The 
Report
No 111: What’s happening in the farm forestry market? Volume 2: 1999-2001

Full Report
The full report can be viewed at or downloaded from the RIRDC webpage at www.rirdc.gov.au/fullreports/aft.html.

The Market Report is published quarterly and distributed by various means, including as inserts to publications such as Australian Forest Grower, Agroforestry news and the Australian Farm Journal.  It is also available on the internet at: http://www.anu.edu.au/ forestry/infomarket report.

For more information contact U.N. Bhati, ANU Forestry, SRES, Australian National University, Canberra ACT 0200; Fax (02) 6125 0746

A lack of information from independent sources has long been recognised as a major impediment to farm forestry in Australia. For example, farm foresters complain that the lack of reliable information on log prices diminishes the chance of obtaining a fair price for their products.

Prospective growers ask ‘How can I invest in farm forestry when I don’t know what the prices are now, let alone in 20 years time?’ To address this lack of information ANU Forestry at the Australian National University set out in 1997 to establish a regular national market report for farm forestry.

The objective was simple: to contribute towards creating more informed and transparent forest products and input markets in Australia, particularly for small-scale growers.

Sixteen editions of the report have now been published, funded partly by the RIRDC/L&W Australia/ FWPRDC Joint Venture Agroforestry Program. (See below for glossary of abbreviations)

The first eight editions have been collated in Short Report 65. This Short Report collates the next eight editions: market report numbers 9 to 16.

Methodology

The project obtains information from a wide range of sources, including the Australian Bureau of Statistics, the Australian Bureau of Agricultural and Resource economics, state and territory forest agencies, industry organisations, consultants, a network of informed farm forestry practitioners and advisers, and international organisations.

A concise analysis of the information is then prepared; this in turn is reviewed by a range of specialists before publication in the report. Topics covered include:

The market reports have also included information on market trends and stumpage obtained directly from smallscale growers. Such information is presented in the form of case studies giving: Feedback to the project suggests that this information is highly valued: some of the growers say it has enabled them to negotiate better prices for their own logs.

Firewood Market Market Report 16 June 2001

This report presents a profile of firewood consumption and prices, and stumpage for trees sold as firewood in Australia.

Firewood consumption

A recent CSIRO study by Don Driscoll and his colleagues gives the latest information on use of firewood in Australia. It estimated firewood consumption by Australian households in 1999-2000 at around 5 million tonnes. When industrial firewood was included, the total annual consumption was 6-7 million (partly dry) tonnes.

Firewood consumption compares with Australian hardwood chip exports of 3.6 million ‘bone dry’ tonnes or 7 million ‘green’ tonnes in the same year. Regardless, many dismiss firewood use in Australia as insignificant, confirming a remark by Julian Wall (who has also closely studied the industry) that firewood is the ‘forgotten forestry’ in Australia.

According to the CSIRO study, New South Wales and Victoria together account for more than 50 per cent of the total firewood consumption by households (figure A).

Nationally, one fourth of the households use firewood. Tasmania is, however, the most distinctive State, where two thirds of households use firewood (figure B).

Average annual consumption among firewoodusing households ranges from 1.3 tonnes in Queensland to 5.8 tonnes in Tasmania, with the national average of 3 tonnes.

Sixty-three per cent of Australian households are located in capital cities. But they account for only one third of the total firewood consumption. On average, firewood-using households in the cities burned smaller quantities (2.2 tonnes a year) than households in the rest of each State (3.7 tonnes a year).

So, most of the consumption occurs outside the capital cities.

Sources of rewood

The CSIRO study found that on average, Australian households bought half of the total firewood they consumed. Of the total quantity bought, 60 per cent was bought from small collectors or suppliers, 24 per cent from established firewood merchants, and 10 per cent from friends and relatives.

Households collected the other half of the firewood they consumed. Eighty-four per cent of the collected quantity came from their own or other private land, and 10 per cent fromState forests.

Most of the locations from where firewood was harvested were coastal and inland forests, riverine forests, or woodlands. The CSIRO study noted that firewood harvesting in dry forests and woodlands was at rates well above a sustainable level, and that it impacted adversely on the whole spectrum of ecosystems.

Firewood collection is therefore a cause of ecological concern. The concern has prompted Australian governments to consider a national approach to firewood collection and use.

The national approach may lead to changes in future, such as (a) restricting the collection of firewood from specific native forests and remnant vegetation areas that provide critical habitat for threatened species, and (b) encouraging the production of firewood from planted trees.

Only a few studies have compared the profitability of firewood plantations with conventional farming enterprises. Their findings suggest that firewood plantations were profitable only under limited situations. This may, however, change in future due to economic and technological changes, and changes to government policy.

