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RIRDC Short Report No 34:

Progress towards commercial farm forestry in Australia

THE FULL REPORT This is a brief summary of a three book kit which presents a blueprint for the development of a national commercial farm forestry strategy. (Pub no 96/026) available from RIRDC (see order form). It also outlines the progress that has been made since the release of that kit on four research projects designed to address key impediments to the adoption of a national strategy which were outlined in the kit.

Background

In February 1996, the Joint Venture Agroforestry Program (JVAP) launched a framework for development of a commercial farm forestry strategy. The objectives of the framework were to:

provide background information for the development of a National Commercial Farm Forestry Strategy;
identify the potential importance of commercial farm forestry to Australian agriculture and forest industries;
detail key impediments to widespread adoption of farm forestry in Australia;
identify key actions needed to remove impediments and develop a significant commercial farm forestry sector in Australia; and
identify information gaps to be filled by the longer term research investments implemented and managed by the JVAP.

The focus of the framework was commercial farm forestry developed and managed on land cleared for agriculture and integrated into farming enterprises by landholders.

Since launching the framework, forest growers, Federal and State governments, forest industries and the Research and Development Corporations have invested, or are currently investing in, programs and activities to further develop commercial farm forestry in Australia.

This Short Report summarises progress towards commercial farm forestry in Australia since launching the strategy framework in early 1996.

Impediments identified in the strategy framework

The strategy framework identified four separate but related groups of impediments to farm forestry development:

Lack of farm forestry culture – Australia does not have a farm forestry culture. Landholders have not traditionally been involved in commercial tree growing. This has led to a lack of skills, knowledge, technologies and management systems for farm forestry in Australia.

Economic uncertainties – forestry generally, and commercial farm forestry particularly, has a poor public profile which inhibits investment in these activities – especially by institutional investors such as superannuation funds and investment managers. Until recently, landholders could rely on most farming systems to provide an adequate standard of living. Changing terms of trade mean that many landholders are limited by inadequate cash flow or debt servicing capacity to drive farm-forest investment themselves. Landholders and regional economies generally lack the social infrastructure to combine effectively to plan a critical mass of quality forest resources to meet industry and market demand. These communication weaknesses have been compounded by poor mechanisms to communicate farm forestry research and development outcomes to the community.

Public policy – sovereign risk, such as unclear rights to harvest or export products from large-scale and farm forestry plantations, does not differentiate farm forestry from the debate associated with native forests. This disincentive is made worse by the remaining taxation inequities relating to plantations and export controls on plantation-grown timber. There is a lack of effective mechanisms for transferring public investment in environmental services – such as lowering water tables, reducing erosion or providing biodiversity in farming systems – from natural resource management systems such as farm forestry. Most programs developed to deliver public policy relevant to farm forestry are poorly integrated – leading to poor cost sharing between public and private beneficiaries and inefficient public investment. Local government planning and rating policies are inconsistent and often act as a disincentive for farm forestry development.

Distorted markets – prices for logs are generally not determined in competitive or transparent markets and there are only limited markets for immature plantations. This means that there are not clear price signals to guide investment in farm forestry. There is not an accurate inventory of regional farm forestry resources available to forest industries. These market failings reflect, and are exacerbated by, the small scale of individual farm forestry enterprises compared with industry needs and corporate or State-owned plantations.

Progress since launch of the strategy framework

Table 1 shows the area of privately owned plantation forestry established in 1995 for each state. The new plantations were developed on cleared farm land. For a number of reasons, investment in commercial farm forestry has increased since the launch of the strategy framework. Much of this increase can be attributed to removal of many of the impediments identified in the framework.

Table 1. Plantations established in Australia on cleared farm land, 1995 (‘000 ha)

WA SA VIC TAS NSW QLD

Coniferous 0.10 1.41 na na 0.95 na

Broadleaved 9.98 1.99 na na 1.16 na

Total 10.08 3.4 na na 2.11 0

Source: ABS (1997) Australian Forest Products Statistics, September Quarter.

Since launching the strategy framework in 1996, many of the impediments to development of commercial farm forestry have been, or are being, addressed. These include:

Lack of farm forestry culture

recognition of farm forestry as a viable alternative to grazing and grain enterprises affected by declining real commodity prices in WA and SE Australia;

extension of the Farm Forestry Program under the Natural Heritage Trust;
establishment of Regional Plantation Committees;

increasing management of shelter and environmental tree plantings for timber and other forest products;

increasing recognition by local government of the role of land management and farm forestry in addressing regional development issues such as rising watertables and biodiversity conservation – for example the local government component of the Mount Lofty Ranges Catchment Program;

production of farm forestry extension material by forest industry (for example Bunnings, North Forest Products, Apcel/Kimberley Clark) and governments (for example JVAP, NSW State Forests, Primary Industries and Resources SA, and DNRE Victoria); and

development of regional commercial farm forestry plans across southern Australia.

