogs in the north of the region restricted due to lack of existing processors. Ability to achieve critical scale in supply to support investment in new processing may be low due to lack of suitable land for hardwood sawlog plantations (soil variability and low rainfall).
Opportunities for expanding PNF supply mostly in the western slopes area.
Medium
Veneer, plywood & LVL
- - Limited opportunities exist due to the lack of existing processors.
Low
Log exports - - There is limited access to markets due to the distance from a port.
Low
Posts & poles Several small scale processors
N/A There is good demand for softwood posts around the region and from South East Queensland for the northern tablelands, but will be supplied as by-product of softwood sawlog plantations.
Medium
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Products Processors Total input estimate Regional market opportunities Ranking
Composite wood products
1 MDF mill, 1 MDF/particle
board mill
~100,000 m3 + ~700,000 m3
The large volume of industrial residue available means that competition is high in this market. This combined with the lack of scale makes market access difficult for farm forestry.
Low
Woodchip exports
- - There is limited access to markets due to the distance from a port.
Low
Pulp & paper - - Limited opportunities exist due to the lack of existing processors. The distance to markets in other regions limits supply viability.
Low
There is opportunity in this region for farm forestry resources to supplement softwood log supplies from existing plantations, particularly around Bathurst-Oberon. Land owners investing in softwood farm forestry plantations may also be able to supply lower quality sawlogs to post producers. The market for composite wood products in the region is currently well supplied with industrial residues and does not present much scope for farm forestry pulpwood supply in the future. There is scope for increased supply of hardwood sawlogs in the north of the region where harvest volumes from public native forests are declining. A good opportunity exists for developing private native forestry to complement declining public forest supply. The opportunity for sawlog plantation investment however is restricted due to regional environmental conditions and the small size of the hardwood market.
Murray Valley
The Murray Valley covers the region around the Murray River in North East Victoria and southern NSW centred on the border towns of Albury-Wodonga and extending to Tumut and Tumbarumba in NSW and to Wangaratta, Myrtleford and Benalla in Victoria. The Murray Valley is one of the major forestry regions in Australia with extensive plantation resources. There is significant plantation processing capacity in the Murray Valley including world scale sawmills, pulp and paper manufacturing and MDF and particleboard manufacturing. There is also a small native forest based processing industry in the region. Table 12 summarises the market opportunities for farm forestry in the region. The area of farm forestry in the Murray Valley totals approximately 9,000 ha. Around 6,000 ha of this area consist of small P. radiata investment plantations.
Table 12: Market opportunities and ranking for farm forestry in the Murray Valley
Products Processors Total input estimate Regional market opportunities Ranking
Softwood timber 5 sawmills ~2,000,000 m3 There is strong demand from existing processors who are currently supply constrained.
High
Hardwood timber
2 sawmills ~25,000 m3 There are limited processors in the region. Farm forestry is unlikely to achieve critical mass of supply from hardwood plantations to support new processing investment.
Low
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Products Processors Total input estimate Regional market opportunities Ranking
Veneer, plywood & LVL
2 plywood mills ~85,000 m3 There may be opportunities to supply resources to both plywood mills in the region. Prices being offered by the Wagga Wagga mill currently are reported as attractive. Opportunities may also depend on modernisation of the Myrtleford mill.
Medium
Log exports Port of Geelong ~40,000 m3 There is limited access to this market due to the distance to Geelong.
Some logs are currently exported but prices are highly volatile and this market is unlikely to be attractive for farm forestry in the region.
Low
Posts & poles Several processors
N/A There is good demand for softwood posts in the region from several processors. The market opportunity is as by-product of sawlog plantations.
High
Composite wood products
1 MDF mill, 2 particleboard
mills
~120,000 m3 + ~420,000 t
Supply is currently constrained and is limiting expansion in production capacity. There is a strong market for pulpwood produced as by-product of softwood sawlog plantations.
High
Woodchip exports
- - There is limited access to this market due to the distance from a port.
Low
Pulp & paper 2 pulp & paper mills
~1-1,100,000 t The Visy mill at Tumut is currently expanding but is supply constrained. There is a strong market for pulpwood produced as by-product of softwood sawlog plantations.
High
There is a range of wood product markets available for farm forestry investment in the Murray Valley. Softwood resource availability in the region has almost peaked and the existing softwood sawn timber processing sector is constrained by limited supplies. Strong competition for resource is expected to create upward pressures on log prices in the region. This could create opportunities for farm forestry to benefit from higher prices in supplying marginal volumes of softwood logs to processors. The pulp and composite wood product sectors provide market opportunities for lower quality logs produced as a by-product of sawlog plantations. The Visy pulpmill is currently expanding and future growth of the composite board mills in the region is constrained by resource supply. Demand for lower quality logs in the region is therefore expected to remain strong. Overall, the combination of softwood sawn timber and pulplog markets in the Murray Valley region results in softwood plantations offering a significant market opportunity. Opportunities for hardwood plantations are limited by a lack of existing markets and the low likelihood of achieving critical scale of hardwood plantations as well as competition for land from softwood plantations.
Southern Tablelands, New South Wales
The Southern Tablelands region covers the area extending from Boorowa, north west across to the Moss Vale-Braidwood escarpment, and south encompassing the ACT. Plantations in the Southern Tablelands region consist mostly of P. radiata and are concentrated around the processing centre of the ACT. Following the loss of most of the ACT Forests estate to bushfires there is uncertainty over the future of softwood plantations in the region. The ACT government is
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currently undertaking a process to examine options for future use of the forest areas lost to bushfires. There are also softwood plantations in the Bowral-Moss Vale area. No hardwood plantations have been established and there is no industry based on the public native resource. An estimated 7,225 ha of private P. radiata plantations have been identified in the region as farm forestry. These are mostly around the Braidwood area. While there are substantial softwood plantations in the Southern Tablelands there is only limited processing capability. The ongoing viability of processors in the ACT is uncertain due to the impact of the ACT Forests bushfires. Table 13 summarises the market opportunities for farm forestry in the region.
Table 13: Market opportunities and ranking for farm forestry in the Southern Tablelands, NSW
Products Processors Total input estimate Regional market opportunities Ranking
Softwood timber 3 sawmills ~225,000 m3 There are some existing markets in region, but very small due to recent ACT bushfires. The current supply is from Forests NSW Bombala resource.
Medium
Hardwood timber
Some portable
sawmilling capacity
N/A The overall market opportunity is low but landholders with small areas of PNF may find markets for their resource.
Low
Veneer, plywood & LVL
- - There are no markets in the region although the Wagga Wagga and Myrtleford mills may present opportunities when prices are high if haulage cost can be overcome.
Medium
Log exports Port Kembla Nil There are no existing markets in the region. There may be scope to develop log exports in future but market volatility limits opportunities for farm forestry
Low
Posts & poles Several small scale
processors
N/A There are opportunities but they will be produced as by-product of sawlog plantations.
Medium
Composite wood products
- - Limited opportunities exist due to the lack of existing processors.
Low
Woodchip exports
- - Limited opportunities exist due to the lack of existing markets.
Low
Pulp & paper - - There are no existing markets in region, however, good opportunity to supply softwood pulpwood to the Visy mill in Tumut as by-product of softwood sawlog plantations. Distance to market will constrain returns.