Firewood prices and stumpage

Firewood prices are of interest to both firewood consumers and growers. The price information reported here refers to air dry firewood, picked up by buyers from merchants’ yards in April 2001. The data were gathered from selected locations in major firewood-using States and the ACT. Knowledgeable local persons collected the data for this report from two or more established firewood merchants.

Where possible, they also collected data on stumpage received by landholders for trees sold as firewood. Table 1 summarises the information. It is, however, only indicative of the situation because the limited resources did not allow the use of a statistically more rigorous method of data collection. Nonetheless it reveals a useful national profile of firewood prices and stumpage.

Itinerant and occasional sellers usually sell firewood at lower prices than do established merchants. The prices in table 1, which are for established merchants, are therefore likely to be in the middle to upper end of the price range. Prices in the table may also differ from those at other times. For example the prices in April 2001 were higher than a year ago. This was largely due to the substantial rise in prices of automotive fuels during the period (which raised the costs of harvesting and transporting firewood) and the introduction of the goods and services tax from 1 July 2000. Prices also vary by season. For example, the prices in the Canberra region in winter can be up to 25 per cent higher than in summer.

Nominal prices of firewood in the Canberra region rose between 55 and 75 per cent over the past ten years, and they are expected to rise even faster in future, partly because firewood will have to be obtained from increasingly distant places. Even now some of the firewood in the region comes from over 400 km away.

Current stumpage for trees sold as firewood varies very widely (table 1). In 1997, a study in Victoria stated that for firewood plantation to be worth farmers’ consideration required a net return upwards of $30 a tonne. This supports the view of industry sources that most current stumpage around Australia is not high enough to attract landholders to establish firewood plantations to a significant extent.

Several factors influence the purchase of firewood by firewood-using households. They include timely supply, reliability of quantity and quality of wood, consistency, convenience, absence of contamination, and the price.

The profile of the firewood market reveals that despite continuing as a major forest product, firewood remains a forgotten forest product in Australia. Enormous gaps exist in knowledge on production, use, environmental impacts, and economics of firewood. Filling the information gaps will enable Australia to benefit most from the industry.

1: Indicative prices of firewood at merchants’ yards, and stumpage for firewood trees: April 2001


Note: The new feature on price trends for selected products, introduced in the last report, has been held back due to lack of space in this report.

Stumpage trends in South Australia
Market Report 15 March 2001

This report examines long term trends in stumpage-the price of wood in standing trees.

It focuses on stumpage of publicly owned radiata pine sawlogs in South Australia.

The report also presents recent price trends for selected forest products, and stumpage received by small-scale growers around Australia.

Stumpage: South Australia (SA)

The total area of plantations in SA is around 118,500 hectares. Of the total, 90 per cent is softwood, radiata pines. About 70 per cent of the resource is publicly owned. The percentage of the publicly owned resource was even higher in the past. Hence it is likely that stumpage for public pine logs has held a dominating influence on stumpage for similar logs sold by private growers in SA. It is also likely that stumpage for small-scale growers will be generally lower than that for the public grower, but long term trends in stumpage will be similar for both types of growers.

Prior to corporatisation on 1 January 2001, ForestrySA was a business unit of SA State government department, and set stumpage for number of long term supply agreements sourced from State forests. The stumpage takes account of demand-supply factors, and it is announced before the start of each financial year. Stumpage is quoted by ten size classes, defined mainly by small end diameters (SED) of sawlogs (table 1).

1: Forestry SA stumpage, by pine sawlog class
 

Long term trends
An examination of the stumpage data for the ten classes of logs from 1977-78 to 2000-01revealed two features. First, stumpage had a steady rising trend over the years, but the rise was subdued in the 1990s. Second, stumpage for each class held its relative position fairly constant against stumpage for other classes.Consequently, the relative change in stumpage for any one class reflects the changes in stumpage for all classes of logs.

Class 5 logs are the ‘average’ sawlogs. They account for the largest percentage of total sawlog production. Hence, for further analyses of long term trends, stumpage for class 5 was chosen to represent changes in stumpage for all classes of logs. To facilitate the analyses, stumpages for class 5 logs were converted into an index, with stumpage of $36.91/cu. m for 1989-90 (base year) equal to 100 index points.

Three kinds of analyses were carried out as described below.

1. Changes in the stumpage index were compared with changes in the Australian Bureau of Statistics (ABS) consumer price index (CPI) for Adelaide, the capital city of SA. The comparison showed that sawlog stumpage has maintained its value in real terms in the past 22 years (figure A).


2. The stumpage index was compared with the ABARE index of ‘total prices received’ by SA farmers for conventional agricultural products (index re-based to: 1989-90=100).

The comparison is of interest to current and prospective farm forest growers. As farm resources can be used for agricultural and log production purposes, farmers ask, ‘How have agricultural prices fared in contrast to log prices?’ Figure B answers the question: it shows that agricultural prices have increased over the years, but they fell relative to stumpage in the 1990s.

Agricultural prices were also comparatively more volatile.

Recent projections by World Bank suggest that agricultural prices will fall relative to timber prices in world markets during 2000-2010. If the projections are proven true and SA reflects them, then the 1990s trend of agricultural prices falling relative to stumpage in the State will continue for another ten years.

3. Pine sawlogs are a raw material for production of softwood sawnwood, and the construction industry is a major user of the sawnwood. Because of the linkage the stumpage index was compared with the ABS index of prices of softwood structural timber used in house building in Adelaide.

(The timber price index data were available from 1985-86.) As figure B shows softwood structural timber prices also have a rising trend, but in recent years they have increased relatively more than the stumpage.

Main points
 

Price trends: selected products

In response to feedback, this issue of the market report introduces a new regular feature-a table showing recent price trends for selected forest products trading on international markets (table 2). Although not all Australian forest growers have access to international markets, these prices provide another indication of trends in world wood markets. The report thus expands its coverage of market information from stumpage at one end to forest products at the other.

2: FOB price trends: Australian exports and imports,

Stumpage: small-scale growers

ANU Forestry has collected information on actual stumpage recently received by small-scale growers in various regions of Australia. As the collected information was insufficient for deriving averages and trends, it is presented in case study format in table 3. Users should exercise due care in using it for assessing stumpage for a particular situation.

3: Stumpage case studies

Japanese woodchip import market
Market Report 14 December 2000

Revenue from exports of Australian woodchips improves the financial viability of log production in Australia. Japan is the world’s largest importer of woodchips. In recognition of these facts, and following the ‘Know your markets’ advice, this report looks at selected features of woodchip trade between Australia and Japan. It also gives the stumpage received by forest growers in Australia (stumpage means price of wood in a standing tree).

Japan: the dominant market

In recent years, Australia has received $600-650 million annually in revenue from exports of some 4-4.5 million ‘bone dry’ tonnes (b.d.t.) woodchips. Hardwood chips contribute about three-quarters to the total export value and volume; softwood chips contribute the remainder.

Australia exports woodchips mainly to Japan, Korea, Taiwan and Indonesia. However, by far the most significant and consistent market is Japan; it buys around 95 per cent of the total Australian exports.

Clearly, Japan is overwhelmingly important to Australia. But Australia is not important to Japan to the same extent. Japan imports woodchips from more than a dozen other countries. USA has the largest share of the Japanese market at 34 per cent. Australia’s share is about 28 per cent. (Some recent indicators hint at increases in Australian exports and share of the Japanese market.) Nearly all imported woodchips in Japan are used as a source of fibre by its paper industry, the second largest in the world. But woodchips have to compete against other sources of fibre.

Of the total fibre required by the Japanese paper industry, waste paper provides as much as 56 per cent; imported pulp and pulp from domestic sources 10 per cent each; pulp from imported woodchips provides only the remainder 24 per cent.

Woodchip prices

A number of supply-demand factors determine the landed prices of woodchips in Japan.

As the factors vary between companies and countries and over time, the landed prices also vary. Figure A illustrates the variation in the landed price of woodchips for selected countries for January-June 2000. The prices are for hardwood chips in yen per b.d.t. on ‘cost, insurance and freight’ (c.i.f.) basis. The figure shows Australia has among the most competitively priced chips. If Australia can lift its overall competitiveness (in terms of quality, price and other aspects of supply of woodchips), the outlook for increasing theexports and share of the Japanese market will accordingly improve.

Turning to Australian prices over a longer period, figures B and C present ‘free on board’ (f.o.b.) prices of hardwood and softwood chips in dollars per ‘green’ tonne for the past 19 years. The figures show that in nominal terms the prices have tended to rise over time. But in real terms, that is, when adjusted for domestic inflation (as measured by consumer price index, with base year 1989-90), the prices have tended to fall-a characteristic of many internationally traded commodities.

Woodchip prices and stumpage

As majority of the pulplogs processed in Australia is exported, price of export woodchips influences pulplog stumpage. Log producers naturally ask, ‘What stumpage can we expect for pulplogs from a given price of export woodchips?’ Tree Note No. 28 of the Western Australian Departments of Agriculture and of Conservation and Land Management has attempted to answer the question. It estimates potential stumpage for blue gum pulplogs from f.o.b. price of ‘green’ hardwood chips. Assuming, chip mill is 100 km from the forest and 40 km from the port, it calculates stumpage by subtracting various costs. High and low levels of woodchipprices are also assumed. A summary of the calculations is in table 1.