Medium/
High
The loss of most of the ACT Forests softwood plantation estate to bushfires has severely affected market prospects for farm forestry in the region. It is uncertain how much of the ACT’s estate will be returned to long term forestry and existing processors may not have sufficient resources to maintain production.
South East New South Wales
South East NSW encompasses southern NSW including the port of Eden, and extends westward to Bombala and northwards past Bega. This region is included in the NPI as part of East Gippsland-Bombala.
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The region has a developing softwood plantation resource which has significant volumes of sawlogs and pulpwood available for harvest. There is only one softwood sawmill in the region which also produces treated posts, and another in the ACT currently utilising resources from the region. There is also a native hardwood sawmilling industry in the region and significant native woodchip exports from Eden. Softwood sawlog exports have also recently been established from the port of Eden. Forests NSW has recently announced its intention to call tenders for the supply of softwood sawlogs from its Bombala plantations with a view to attracting a larger scale processor to the region. The Visy pulp mill is likely to draw pulpwood from the region as part of its expansion plans but returns would be expected to be low due to transport distances. Table 14 summarises the market opportunities for farm forestry in the region.
Table 14: Market opportunities and ranking for farm forestry in South East NSW
Products Processors Total input estimate Regional market opportunities Ranking
Softwood timber 1 sawmill ~90,000 m3 There is some opportunity to supply the existing processor. The growing softwood resource in this region presents an opportunity to aggregate supply. The viability of supplying this market will depend on attracting new processing investment.
There may also be opportunities to lease land to MIS companies for softwood plantations.
Medium
Hardwood timber
6 sawmills ~125,000 m3 The future demand for long rotation hardwood plantations is uncertain, due to the lack of existing processors and the declining traditional hardwood sector. While increased harvesting of PNF may provide opportunities to maintain the existing sawmilling industry, limited development of existing plantations suggests these opportunities will be small over the next 10-20 years.
There are opportunities for expanding PNF supply for the sawn timber market. There is also opportunity for promoting more sustainable approaches to PNF harvest (economically and environmentally).
Medium – plantations
High – PNF
Veneer, plywood & LVL
- - Limited opportunities exist due to lack of existing processors. There is unlikely to be processing investment in the near future due to lack of available resource.
Low
Log exports Port of Eden ~60,000 m3 Softwood logs are currently exported and opportunities exist to aggregate with the existing supply.
The volatility of log export prices means that high risk limits this market opportunity for farm forestry.
Medium
Posts & poles Several processors
N/A There is little farm forestry supply at present but demand is strong and there is good scope for supplying processors in the future.
The opportunities potentially could be produced from PNF or as a by-product of sawlog plantations.
Medium
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Products Processors Total input estimate Regional market opportunities Ranking
Composite wood products
- - Limited opportunities exist due to the lack of existing processors, but there may be potential to attract a new processing operation based on the available pulpwood resource.
Low
Woodchip exports
Port of Eden ~1,000,000 m3 Native hardwood chip is currently exported from the region. There is an opportunity to expand plantation hardwood and softwood chips.
Uncertainty in hardwood chip market outlook may constrain attractiveness of new plantation investment.
Medium
Pulp & paper - - Potential to supply the Visy pulpmill in Tumut but returns will be constrained by long haulage distances.
Low
The region is one of few in Australia that has significant volumes of uncommitted softwood sawlogs sufficient to attract a new processor. A new softwood processing investment in the region would provide greater opportunities for farm forestry to supplement existing public and private plantations in the region. Softwood logs are currently exported from the Port of Eden and farm forestry plantations could potentially access this market particularly where plantations are close to the port. The reduction in harvest volumes from public native forests means that there is a strong opportunity for expanding the PNF harvest, particularly to substitute supply in the hardwood sawmills. Landholders harvesting PNF may be able to value add to PNF harvest by supplying the woodchip export or the posts and poles market. There is also potential for plantations to provide these products but this represents a more uncertain and longer term opportunity as markets would depend on significant change in the nature of sawmilling operations in the region.
North West Victoria
North West Victoria covers the region south of the Murray River from the SA border to Echuca in the east and extends south to include Horsham, Maryborough and Castlemaine. There are no significant commercial plantations or processing capacity in North West Victoria. As a result wood product markets in this region are very limited. Farm forestry in the North West Victoria region is estimated to cover an area of around 4,500 ha, mostly consisting of hardwood species and a small volume of softwood. Table 15 summarises the market opportunities for farm forestry investment opportunities in the region.
Table 15: Market opportunities and ranking for farm forestry in North West Victoria
Products Processors Total input
estimate
Regional market opportunities Ranking
Softwood timber - - Limited opportunities exist due to the lack of existing processors.
Low
Hardwood timber
- - Limited opportunities exist due to the lack of existing processors.
Low
Veneer, plywood & LVL
- - Limited opportunities exist due to the lack of existing processors.
Low
Log exports - - Limited opportunities exist due to the lack of existing processors.
Low
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Products Processors Total input
estimate
Regional market opportunities Ranking
Posts & poles - - Limited opportunities exist due to the lack of existing processors.
Low
Composite wood products
- - Limited opportunities exist due to the lack of existing processors.
Low
Woodchip exports
- - Limited opportunities exist due to the lack of existing processors.
Low
Pulp & paper - - Limited opportunities exist due to the lack of existing processors.
Low
North West Victoria has only a limited forestry industry. There is unlikely to be commercial investment in this region in the near future due to the low land productivity. Development of new markets based on farm forestry resources will be significantly constrained by the small scale and dispersed nature of its supply. Fodder crops could provide good opportunities for farm forestry investment. Emerging markets such as environmental services and carbon sequestration may also present opportunities for farm forestry in the region.
Central Victoria
Central Victoria covers an area to the west of Melbourne including the Colac/Otway, Corangamite and Pyrenees in the west and runs from the southern coastline to areas around Ballarat. There are around 50,000 ha of plantations in the region of which around 70% is made up of softwood sawlog plantations. The major softwood plantation owner is HVP plantations with Associated Kiln Driers (AKD) and Midway Forest Products owning smaller estates. The remainder of the plantation area is mostly hardwood pulpwood plantations, being a mixture of MIS and privately owned plantations. There are around 1,200 ha of farm forestry hardwood sawlog plantations in the region, most of which are sugar gum plantations including shelter belt plantings. Some of the MIS plantations in the region are on leased land as part of ongoing farming enterprises and these are also considered farm forestry. Native forests in the region also provide hardwood sawlogs and pulpwood, although harvest volumes have declined in recent years as a result of state government policies. There are several softwood sawlog processors in the region, the major sawmills being AKD and TASCO. There are a number of smaller pallet manufacturers and preservation mills. In addition, softwood logs and softwood and hardwood chip are exported from the port of Geelong. The number of hardwood sawmills in the region has declined in recent years. Table 16 summarises the market opportunities for farm forestry in the region.
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Table 16: Market opportunities and ranking for farm forestry in Central Victoria
Products Processors Total input estimate Regional market opportunities Ranking
Softwood timber 4 sawmills ~800,000 m3 There is strong demand from existing processors in the region who generally face supply constraints on future development.
High
Hardwood timber
Several small sawmills
~16,000 m3 The shortage of public native forest supply in Victoria creates opportunities for farm forestry, both PNF and plantations. However, the uncertain future of processors and their limited capability for processing plantation timber is a constraint.
High-PNF and
hardwood plantations
Veneer, plywood & LVL
- - Limited opportunities exist due to the lack of existing processors.
Low
Log exports Port of Geelong 230,000 m3 Potential export opportunities exist but price volatility presents some risk.
Medium
Posts & poles Several post and pole treatment plants
N/A There are a number of mostly softwood based processors in the region. The opportunities will be produced largely as by-product of softwood sawlog plantations.
Medium
Composite wood products
- - Limited opportunities exist due to the lack of existing processors.
Low
Woodchip exports
Port of Geelong 1,200,000 m3 There is scope to complement existing hardwood pulpwood plantations that will be marketed over next 5-10 years. The opportunities for further expansion may be limited by competition from other regions and some uncertainty over woodchip markets in the future.
There are opportunities to expand softwood chip exports.
Medium
Pulp & paper - - Limited opportunities exist due to the lack of existing processors.
Low
Strong demand and limited supply of softwood sawlogs in the region presents good opportunities for farm forestry to supply existing markets. Small scale plantation owners may therefore have the opportunity to achieve high prices for selling marginal volumes of softwood logs to processors. Declining resources from public native forests provide opportunities for PNF and for hardwood plantations in the region. However, the current decline in hardwood sawn timber processors may limit opportunities, particularly for hardwood plantations. There is significant uncertainty over whether processors in the region have the capability to process plantation sawlogs because they require significantly different approaches to sawing compared to native forest logs. There is potential for additional hardwood pulpwood plantations in the region to complement the existing resource likely to replace native woodchip exports from the region. However, woodchip export may face increasing competition from larger volumes in other regions.
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Gippsland
The Gippsland region covers an area extending from Melbourne in the west, across to the east as far as the NSW border, and north to the Great Dividing Range beyond Sale and Bairnsdale. For this analysis, the region has been defined to include the Central Highlands of Victoria which includes significant native forest hardwood sawn timber production. The Gippsland region contains both softwood and hardwood plantations. Hardwood plantations presently account for just over a third of plantation area in the region, the majority of which are for the production of pulpwood to supply Australian Paper’s Maryvale pulp and paper mill (NPI 2006). Some volumes of low quality sawlogs (because the plantations have not been managed for sawlog production) are also produced from the hardwood plantations. In addition, native hardwood is supplied from public native forests in the region. There is some harvesting of PNF but volumes are relatively small. The region’s softwood plantations provide both sawlogs to local processors and pulpwood for pulp and paper production and woodchip export. The softwood plantations also supply some logs for export. Farm forestry plantations across the region total around 5,600 ha, and consist mainly of P. radiata and some areas of E. globulus. Table 17 summarises the market opportunities for farm forestry in the region.
Table 17: Market opportunities and ranking for farm forestry in Gippsland
Products Processors Total input estimate Regional market opportunities Ranking
Softwood timber 2 sawmills ~400,000 m3 Existing processors are currently supply constrained, presenting good opportunities for farm forestry.
High
Hardwood timber
35 sawmills ~650,000 m3 The declining supply of native forest resource presents good opportunities for PNF and hardwood plantations to supplement this resource. This opportunity will depend on the future survival of processors.
There is some risk associated with developing capability in hardwood plantation silviculture and processing.
High-hardwood plantations
High-PNF
Veneer, plywood & LVL
- - Limited opportunities exist due to the lack of existing processors.
Low
Log exports Port of Geelong N/A Softwood logs from Gippsland are exported from the port of Geelong. Potential development of a new port in Westernport may provide new opportunity in the future. However, the volatility of log export prices presents market risks for farm forestry.
Low
Posts & poles 3 softwood preservation mills
N/A Existing processors in the region provide market opportunities. These opportunities will mostly be produced as by-product of softwood sawlog plantations.
Medium
Composite wood products
- - Limited opportunities exist due to the lack of existing processors.
Low
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Products Processors Total input estimate Regional market opportunities Ranking
Woodchip exports
Port of Geelong
Port of Eden
N/A
N/A
Native hardwood chip is currently exported from East Gippsland through the Port of Eden in NSW. Softwood chip from Central Gippsland is exported through the Port of Geelong. However, volatility in softwood chip export prices and the increasing supplies of hardwood chip exports creates risks for farm forestry investment.
Low
Pulp & paper 1 pulp & paper mill ~1,035,000 t There is currently strong demand from Australian Paper at Maryvale, particularly as the mill’s pulping capacity is currently being expanded. Macquarie/Midway and others are developing plantations to service this increasing demand.
Opportunities exist to grow hardwood pulpwood plantations or lease land to plantation growers.
High – hwd plantations
Gippsland is the hub of Victoria’s hardwood timber industry, accounting for a significant proportion of log production and timber processing. Log production from public native forests has declined substantially over the last decade. The bushfires in 2006/07 are expected to result in further reductions to sustainable yield. Reductions in production volumes, combined with the effects of the new log auction system in Victoria, are resulting in structural change in the hardwood sawmilling sector. This provides immediate opportunities for developing supplies from PNF in the region. Existing plantation hardwood sawlog production in Gippsland provides a base on which farm forestry could build plantation resources to complement native forest sawlogs supplies. This is encouraged by increasing prices of native forest hardwood sawlogs in Victoria. However, there are market risks associated with hardwood sawlog plantations including uncertainty over the location of future processors and their ability to process plantation logs. There are good market opportunities to grow hardwood pulpwood to service the increasing demand from Australian Paper’s Maryvale mill, which is currently expanding its pulping capacity. The Maryvale mill may also face future supply constraints if sustainable yields from public native forests are further reduced. There is potential for farm forestry to be involved in existing MIS plantation development in the region through leasing land. Softwood sawlog supply levels in the region are committed and there are opportunities for farm forestry plantations to continue to grow the softwood resource to supply existing markets.
Green Triangle
The Green Triangle refers to the area of South East SA and South West Victoria around the state border. The Green Triangle is one of Australia’s major forestry regions. It includes extensive areas of both hardwood and softwood plantations with around 130,000 ha of softwood sawlog plantations and 105,000 ha of hardwood pulpwood plantations. The hardwood plantations have been established mostly over the last decade and are focussed on pulpwood production. The region has a large processing industry based on softwood resources. While this provides potential for farm forestry to supplement existing supplies, it is forecast that there will be some growth in supply from existing plantations in the region. Additional supply may also be derived by changes to forest management practices e.g. if Forestry SA was to reduce its rotation age.
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There are approximately 20,000 ha of farm forestry plantations in the Green Triangle, virtually all of which are MIS plantations on leasehold land in combination with an operating farm. Table 18 summarises the market opportunities for farm forestry in the region.
Table 18: Market opportunities and ranking for farm forestry in the Green Triangle
Products Processors Total input estimate
Regional market opportunities Ranking
Softwood timber 7 sawmills ~1,900,000 m3 There is a good opportunity in this market due to strong demand from existing processors and supply constraints in the future. There is scope for further expansion of farm forestry plantations particularly for high quality logs.
High
Hardwood timber
- - Limited opportunities exist due to the lack of existing processors.