Although the numbers in table 1 are for illustration only, they imply the stumpage to be between 24-34 per cent of the f.o.b. price of ‘green’ woodchips. The numbers also show how the potential stumpage changes with a change in woodchip price. However, actual stumpage received may differ markedly due to the particular circumstances of a grower and other factors.

Log prices

ANU Forestry has obtained a range of mill door prices of pine logs for September- October 2000 from mills in the Adelaide Hills of South Australia. The prices are in table 2.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

ANU Forestry has also obtained information on actual stumpage prices received by small-scale growers. As the information was insufficient for deriving averages and trends, it is presented in case study format in table 3.

3: Stumpage case studies


 

Rents for plantation land leases
Market Report 13 September 2000

Many companies are seeking to increase the area of their plantation forests by leasing in or buying lands, or by forming joint ventures with farmers or other landholders. This report looks at lease arrangements on offer from plantation companies. The information will be useful to those who want to consider leasing out their lands. The last part of the report presents stumpage recently received by growers in Australia (stumpage means price of wood in a standing tree).

Land leasing can be helpful

Plantation forestry requires substantial capital investment in the first year or two. And as trees take ten or more years to reach harvesting stage, there is little or no cash flow from the land for years. The capital and cash flow constraints can be major hurdles to adoption of plantation forestry for many farmers. Leasing out a part of farmland to plantation companies is one of the solutions a farmer can use to address the financial constraints. It helps the farmer avoid the need to find investment capital and, at the same time, provides a regular cash income-rent for the leased land. (Some plantation companies refer to rent by other names, eg lease rental, licence fee, or annuity.) To the extent that the rent is greater than net return the farmer gets from current use of the land, leasing out the land can be an attractive proposition. The attraction for companies is that, with a given amount of capital, they can expand the area of their plantations more by leasing land than by buying it; it may also be a more tax-effective strategy for them.

Lease arrangements: An overview

A large number of plantation companies are seeking to lease land. They are also offering a variety of lease arrangements. A lease contract can be 40 pages long, so it is not practicable to describe the arrangements fully for even a few companies. However, useful information can still be gained from brief descriptions.

Such descriptions are presented below for a sample of companies. The companies are listed in alphabetical order and are those which responded to a request for information. No endorsement or comment is implied by the inclusion or omission of any company. As the lease market is competitive, lease arrangements offered by even the same company can differ widely over space and time. Hence the arrangements outlined below are only indicative.

A private company (name unavailable for publication) leases lands in Queensland for softwood and hardwood plantations. Lease period: up to 25 years. Annual rent: $80-250/ha.

Forestry Tasmania Tree Farms leases lands for hardwood and softwood plantations in the State.

Lease period: up to 31 years. Minimum average annual rainfall: 800 mm. Minimum plantable area: 20 ha. Rent paid quarterly in advance, adjusted annually for inflation. Annual rent: $110-$250/ha.

Gunns Plantations Ltd leases lands in Tasmania for the growing of softwood and hardwood plantations for pulp, veneer and sawlogs. Lease period: up to 25 years.

Minimum average annual rainfall: 900 mm.

Minimum plantable area: 20 ha. Fertile, welldrained soils to a minimum depth of 600 mm, slope less than 35 per cent. Rent paid quarterly, adjusted annually for inflation, but capped at a maximum increase of 5 per cent a year. Annual rent: $150-$250/ha.

Integrated Tree Cropping Ltd leases in lands for hardwood plantations in S-W Western Australia and in Green Triangle of Victoria and South Australia. Lease period: up to 12 years, with an option for another 12 years. Minimum plantable area: 100 ha. Rent paid quarterly in advance, adjusted annually for inflation, but capped at a maximum increase of 7 per cent a year. Approximate annual rent: around Albany, $180-$300/ha, depending on minimum average annual rainfall of 600-750 mm and distance to port of less than 20 km to 150 km; Esperance, $75-$130/ha, depending on minimum average annual rainfall of 600 mm and distance to port of less than 20 km to 130 km; Green Triangle, $160-$260/ha, depending on minimum average annual rainfall of 600-750 mm and distance to port of less than 20 km to 150 km.

North Forest Products: Tree Farm Program leases lands in Tasmania for hardwood plantations. Lease period: up to 23 years.

Minimum average annual rainfall: 700 mm.

Minimum plantable area: 20 ha. Well drained soils to 800 mm depth, with slope less than 35 per cent; within 150 km of company mill. Rent paid quarterly, adjusted annually for inflation, but capped at a maximum increase of 5 per cent a year. Annual rent: $130-$240/ha.