Low
Veneer, plywood & LVL
1 LVL mill ~150,000 m3 There is growing demand for LVL in Australia and there may be opportunities to supply the existing mill. There is also good potential to develop plywood production in the region.
High
Log exports Port of Portland 150,000 m3 There are export opportunities but price volatility in the log export market presents risks.
The opportunity may be curtailed by increased competition for port access stemming from increasing volumes of hardwood pulpwood harvested for chip exports in the region.
Medium
Posts & poles Several posts and poles treatment
plants
N/A A number of processors in the region are servicing the vineyard and other markets. The opportunity to supply this market will be produced as a by-product of softwood sawlog plantations.
The ongoing opportunity in this market is stable but is presently being curtailed by high softwood chip export prices.
Medium
Composite wood products
1 particleboard mill ~200,000 m3 Opportunity for farm forestry to supply pulpwood for particleboard production is limited because of the dominance of sawmilling residues in supplying the particleboard mill.
Low
Woodchip exports
Port of Portland ~1,100,000 m3 There is opportunity to supply both hardwood and softwood pulpwood to the market as prices are currently attractive. However, volatility in softwood chip export prices and the increasing supplies of hardwood chip exports creates risks for farm forestry investment.
Medium
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Products Processors Total input estimate
Regional market opportunities Ranking
Pulp & paper 1 pulp & paper mill ~900,000 t The opportunity to supply the pulp and paper market is limited due to existing long term supply contracts the mill has in place with existing growers.
There is potential for development of new hardwood BCTMP pulp mill in the region but the mill likely to obtain supply from existing large scale plantations.
Low
Strong demand for softwood sawlogs in the region presents a good opportunity for farm forestry to expand supply into existing markets. Growing demand for plywood and LVL in Australia and the existence of an LVL mill in the region creates market opportunities for farm forestry. Overall, the combination of softwood sawn timber, plywood/LVL, sawlog export and pulpwood markets suggest that there are opportunities for softwood plantations in the region. The large and maturing hardwood pulpwood plantations in the region are likely to limit opportunities for further hardwood plantation development. If the proposed BCTMP mill were to proceed this may create opportunities for farm forestry, although it is likely that the mill could obtain supply from existing large scale plantations.
Mt Lofty Ranges and Kangaroo Island
The Mt Lofty Ranges and Kangaroo Island region lies in SA and extends from Kangaroo Island to Fleurieu Peninsula and north east beyond Adelaide. There is a small softwood and hardwood plantation resource widely dispersed throughout the region. Softwood plantations are presently stable and hardwood plantations are reported to be increasing due to some small private investments on Kangaroo Island (NPI 2006). There are two small sawmills based on the softwood plantations in the region with relatively small capacity, one on Kangaroo Island and the other in the Mt Lofty Ranges area. There is also a small plywood mill in Adelaide. Mt Lofty and Kangaroo Island is estimated to have a total farm forestry area of around 1,845 ha, split evenly between softwood and hardwood plantations. Most of these plantations have been established by land owners in the past 10 years. Table 19 summarises the market opportunities for farm forestry in the region.
Table 19: Market opportunities and ranking for farm forestry in the Mt Lofty Ranges and Kangaroo Island
Products Processors Total input estimate Regional market opportunities Ranking
Softwood timber 2 sawmills ~300,000 m3 There is a small existing market in the region. There may be some opportunity to supply additional resources, particularly to the Kangaroo Island mill in the longer term.
Medium
Hardwood timber - - Limited opportunities exist due to the lack of existing processors.
Low
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Products Processors Total input estimate Regional market opportunities Ranking
Veneer, plywood & LVL
1 plywood mill
~15,000 m3 There is one plywood processor in the region and some opportunity to supply pruned sawlogs for premium plywood production.
Medium
Log exports - - Limited opportunities exist due to the distance from ports.
Low
Posts & poles 2-3 post processors
N/A The market for posts is currently over-supplied in the region and prices tend to be unattractive for farm forestry investment.
Low
Composite wood products
- - Limited opportunities exist due to lack of existing processors.
Low
Woodchip exports - - MIS plantations on Kangaroo Island may provide an opportunity to lease land for hardwood plantations. The resource is in early stages of development however and no market has been established yet.
Low
Pulp & paper - - Limited opportunities exist due to the lack of existing processors.
Low
Existing market opportunities for farm forestry in the Mt Lofty Ranges and Kangaroo Island region are limited beyond the opportunity to produce softwood to complement supplies to existing processors. The supply arrangement for the Timber Creek sawmill on Kangaroo Island is expected to finish in 15-20 years presenting some opportunity for farm forestry softwood plantations to replace this supply. MIS pulpwood plantations are being established on Kangaroo Island and there may be an opportunity for landholders to directly lease land to the company for plantations. A port facility for exporting woodchips has not yet been developed on Kangaroo Island, presenting a significant risk for individual landholders considering investing in plantations for this market.
South West Western Australia
The South West WA region extends in a broad arc from north of Perth southwards to Esperance. The region contains the majority of the forestry and wood products industry in WA. South West WA has large areas of plantation forestry with softwood plantations along the western coast mostly in the vicinities of Perth and Bunbury. Hardwood plantations are spread more widely along the south of the region between Bunbury and Albany. There has been a large expansion in hardwood pulpwood plantations over the last decade to supply the woodchip export market. Harvest of public native forests has dropped substantially over recent years in line with other states. The Forest Products Commission (FPC) has relatively small areas of hardwood plantations and around 60% of softwood plantations. WA’s forest industry includes hardwood and softwood sawmilling, MDF and particleboard manufacture, woodchip export operations and a new LVL mill utilising P. pinaster. Export woodchips based on the developing plantation hardwood resource have been expanding rapidly in recent years. A demonstration integrated wood processing plant (IWP) to produce activated carbon, Eucalyptus oil and electricity from mallee eucalypts has been developed by Western Power at Narrogin in WA. While the IWP has now finished operations, there are plans to develop the project commercially over
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the next few years. Another company, Lignor, is investigating the development of an engineered strand lumber (ESL) plant in WA which would utilise plantation hardwood pulpwood. There are an estimated 65,000 ha of farm forestry plantations in the region, consisting of individual investments and a significant proportion of MIS plantations on leased farm land. Farm forestry plantations include areas of mallee eucalypts, sandalwood, P. pinaster and P. radiata plantations, the development of which has been assisted by government joint venture programs. Table 20 summarises the market opportunities for farm forestry in the region.
Table 20: Market opportunities and ranking for farm forestry in South West WA
Products Processors Total input estimate Regional market opportunities Ranking
Softwood timber 2 sawmills ~500,000 m3 There is a strong existing market for softwood sawlogs. Constrained supply creates opportunities for farm forestry. FPC share farming is providing immediate opportunities for investment.
High
Hardwood timber
11 sawmills ~200,000 m3 Declining harvest volumes from public native forests provide good opportunities for PNF and hardwood plantations in the region. However, the opportunity will depend on the future survival of processors.
High – plantations
High – PNF
Veneer, plywood & LVL
1 LVL plant, 1 sliced veneer mill
~200,000 m3 There is growing demand for LVL in Australia. The new LVL mill constructed in WA will rely on farm forestry P. pinaster planted in drier regions over next 10-15 years. There is potential for farm forestry to supplement supply further in the future.