Sotico (previously, Bunnings Treefarms) leases lands in S-W Western Australia for hardwood plantations. Lease period: around 12 years, with an option for another 12 years. Average annual rainfall of more than 700 mm. Minimum plantable area: 20 ha. Lands cleared and pastured for at least five years; soils of sufficient depth and consistency. Rent paid quarterly in advance, adjusted annually for inflation. Annual rent: $150-$260/ha.

State Forests of New South Wales: Softwood and Hardwood Treefarms leases lands close to its hardwood and softwood plantations in NSW.

Lease period: up to 35 years. Minimum average annual rainfall: above 700 mm for softwood and 1,000 mm for hardwood plantations. Minimum plantable area: 40 ha for softwood and 50 ha for hardwood plantations. Lands cleared prior to 1990; fertile, well drained soil to at least 500 mm depth, less than 18 degrees slope. Rent paid quarterly in advance, adjusted annually for inflation, but capped at a maximum increase of 6 per cent a year. Annual rent: $30-$90/ha for softwood and $80-$150/ha for hardwood plantations.

Treecorp Pty Ltd leases land in Victoria and South Australia for hardwood and softwood plantations. Lease period: 12-15 years for one rotation and 16-24 years for two rotations of hardwood plantations; 25-30 years for softwood plantations. Minimum average annual rainfall: 650 mm. Minimum plantable area: 20 ha.

Lands within 150 km of a market; cleared and pastured for at least five years; soils well drained and fertile; slope of less than 15 degrees. Annual rent: $140-$190/ha. More detailed and up to date information on lease arrangements is available from these and other companies.

Factors affecting offer of rent

The overview shows rents offered by each company differ widely; rents also differ between companies, regions, species, and so on. The differences reflect the influences of productivity of land, distance to mill or port, costs of inputs and services, product prices, particular situation of individual companies, institutional arrangements, and other factors.

In essence, any factor that affects profitability influences the rent offered by a company.

Farmers considering leasing out their lands will find it advantageous to understand these factors and their influences on rent. To contribute tosuch an understanding, an analysis was carried out. Its results are outlined below.

The analysis was based on a discounted cash flow model of pine plantation that a company actually uses as an aid to decision-making on its offers of rents. The model refers to production of sawlogs in S-E Australia; it assumes a discount rate of 7.5 per cent, a rotation of 30 years, and ‘average’ values for other factors.

Key assumptions of this ‘baseline’ scenario were changed singly in the model to create alternative scenarios, and the resulting rent for each scenario was recorded. Rents for the baseline and alternative scenarios were converted from dollar values to an index, with rent for the baseline scenario equal to 100 index points. The bar chart presents the estimated rents indexes.

The chart shows, for example, that when stumpage assumed in the baseline scenario was reduced by 10 per cent, the rent offered fell from 100 index points to 75 points, ie rent fell 25 per cent from the baseline level. Percentage changes in rent due to changes in other factors can be similarly read from the chart.

However, as any model can only approximate the complex real world, it is prudent to treat the estimates as indicative. Nevertheless the results provide useful insight into sensitivity of rent to key factors. They also show that change in a factor which increases (reduces) profitability of a plantation enables offers of higher (lower) rent.


 
 
 
 
 
 
 
 
 
 
 
 
 
 

Summing up

Leasing out a part of their farmlands for plantation forestry can be an attractive option for some farmers. This report has presented an overview of current lease arrangements and the effects of selected factors on offers of rents.

Stumpage prices

ANU Forestry has collected information on actual stumpage recently received by small scale growers. As the collected information was insufficient for deriving averages and trends, it is presented in case study format in the previous table. Users should exercise due care in using it for assessing stumpage for a particular situation.

Carbon credit markets Market Report 12 June 2000

Trade in carbon credits has the potential to make forestry more profitable, and enhance the environment at the same time. It has therefore attracted considerable attention of the likely buyers of credits, producers (ie forest growers), and others. However, it is difficult to stay fully informed about carbon credits because of the complexity and the pace of developments on the subject. This market report looks at the current situation on carbon credit markets and trade from the viewpoint of small scale growers. It also gives stumpage prices recently received by growers in Australia.

Forests that qualify for carbon credit

It is widely accepted that if the concentrations of greenhouse gases (eg carbon dioxide and methane) continue to increase in the atmosphere, it will bring about major changes to the global climate. This, in turn, will seriously threaten human welfare worldwide. A global problem of this kind requires a global solution. So under the auspices of the United Nations, all developed countries agreed in 1997 in Kyoto, Japan, to reduce or limit emissions of their greenhouse gases. The agreement is called the Kyoto Protocol. The protocol recognises forests as carbon sinks and provides for carbon trading as a means of offsetting emissions of greenhouse gases and meeting the Kyoto targets.