High
Log exports Port of Albany,
Port of Bunbury
~50,000 m3 Existing log exports from the ports of Albany and Bunbury present an opportunity for farm forestry within close proximity to these areas. However, volatility in log export prices limits attractiveness to farm forestry.
Medium
Posts & poles Several posts and poles treatment
plants
N/A There are a number of small processors across the region based on processing posts as a by-product of sawlog plantations. There are opportunities to add to this supply in the future.
Medium
Composite wood products
1 particleboard mill, 1 MDF mill
Planned Lignor mill
~310,000 m3
There is potential demand from existing processors but supply will be produced as by-product of sawlog plantations.
The planned Lignor mill would utilise some of the hardwood pulpwood resource in the region, which could create opportunities for farm forestry to supply.
Medium
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Products Processors Total input estimate Regional market opportunities Ranking
Woodchip exports
Port of Albany
Port of Bunbury
1,400,000 m3
1,100,000 m3
Large increases in exports of hardwood woodchips from maturing plantations have already commenced and will expand over next few years.
Large increases in supply from other regions around Australia constrain the overall market outlook. Re-investment in harvested plantations may make it difficult for new farm forestry ventures to compete, but re-investment in harvested plantations by MIS companies is likely to maintain existing farm forestry where the plantations are on leased land (subject to lease renewal).
Medium
Pulp & paper - - Limited opportunities exist due to the lack of existing processors. Future opportunities would depend on new investment in the region.
Low/ Medium
The South West WA region presents several market opportunities for farm forestry. The location of softwood and hardwood processing capacity in the region means that most of the existing larger scale market opportunities are centred either in the south west between Bunbury and Albany, or in the area surrounding Perth. Large areas of farm forestry softwood plantations have been established in the southern part of the region, mainly through FPC programs. Constrained softwood supplies in WA create ongoing opportunities for growth of the softwood plantation resource to supply existing markets. The strongest opportunities for softwood plantations are at present through the FPC share farming program where the management and marketing of the resource is coordinated by the FPC. However, the FPC’s system of administrative log pricing acts to limit opportunities in this market outside of its share farming program. The composite wood products sector provides market opportunities for lower quality softwood logs produced jointly as part of sawlog plantations. The new LVL mill will rely on additional resources becoming available from farm forestry in the future. The hardwood sawn timber industry faces declining supplies of native hardwood resources. This creates an opportunity to increase the harvest of PNF in the region as well as scope for hardwood sawlog plantation development. There are some market risks associated with the need to achieve suitable scale for hardwood sawn timber processing. The established and maturing hardwood pulpwood estate in South West WA (including significant areas of farm forestry) is unlikely to continue to expand as the focus for investment will be on second rotation plantations. However, a significant farm forestry hardwood pulpwood resource will continue to be maintained in the region. Development of the proposed Lignor mill would create extra demand however it is likely that this could still be serviced by the existing plantations.
Tasmania
The Tasmania region encompasses the whole of the state. Tasmania has a large and well established processing industry based on native forest and hardwood and softwood plantation resources. The industry includes hardwood and softwood sawmilling as well as pulp and paper production. It also has a large woodchip export industry based on native forest residues and hardwood pulpwood plantations. There are around 15 hardwood sawmills in Tasmania including a recently developed sawmill owned
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by FEA which processes plantation hardwood sawlogs for structural timber. The future of Auspine softwood sawmills in Tasmania is uncertain as Auspine has recently lost its log supply contract in favour of a new softwood mill being constructed by FEA. The total area of farm forestry in Tasmania is estimated to be around 21,000 ha. Private Forests Tasmania (PFT) estimates the area of non-MIS farm forestry plantations to be around 14,800 ha. This consists of approximately 9,000 ha of hardwood plantations and 5,000 ha of softwood plantations. Tasmania also has MIS plantations of which around 7,000 ha are likely to meet the definition of farm forestry. Table 21 summarises the market opportunities for farm forestry in the region.
Table 21: Market opportunities and ranking for farm forestry in Tasmania
Products Processors Total input estimate Regional market opportunities Ranking
Softwood timber 4 sawmills ~450,000 m3 There is strong demand from existing processors who are supply constrained.
High
Hardwood timber ~15 sawmills
~550,000 m3 There is a large processing capacity in the region. Plantations have been developed to supplement native forest resources. Opportunities exist to aggregate farm forestry plantations with publicly owned plantations.
There are some opportunities to expand the harvest and improve management of PNF.
Dominance of public ownership and administered pricing likely to act as a constraint on private and farm forestry investment.
High-plantations
High- PNF
Veneer, plywood & LVL
3 veneer mills 250,000+ m3 Two new hardwood veneer mills are currently being constructed. There may be potential to supplement Forestry Tasmania supply.
High
Log exports Multiple ports
(Bell Bay, Burnie,
Devonport & Hobart)
~250,000 m3 Potential export opportunities exist but price volatility presents risks for farm forestry.
Medium
Posts & poles 1 post and pole processor
N/A There is a limited market for posts and poles in the region. Some opportunity exists to supply the processor as a by-product of sawlog plantations.
Medium
Composite wood products
1 particleboard mill (hardwood)
~44,000 t There is a small market supplied by existing resources.
Potential exists for a Lignor type mill in the future.
Low
Woodchip exports Multiple ports
(Bell Bay, Triabunna,
Burnie)
4,000,000 m3 Native woodchip sales have declined in recent years, partly reflecting pressure from increasing plantation supplies.
Plantation supplies for woodchip export will expand significantly in coming years.
Development of the Gunns pulp mill will create significant additional demand for native and plantation hardwood pulpwood.
Medium
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Products Processors Total input estimate Regional market opportunities Ranking
Pulp & paper 2 pulp & paper mills,
1 paper mill
~800,000 t Supplies to existing mills will be met by existing resources.
Potential for Gunns’ new bleached kraft pulp mill development to help maintain demand for native hardwood pulpwood and relieve pressure on woodchip export markets. This development could also create opportunities for maintaining or expanding future supply from PNF and farm forestry plantations.
Medium
There are several market opportunities for farm forestry in Tasmania, primarily in production of softwood and hardwood sawlogs for sawn timber and veneer production. Hardwood sawlog plantations are well developed presenting opportunities for farm forestry to complement the commercial supply. The opportunities for expansion of the PNF harvest may depend on the scope for improving the management of this resource to achieve greater productivity. Softwood sawlog plantations also present good market opportunities for farm forestry plantations in Tasmania. Strong competition between processors will offer potential for farm forestry supplies to complement those from existing plantations and potentially receive a price premium. Opportunities for hardwood pulpwood production are likely to depend on development of the Gunns proposed kraft pulp mill. If established there would be extra demand for pulpwood resource in the region and a potential opportunity to develop short rotation hardwood plantations for this market. The development of a new pulp mill may also help to balance the woodchip export market by absorbing some of the large volumes of hardwood pulpwood due to be harvested over the next 5-10 years.