Before the protocol can come in to force, it must be ratified by at least 55 countries, including the developed countries representing 55 per cent or more of the 1990 greenhouse gas emissions from that group. But at the time of writing (in April 2000) neither Australia nor any other developed country has ratified it.

Nor has the Australian government taken any decision on carbon credit trading. However, for the purpose of this report, it is assumed that the protocol will be ratified and come in to force, and that a carbon credit trade will commence.

Under the protocol, carbon sequestered in trees (ie carbon credit) must come from ‘Kyoto forests’, which are new forests:

The Kyoto forests must arise from a change in land-use, and planted not before 1990. Growers must have evidence to prove their forests meet these qualifications. Note also that carbon sequestered by the forests during 2008-2012 alone is tradeable. Decision is pending about the period after 2012.

Decision is also pending on the definition of the term ‘forest’. The ambiguity on the meaning of ‘forest’ had led to the suggestion that certain forest types (eg windbreaks) may not qualify as Kyoto forests. It shows that many of the issues central to carbon credit markets and trade are yet to be clarified.

The costs

A first step in selling the sequestered carbon is to measure its quantity in trees. A range of simple to complex techniques is available for the purpose. In general, the techniques are more reliable for plantations of species such as radiata pine and certain eucalypts, but less so for plantations of other species or of mixed ages and mixed species. Other things remaining the same, measurements of carbon with a higher statistical accuracy will result in a higher cost for the grower.

The next series of steps in selling the carbon involve: aggregation of individual growers’ carbon in to a sizeable pool; verification of the pool; issuance of carbon credit certificates by an independent agent; registration of the certificates and their lodgement with an authorised market clearing house (eg the Sydney Futures Exchange) for sale; and exchange of the certificates and the monies.

Besides the costs of the afore-mentioned steps, growers may also incur some other costs. An example is the cost of extra insurance against the loss of trees through fire, windstorm, and the like.

The costs of services and transactions associated with selling carbon are subject to economies of scale. Hence, small scale growers will pay a higher cost per unit of carbon.

People designing the trading mechanism are very conscious of the problem, and are trying hard to find ways and means to keep the costs low for growers. However, growers themselves could also take steps to reduce their costs by joining or forming growers’ cooperatives or groups that offer economies of scale.

Growers need to be aware of one more major ‘cost’. If a grower, who has sold carbon credits from his/her forest, but then goes on to harvest the forest, he/she will incur carbon debits. The quantity of debits will be at least equal to the quantity of carbon credits sold. In this situation the grower will be required to fully offset the debits by buying carbon credits in the market place; or having additional Kyoto forests; or using a mix of both.

What is the total of all the costs a grower is likely to pay for producing certified carbon credits suitable for trade? It is a very important question. So, it is especially disappointing to say that reliable information on the costs is unavailable, and therefore the question is unanswerable. It would be most helpful to growers if reliable information on the costs were readily available to them.

Carbon credit prices

A few studies have attempted to estimate the prices of carbon credit under various hypothetical scenarios. Their estimates of the price range from $10 to $700 per tonne of carbon. Some indication of the market prices will, however, be available when the Sydney Futures Exchange starts forward trading in carbon credits later this year. (Forward trading involves trade in contracts to buy or to sell a commodity at a specified future date and a fixed price. It differs from the much more common spot trade, in which a commodity is bought and sold with immediate effect.)

Summing up

So, is it worthwhile for small scale growers to undertake production of carbon credits for trading? Despite the vast number of studies on various aspects of carbon credits, the economics of carbon credits for small scale growers has not yet been adequately investigated.

However, a few studies have commented on the issue. They include: Kyoto forests: Prospective providers of carbon-sequestration services? by Neil Byron and Andrew Coleman, March 1999; Greenhouse, carbon trading and land management by Hassall & Associates, November 1999; and Is carbon farming worthwhile? by Chris Borough, March 2000.

A general thrust of these studies is that, under the current rules, many small scale growers may not find carbon credit trade sufficiently rewarding. This is because of the relatively high total cost per unit of carbon credit, and the enormous technical, financial and institutional risks and uncertainties.

To capture the potential benefits of carbon credit trade, growers should monitor the forward trade prices of carbon credits; seek more information; stay informed on the changes in the Kyoto rules and the government policy; keep records of their own forestry operations; and take other actions to reduce the costs, risks and uncertainties. Future issues of this market report will also try to inform growers on the latest developments on carbon credit trade.

Stumpage prices

ANU Forestry has collected information on actual stumpage recently received by small scale growers. As the collected information was insufficient for deriving averages and trends, it is presented in case study format in the following table. Users should exercise due care in using it for assessing stumpage for a particular situation.
 

Stumpage case studies

Market Trends in the 1990s
Market Report 11 March 2000

Year 2000 is making many people think of the next ten, twenty or even more years.

But thinking so far ahead is common in forestry. For instance, many forest growers routinely assess the market situation over the next decade and beyond. To assist such an assessment, this report presents a set of market trends for the 1990s. Although the 1990s trends are unlikely to repeat themselves, they may provide useful pointers and lessons for future. The report also presents actual stumpage prices received by growers in Australia.

Trends The trends are reported below for regional, national and international markets, and for a range of products. Selection of the markets and products was determined jointly by their relevance for Australian growers and by the availability of data for and space in this report.

All prices are quoted in nominal terms; that is, they are not adjusted for inflation. However, where appropriate, it is pointed out whether the prices have changed in real terms, using movement in consumer price index as the measure of price inflation.

Comment: During the 1990s, the average annual royalties (stumpage) for both softwood and eucalypt logs increased in real terms.

The rate of increase was larger for the eucalypts. Gap in stumpage for softwood and eucalypt logs has become smaller. Sawlog group excludes veneer logs. Data source: Annual Reports of Forestry Tasmania.
 
B: Annual pulpwood royalty, public forests: Tasmania

Comment: During the 1990s, the average annual royalty (stumpage) rates increased in nominal terms for both plantation softwood and native forest pulpwood. However, the prices increased in real terms for softwood plantation pulpwood only. But the softwood prices also fluctuated much more widely around the trend. Native forest pulpwood is mainly from eucalypts. Data source: as for figure A.

 

 D: Prices of radiata pine pulplogs: New Zealand

Comment: Figure D refers to quarterly prices of radiata pine pulplogs destined for domestic market within New Zealand. Except for this, other comments and data source are as for figure C.

 

 
 
C: Prices of radiata pine sawlogs: New Zealand

Comment: Australia competes with New Zealand in domestic and exports markets.

Hence the trends in New Zealand prices are relevant to Australian growers. The prices are for L1 and L2 grade sawlogs (minimum small end diameter, respectively, 400 mm and 300 mm, unpruned, maximum knot size 140 mm, and in fairly straight lengths of 4 m to 6.1 m); at mill door in New Zealand; by the March, June, September and December quarters. Original prices were in NZ$/t; they were converted in to Australian dollar values, using quarterly currency exchange rates. Lengths of the vertical lines indicate the price range and the dots the middle of the range. From the beginning of 1996, the log prices show a declining trend in nominal as well as real terms. Data source: NZ MAF website.
 

 E: Quarterly sawnwood and log export prices: Malaysia

Comment: Malaysia dominates world’s tropical log and sawnwood export markets and is the largest supplier of broadleaved sawnwood imports in to Australia. Hence the Malaysian export prices are of interest to Australian growers. The prices fell during the 1997-1998 Asian financial crisis but began to recover in 1999. Sawnwood is from dark red seraya and meranti species, of select and better grades, and kiln dried. Logs are of meranti species.

Data source: World Bank’s Global Commodity Markets.

 

 
F: Annual export woodchip prices, fob: Australia

Comment: Australian export prices of both hardwood and softwood chips reveal rising trends during the 1990s. However, in general the prices did not rise in real terms. In contrast with prices of hardwood chips, prices of softwood chips were significantly lower and fluctuated far more widely around the trend. Data source: ABARE’s Australian Forest Product Statistics.

 

 G: Monthly export woodchip prices, fob: Australia

Comment: Figure G shows monthly woodchip export prices from July 1997 to September 1999. The data further confirm that softwood chip prices were lower and more volatile than the hardwood chip prices. The prices of both types of woodchips weakened further towards the end of the period. Data source: as for figure F.

 

Stumpage prices

ANU Forestry has collected information on actual stumpage recently received by small scale growers. As the collected information was insufficient for deriving averages and trends, it is presented in case study format in table 1. Users should exercise due care in using it for assessing stumpage for a particular situation.

1: Stumpage case studies

 

Trends in sawnwood market Market
Report 9 September 1999

First part of this report presents trends in the domestic market for sawnwood in Australia.

The trends will be of interest to forest growers because stumpage prices for their sawlogs are partly determined by sawnwood prices. According to studies such as ‘Cost competitiveness of Australia’s wood products industries’ by Jaakko Poyry, the cost of logs has a share of 34 to 47 per cent or higher in the total cost of producing sawnwood, and this share is likely to get bigger. Forest growers therefore have an important stake in the sawnwood market.

The second part of the report presents stumpage recently received by small scale forest growers.

(Stumpage means the price of wood in a standing tree.)