Northern Territory
The NT region encompasses the northern high rainfall region surrounding Darwin and the Tiwi Islands located adjacent to the mainland. There has been increasing investment in forestry in recent years and a significant hardwood plantation estate is being established on the Tiwi Islands by Great Southern Plantations (an MIS company). As part of this operation native forests are being harvested and the logs exported. There are also some smaller hardwood plantations on the mainland in the vicinity of Darwin where rainfall is relatively high and there are other proposals for African mahogany (Khaya spp.) plantations in the Douglas-Daly region over the next decade. Softwood does not generally grow well in the Northern Territory although there are some plantations of Caribbean pine (P. caribaea). PNF is relatively low quality and there is no significant harvest of this resource. The limited data available for farm forestry in the NT suggest a total plantation area of around 50 ha. Table 22 summarises market opportunities for farm forestry in the region.
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Table 22: Market opportunities and ranking for farm forestry in the Northern Territory
Products Processors Total input
estimate Regional market opportunities Ranking
Softwood timber - - Limited opportunities exist due to the lack of existing processors. Pine plantations have had limited success in the past.
Low
Hardwood timber
Some small scale processing of higher
value sawlogs
N/A Strong demand exists for tropical hardwood timber worldwide. The very limited regional processing capacity however limits market opportunities.
Medium
Veneer, plywood & LVL
- - Limited opportunities exist due to the lack of existing processors.
Low
Log exports Port at Tiwi Islands 32,000 m3
(2005/06)
There is potential for exports of high value tropical hardwood logs given the expected declines in availability from tropical native forests in Asia.
The lack of an existing log export operation may limit market access for farm forestry.
Medium
Posts & poles - - Limited opportunities exist due to the lack of existing processors.
Low
Composite wood products
- - Limited opportunities exist due to the lack of existing processors.
Low
Woodchip exports
- - MIS pulpwood plantations have been established on the Tiwi Islands. There is an opportunity to grow hardwood species and aggregate with this supply in the future. The lack of port development at the current time creates some market uncertainty.
The NT’s proximity to Asian markets provides potential transport cost advantages.
Medium
Pulp & paper - - Limited opportunities exist due to the lack of existing processors.
Low
Because of the lack of any commercially competitive wood processing industry in the NT there are limited larger scale market opportunities for landowners to profitably invest in farm forestry. Farm forestry by itself is unlikely to generate the scale of resource required to attract new processing investment into the region. There is some prospect for investment in products for export markets, particularly for higher value hardwoods and A. mangium for woodchip export. The Tiwi Islands resource is expected to cover approximately 30,000 ha once fully developed and will significantly expand the woodchip export supply from the region. While there is an opportunity for farm forestry to aggregate supply with this resource there are some significant risks. The Tiwi Island plantations are currently in early stages of development and an export port has not yet been developed. Because hardwood pulpwood plantations are a new resource development for the NT there is also some uncertainty surrounding the long term development of woodchip exports. There may also be opportunities to grow higher value tropical hardwood species in the NT. International prices are increasing, and the NT provides good growing conditions for many species
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such as teak. Because sawn timber markets are not well developed in the NT the best market opportunity for this resource would be for the export of logs from the port of Darwin. Reaching an appropriate scale of supply may be a hurdle for farm forestry in the short term.
National opportunities in smaller scale and ‘niche’ markets As already noted, market opportunities for smaller scale or ‘niche’ forest products are not considered on a region by region basis as these products are less subject to constraints imposed by existing processing infrastructure. They are also likely to provide opportunities beyond existing forestry regions. For these, market opportunities have been assessed at a wider, national level. Nevertheless, because markets already exist for these products, the criteria for assessing these opportunities are similar to larger scale traditional markets. The criteria therefore include market situation and outlook, scale required for market development and the availability of existing infrastructure. A ranking of ‘high’ represents a market that presents a favourable outlook and provides immediate opportunity for farm forestry investors to supply small scale resource on a cost competitive basis. There must generally be either existing processors in some regions, or the possibility to attract new processing investment. A ranking of ‘medium’ represents a potential market opportunity but entails significant risk or uncertainty in developing the market. Successful supply to the market may depend upon new investment for processing, or on market development, but will be based on proven technologies with limited requirements for scale. A ranking of ‘low’ represents little or no opportunity for viable farm forestry. This may be based on the absence of any existing or potential markets. Alternatively this ranking may be due to unfavourable demand outlook or significant challenges relating to scale and/or competitiveness of accessing or supplying the market.
Firewood
The firewood market represents an opportunity for farm forestry across much of Australia due to widespread demand and very limited requirements for processing investment. While the firewood market across Australia is large in aggregate, demand is decreasing and supply is generally localised and small scale. However, supplies from public native forests have decreased substantially over the last decade and this has improved opportunities for supply from PNF. Stumpage prices for forest owners supplying the firewood market reflect the lower quality of wood suitable for firewood, but declining public forest supplies have seen relatively strong prices, particularly where there is substantial demand (e.g. close to cities). Declining supplies of firewood in some regions have led to the investigation of plantations primarily for this purpose. However, it is not clear that firewood plantations can provide returns sufficient to attract investment and returns may vary substantially depending on regional factors. Nevertheless, firewood can provide a very useful market for lower quality logs produced from PNF and sawlog plantations. On this basis the market for firewood is ranked as a ‘medium’ opportunity for farm forestry.
Fibre cement
The market for fibre cement in Australia is currently supplied by imports of specialised softwood pulp from New Zealand. Pulp supply for this market is dominated by one company which supplies Australian producers and most of the producers throughout the Asia Pacific. The quantities of pulp required by Australian fibre cement producers are small and owing to the dominant market share held by the present
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supplier it will be difficult for other suppliers to access this market. The development of other fibre cement products based on alternative fibre sources may be possible in future however, the development of these markets will require substantial research and investment as well as a clear market opportunity. As a result, there is little opportunity for farm forestry to supply the fibre cement market and based on this the opportunity ranking is considered ‘low’.
Sandalwood
Strong international demand and prices for sandalwood and constraints on international supplies present a good rationale for expanding the production of this species. The market situation has led to growing interest in sandalwood, particularly in WA where plantation developments of the native sandalwood species are increasing. Because there is an established market in WA with processing and exporting facilities, this will provide supporting infrastructure. Some silvicultural and market risk is present however. Sandalwood plantations are not well researched and management techniques are in their infancy. Furthermore, large scale commercial development may threaten the international market on which high prices are based on a small supply/demand scale. The market opportunity for Sandalwood is ranked as ‘high’, however this is mostly applicable to investment in the WA region.
Eucalyptus oil
Eucalyptus oil is a market dominated by Chinese supply, produced as a by-product of large scale Eucalyptus sawlog plantations. Australia has a very small number of processors at present and a small market share, based partly on re-processed imported product. It is generally quite difficult for Australian processors to compete against the cost structures of Chinese producers in this market. The outlook for international Eucalyptus oil demand is reported to be growing, however domestic processors may turn increasingly toward imported oil supplies to remain competitive. Returns for farm forestry investors wishing to engage in this market are likely to be small although they are compensated to some extent by a price premium in the US market. Processors integrated to produce multiple products (e.g. the IWP at Narrogin, WA) may present the best opportunity to supply the Eucalyptus oil market, where small quantities of high quality oil can be produced at a low cost. Any large scale production of Eucalyptus for production of oil is likely to either adversely affect price or not find buyers. This suggests that there is significant uncertainty surrounding potential returns on investment. At present the best opportunity is seen to be focused on mallee plantations in WA and based upon this resource the opportunity is ranked ‘medium’.