Trends in Australian domestic market

Consumption of sawnwood in Australia has fluctuated between four and five million cubic metres a year. The fluctuations occur mainly with annual changes in the number of new houses built and other construction work.

There are indicators pointing to a rapid change in the domestic market. Table 1 shows that production and consumption of sawn hardwood have been declining. In contrast, production of sawn softwood has increased substantially.

With softwood replacing hardwood in many uses, the share of softwood in total sawnwood consumption now stands at 69 per cent, up from 61 per cent ten years ago. Net imports of both hardwood and softwood sawnwood have fallen significantly. An overall result is that Australia’s self-sufficiency in consumption of sawnwood has increased from 66 per cent some ten years ago to over 80 per cent at present. One may ask: When will Australia become fully self-sufficient or a net exporter of sawnwood? An answer is in a recent ABARE study by Graham Love and colleagues. The study suggests Australia is likely to achieve that status between 2005 and 2010.

1: Consumption of sawnwood, Australia

Price trends

Data published by Australian Bureau of Statistics, or ABS, are used here for looking at trends in sawnwood prices.

The trends are for structural timber; that is, the timber used in the structural framework of a building eg for scantlings, trusses and frames.

According to some sources, roughly 70 per cent of the total sawnwood used in Australia is structural timber.

ABS collects data on actual transaction prices paid by building contractors or subcontractors for structural timber delivered on building sites.

The data are for the six State capital cities of Australia. ABS collects the prices in dollar values; however, it publishes them as an index.

For the base year 1989-90, ABS has given the prices in all capital cities a value of 100 index points.

If in the next period the transaction price increases, by say 5 per cent in a given city, then the price index for that city rises by the same percentage. In this manner ABS constructs timber price indexes for each capital city.

The capital city index combines prices of both softwood and hardwood timbers in a single index. ABS also constructs weighted average price index of the six cities.

This index is thankfully available separately for hardwood and softwood timbers, representing changes in their prices for whole Australia.

The combined index for 1989-90 to 1998-99 for each capital city is in figure A. It shows that over the period, timber prices have generally increased in every city. But in relative terms the increase was largest in Adelaide and smallest in Perth.

The huge inter-city differences in prices are hard to explain, as there has been no research yet on the subject.

The figure also shows that prices in all cities rose sharply in 1993-94 and stayed high for around two years. The price rise appears to be an influence of the world market, triggered by the US judicial and government decisions at the time.

The decisions were made to protect the environmental values by drastically reducing harvesting of logs from forests in the United States. The result was a spike in timber prices across the Asia-Pacific region, including Australia.

Figure B presents the price indexes for hardwood and softwood structural timbers. It also presents the consumer price index or CPI-an indicator of general price inflation in the economy. The figure shows the price of softwood timber increased relatively more than that of hardwood timber and that the prices of both timbers have generally increased in real terms since 1993.

Outlook for sawnwood prices

Reliable price outlook for the Australian domestic sawnwood market is not available for thisreport. However, projections in a recent FAO study imply that sawnwood prices in the world market could rise in real terms at an average rate of 0.36 per cent a year till 2010. It represents a positive outlook for sawnwood and log producers.

Stumpage prices


ANU Forestry collected information on actual stumpage recently received by small scale growers. As the information was insufficient for deriving averages and trends, it is presented in a case study format in table 2. Users should exercise due care in using it for assessing stumpage for particular situations.

2: Stumpage case studies


* Logs cut, stacked and ready to load at the plantation. None of the mills in the region wants to buy except one who will take the logs if given away free. # Mill door price.
 

Abbreviations
 
ABARE Australian Bureau of Agricultural and Resource Economics
ABS Australian Bureau of Statistics
ACT the Australian Capital Territory
AFFA Agriculture, Fisheries and Forestry - Australia (Commonwealth Department of)
AFG Australian Forest Growers
b.d.t. ‘bone dry’ tonne
c.i.f. cost, insurance and freight
CPI consumer price inde
CSIRO Commonwealth Scientific Research Organisation
cu.m cubic metre
dbhub diameter at breast height under bark
f.o.b., FOB free on board
FAO Food and Agriculture Organisation of the United Nations
FWPRDC Forest and Wood Products ha hectare
JVAP Joint Venture agroforestry program of RIRDC/L&W Australia/FWPRDC
Km kilometre
m3 cubic metre
mm millimetre
N-C north-central
N-E north-east
NAFI National Association of Forest Industries
NSW New South Wales
PFCV Private Forestry Council of Victoria
RIRDC Rural Industries Research and Development Corporation
SA South Australia
SED small end diameter of log
S-W  south-west 
T tonne 
Tas. Tasmania 
Vic. Victoria 
WA Western Australia