Activated carbon
The international market outlook for wood based activated carbon appears to be positive with increasing global prices and demand growth of around 4-6% pa. Imported activated carbon supplies a large component of the Australian market and there is potential to displace this supply with domestically production, provided there is market acceptance of wood-produced activated carbon by consumers in the water filtration, mining and food and beverage industries. Little information is available on the scale of resource required to support a competitive processing facility. However, the differentiation of activated carbon produced from wood compared to other sources will have competitive advantages in itself. Increasing energy and chemical prices in future are also likely to reduce the competitiveness of coal activated carbon producers. Increases in competitiveness may additionally be achieved through an integrated processing facility (e.g. IWP plant, WA) where cost-efficiency is improved. Based on available information it is difficult to ascertain the market opportunity of activated carbon. Wood-based activated carbon production is currently only likely to be viable as part of an IWP process and not through dedicated production. The only known example of wood based activated carbon production in Australia is through the IWP plant in WA. This plant demonstrated that the price
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of activated carbon was pivotal to the plant’s viability. Without further IWP plant development, there will not be an opportunity for farm forestry to supply the activated carbon market. Therefore whilst the activated carbon market has a strong outlook, the lack of markets and the uncertainty regarding production viability limit farm opportunities for farm forestry. As a result this opportunity is ranked ‘medium’.
National opportunities in emerging markets The analysis of emerging market opportunities requires a somewhat different approach to that applied to existing wood product markets. In particular, the demand and supply situation for emerging markets is generally not fully developed, or perhaps not developed at all. Consequently, assessing potential returns in a given market or issues relating to farm forestry competitiveness is partly speculative. This contrasts with existing markets where supply and demand along with market infrastructure is either well established or at least well understood. Emerging markets therefore have been analysed as broader, longer term opportunities framed within a timeframe of around ten years. This is largely based around the outlook for demand and supply (including relevant policy settings) that are driving the need for market development. The ranking of market opportunities in emerging product markets is in three levels: • A ranking of ‘high’ represents an emerging market where there are already strong signs of
transactions and the outlook for market development in the future is good. The potential for farm forestry supply appears feasible and challenges to farm forestry regarding scale or infrastructure are not expected to be significant. Relative competitiveness should be able to be assessed. While there may be issues of uncertainty surrounding the market, these will mostly relate to market details and not fundamental questions determining its future.
• A ranking of ‘medium’ represents an emerging market that presents significant opportunities for development where markets for products/outputs are expected to develop but remain uncertain. Relative competitiveness may be identified but not yet proven and subject to developing technologies.
• A ranking of ‘low’ represents as speculative market opportunity that may develop in the future but requires significant research and development, or technological change, before transactions could be undertaken freely. There is little known about relative competitiveness.
While the rankings of market opportunities for emerging products are considered over a 10 year horizon, there is potential for market opportunities to expand rapidly as technologies and market frameworks develop. Further, while market opportunities may be ranked medium on currently available information, there is potential for some of these markets to provide very large scale opportunities. This issue is further discussed in the conclusion section.
Engineered strand lumber
Engineered strand lumber (ESL) or laminated strand lumber (LSL) is an engineered wood product that is manufactured from lower grade wood to produce beam products with high physical and mechanical properties. It is made in a similar manner to OSB whereby timber is flaked into strands, oriented in a longitudinal direction and pressed/glued into billets that can be cut to any size required. Markets are developing in the US with two products: one from Trus Joist (Weyerhaeuser) and another called TimTek. TimTek has been developed from the ‘Scrimber’ process first developed in Australia and the first commercial application has recently been licensed. Lignor is an ESL product that has been developed in Australia, with assistance from the Commonwealth government, and which utilises eucalypt hardwoods. Lignor has been researching and developing ESL and is currently developing plans to build an operational plant in WA. If successful,
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Lignor could create significant competition in domestic forest product markets particularly for higher strength products including hardwood sawn timber and LVL. It would also provide an additional market for hardwood pulpwood. ESL will also have considerable export potential. There are opportunities for ESL to be established in Australia as a competitor product for solid wood and for laminated beams and LVL. Competition for available pulpwood and the sale of resources required for these mills limits opportunities in softwood. However, the large volumes of hardwood pulpwood available may make eucalypt ESL an attractive proposition. This is being pursued by Lignor. However from a farm forestry perspective, the existing supplies of hardwood pulpwood and the large scale required suggest that it is at best a ‘medium’ proposition.
Woody fodder
On-farm methods for fodder production based on woody perennial species are established and being adopted across a wide range of agricultural regions. Species that are developing in this role include tagasaste (Chamaecytisus palmensis), old man saltbush (Atriplex nummularia) in drier regions, and Leucaena leucocephala in tropical areas. Other species such as Acacia saligna and Rhagodia preissii are also being grown (particularly in WA). While off-farm markets for woody fodder crops may require considerable development, there is extensive potential for on-farm use. On this basis wood fodder crops are ranked as a ‘medium’ opportunity.
Industrial carbon
The market for industrial wood-based carbon is not yet well developed but reports on its commercial applications currently appear to be positive. As the framework for managing carbon emissions becomes more of a reality for Australian industry, and as the properties of this product in the metallurgical industry are explored further by industrial consumers, its benefits will become more apparent and a market may develop quite rapidly. However, substantial R&D in the steel making industry is focussed on alternative manufacturing processes – production innovations may arise over the next few years as industrial carbon is further evaluated. Industry evaluation of many other processing technologies will determine the value of industrial carbon and the likely market success of this product as a result remains uncertain. Market opportunities for industrial carbon are consequently considered ‘low’.
Bioenergy
There is significant enthusiasm for bioenergy production from wood, and government renewable energy frameworks are developing. Wood-based bioenergy appears to have cost advantages over other renewable energy sources. However, other technologies are developing rapidly. The economics of bioenergy suggests it is unlikely to support plantation investments in its own right at this stage. However, it could provide useful markets for wood waste as part of other plantation based production. It is therefore rated as a ‘medium’ opportunity.
Biofuels
Biofuels represent a similar opportunity to bioenergy. However, viable technologies for biofuel production from wood are currently less developed. The long term potential of lignocellulosic ethanol however appears strong and commercial development may only be a matter of years away. The prospect of producing a biofuel with low emissions via a comparatively efficient production process appears to be promising and will remove some of the problems associated with current biofuels based on primary feedstocks. Despite this, the development of lignocellulosic ethanol will be heavily reliant on government support (including favourable environmental policies) and far-sighted investment by industry. This presents significant risk for the emerging market in its present form. On this basis biofuel is rated as a ‘medium’ opportunity.
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Carbon sequestration
Markets for carbon sequestration services are developing rapidly but are still in their early stages. They are expected to develop significantly in Australia with the introduction of a national carbon trading scheme. This provides good opportunities for farm forestry plantations both as a carbon only plantations e.g. environmental planting on farms, and in association with traditional forest plantation production e.g. through long rotation hardwood or softwood plantations. Scale issues are flexible and can be addressed through pooling. Opportunities for carbon sequestration in farm forestry are therefore rated as ‘high’.
Other environmental services
Similar to carbon, markets for other environmental services are developing, particularly for water and salinity. However, markets for other services such as biodiversity are at earlier stages of development and there have been few transactions or payments to date. The policy environment appears less certain with state governments responding to water use issues in different ways. There is potential for approaches to water pricing to adversely affect plantation development. Because of these uncertainties, these more general environmental services are rated as ‘medium’.
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Conclusion and recommendations Measuring opportunities over time The foregoing analysis has suggested a wide range of market opportunities for farm forestry incorporating a number of products, regions and also timescales for development. The rankings of market opportunities are based on an assessment of available information. However, there is scope for circumstances to change over time. In particular, as already noted there is potential for some emerging markets to provide very large scale opportunities in the future, but presently the relatively undeveloped nature of markets means that there is substantial risk. These issues have been discussed throughout the analysis in this report and Figure 19 attempts to capture the three main aspects of market opportunity rankings (y-axis), the term over which the opportunity exists (x-axis) and the potential scale of opportunity (relative size of the circle). It illustrates that while products such as bioenergy and biofuel are ranked as ‘medium’ market opportunities, below other products including sawn timber, plywood and LVL, the potential scale of opportunity in the future could be much larger. Further, the potential scale of opportunity for emerging products is likely to be relatively small in the short term but may improve in ranking, as well as expand its scale over time.
Figure 19: Summary of farm forestry market opportunities by forest product
Scale of processing infrastructure As noted throughout this report, the relative size of market opportunities is also influenced by the scale of production required to support forest resources. This is well known for existing forest products but less so for emerging forest products. Table 23 illustrates the size of plantation estates that would be typically required to support processing facilities to competitively supply larger scale existing markets.
Existing large scale markets Existing small scale and 'niche' markets Emerging markets
Low
Softwood
sawn timber
Medium
High
Mar
ket
oppo
rtun
ity
Short term
Medium term
Long term
Time scale of opportunity
Hardwood s'timbe
HWD WC
Ply & LVL
Loexpor
Postpole
SWD WC Com
wooproducts
Pulp pape
Fibre cmt
Fire w
Sndl w
Euoil
AcCar
Fodde
Ind
Bioenergy
Biofuel
Carbosequestration
ES
Carbon
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Table 23: Indicative scale required for competitive forest product processing facilities
Product Minimum input requirement (m3 pa)
Indicative plantation estate required (ha)
Softwood sawn timber 600,000 27,273
Hardwood sawn timber 100,000 5,000
Veneer, plywood and LVL 200,000 9,091
Log export 150,000 6,818
Woodchip export 250,000 12,500
Kraft pulp mill 3,000,000 150,000
BCTMP pulp mill 500,000 25,000
MDF/particleboard 300,000 13,636
Farm forestry is commonly conducted on a scale considerably less than that required to support new processing operations. There are two key strategies that have been considered in the ranking of market opportunities throughout the analysis to address this issue: farm forestry growers can either look to supply marginal volumes to existing processors; and/or aggregate resources with other growers or other larger scale forestry investors in the region. This is less of an issue for smaller scale or ‘niche’ market opportunities although these opportunities are often constrained by size of market e.g. Sandalwood. Requirements for forest production scale are less clear for emerging markets but the need to establish resources on a sufficient regional scale is likely to be very important for these types of products. For instance, engineered strand lumber plants are likely to require an input of around 300,000 m3 pa and resources from an estate of 12,000-15,000 ha. Similarly, there are likely to be significant requirements for scale in bioenergy and biofuel resources. Forest products that do not require such large scale have also been identified throughout this analysis. However, these products commonly have relatively small markets and/or may be subject to over-supply if there is a large expansion in production. The need for scale in establishing resources can also be driven by economic factors such as the need to minimise harvesting and other costs. For example, while carbon sequestration is a promising market opportunity that does not necessarily require large scale investment, the transaction costs associated with carbon trade and the costs associated with requirements for verification suggest that aggregation of resources through pooling amongst growers may be important to market development.
Adoption While market opportunities have a strong influence on the attractiveness of farm forestry investment, adoption of farm forestry is influenced by a range of factors that can vary amongst investors. The most significant of these factors will be economic returns from the investment. The potential returns from farm forestry investments will be analysed as part of the JVAP-commissions project ‘Prioritisation of Regional Opportunities for Agroforestry Investment’, being undertaken concurrently by Ensis. The investments considered in that analysis will be influenced by the market opportunities identified in this report, as well as regional consultations. The experience of farm forestry investment to date suggests that the cash flow of many forest investments is not highly attractive to direct investment by landholders. This suggests that an expansion of farm forestry investment may require the development of investment structures that facilitate investment by third parties in cooperation with landholders. The success of MIS in establishing hardwood pulpwood plantations – on leased farmland that utilises only a proportion of a farm and pays an annual rent to the landholder – illustrates the potential for such models to facilitate
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large scale investment in farm forestry. Such an approach is also adopted in some carbon sequestration schemes. Similarly, there is potential for governments to stimulate farm forestry investment through development of markets for environmental services. There is also potential for similar or new structures to drive commercial investments in emerging markets such as bioenergy and biofuel.
Recommendations This report does not recommend particular products for farm forestry investments. Rather, it provides an information source for investors and other stakeholders. Nevertheless, some recommendations arise as to how farm forestry may take advantage of potential opportunities. These are:
• Opportunities for farm forestry investment to service existing large scale markets are greatest in areas where there are existing growers and processors. This suggests that there would be benefits from integrating farm forestry developments with larger scale growers in relevant regions.
• More transparent and market based approaches to log pricing benefit farm forestry investment by providing clear, undistorted market signals to farm forestry investors.
• Emerging markets for carbon, bioenergy and biofuels, engineered wood products and environmental services appear to provide significant opportunities for farm forestry investment, albeit over different time scales. Government assistance to promote development of these markets could benefit farm forestry. Farm forestry investors will likely need to develop approaches to deliver the scales required to capitalise on these market opportunities.
• Related to the need to achieve production scales required by markets, farm forestry investors need to pursue new investment vehicles e.g. the importance of MIS in expanding farm forestry investment in hardwood pulpwood plantations demonstrates the potential for new vehicles to generate investment.
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Market Opportunities for Farm
Forestry in Australia
RIRDC Publication No. 08/105
This report examines market opportunities for products relevant to commercial farm forestry development in Australia, ranging from hardwood and softwood sawlogs, posts, poles and pulp, to niche markets such as sandalwood, and emerging markets such as carbon and bioenergy. The report analyses existing and potential product markets into which farm forestry can supply resources, and the regions where this is most achievable. Based on this analysis market opportunities are ranked – on a region by region basis for larger scale markets, and on a national basis for smaller scale or niche markets and for emerging markets.
This report on market opportunities has been prepared to inform investment priorities of the Joint Venture Agroforestry Program (JVAP), government and industry. It will be of interest to
landholders, investors, extension providers, policy makers and the forestry and forest products industry.
JVAP is managed by the Rural Industries Research and Development Corporation (RIRDC). RIRDC’s business is about new products and services and better ways of producing them. Most of the information we produce can be downloaded for free from our website: www.rirdc.gov.au
RIRDC books can be purchased by phoning 02-6271 4100 or
online at: www.rirdc.gov.au/eshop