Economic uncertainties

inclusion of right to plant trees on areas under 40 ha in planning schemes used to regulate land use in Victoria;
increased reporting of forest product prices in rural newspapers and commodity bulletins;
direct investment by international forest product processors in Australian regions with commercial farm forestry development;
continued publication of ABS Forestry Statistics series;
publication of ‘Design Principles For Farm Forestry’ and other extension material by the JVAP; and
implementation of research into the costs and benefits of windbreaks in Australian farming systems.

Public policy

implementation of the Wood and Paper Industry Strategy;
removal of export controls from plantation grown timber produced under approved forestry codes of practice;
release of the Plantations 2002 Policy by the Federal Government;
gazetting the Forestry Rights Act Vic. 1997;
increasing resolution of native forest management issues through negotiation and implementation of Regional Forest Agreements;
release of tax ruling on forestry investments (T/R95/6 of 25 May 1995); and
trial of cost sharing mechanisms in the Murray-Darling Basin as a precursor to a market for environmental services.

Distorted markets

corporatisation of public plantations in Victoria and South Australia;
review of cost sharing mechanisms by SLWRMC and SCARM;
compilation of inventory through Land and Water Audit;
publication of forestry codes of practice in several States – for example Victoria;
implementation of labour market reforms – for example those concerning unfair dismissal; and
commencement of reforms on the Australian waterfront.

What still needs to be done

Despite progress since 1996, there are still several impediments that need to be addressed if commercial farm forestry development is to continue and realise its economic potential. These include:

Lack of farm forestry culture

educe reliance on government programs for farm forestry development support;
strengthen regional mechanisms to communicate farm forestry market and technical information to forest growers;
strengthen linkages between forest growers and forest industry stakeholders.

Economic uncertainties

further develop cost sharing mechanisms;
develop a market for environmental services;
establish consistent rating and taxation regimes for public and private forestry plantations;
strengthen linkages between government research and development programs and components of the NHT; and
further strengthen coordination of marketing arrangements by regional forest growers.

Public policy

privatise State-owned plantations and treat them consistently with private plantations;
establish consistent harvest rights and tree tenure regimes across Australia; and
develop policy framework to enable efficient operation of a market for environmental services.

Distorted markets

ensure sales of timber from public plantations are transparent and competitive;
coordinate uniform approach to export marketing from Australian forest growers;
strengthen regulation of farm forestry investment proposals to ensure efficient investment options are available to institutional investors;
establish consistent farm forestry codes of practice in all States; and
ensure forestry codes of practice are consistent with environmental management systems and other quality assurance pathways increasingly demanded by consumers.

Findings from recent research

Following the completion of the Strategic Framework for Commercial Farm Forestry in Australia which it commissioned, the JVAP invested in four research projects. The projects were designed to address key information, policy and social barriers to sustainable commercial farm forestry in Australia identified in the Strategic Framework. The four projects were designed to:

strengthen links between farm forest growers and the forest industry;
identify policy reforms for farm forestry;
identify opportunities for harvesting trees on farms; and
identify opportunities for processing wood products on farms.

The outputs from these projects are reported in separate short reports and formal findings. Findings from these projects, and lessons learned since the launch of the commercial farm forestry strategy framework, suggest that:

Real opportunities are adopted quickly – where barriers to commercial farm forestry are overcome, landholders are quick to adopt farm forestry enterprises. The rapid expansion of Eucalyptus globulus plantations on farms in Western Australia is the most obvious example of this. However, other examples consistent with the WA experience are found in the “green triangle” region of SA/Victoria and in Tasmania – both regions with significant forest industry activity.

Good silviculture is critical – forest industry stakeholders, biophysical researchers and wood technologists consistently identify the need for good silvicultural practices to ensure the effective production of wood products on farms. Tree establishment, maintenance, pruning, harvesting and handling after harvest are all critical to delivery of reliably high quality logs to forest industries. Without this, forest industries will never accept farm forestry as an integral part of wood supply for their industry.

This suggests that there is a need for regional groups of forest growers to work with forest scientists and industry to develop regional packages of silvicultural practices to guide forest growers with best management practices.

Good farm forestry design is rare – few farm forestry plantings are strategically designed to obtain as many benefits as possible by truly integrating forestry production with agricultural and landcare activities on the farm. Because of this the economic potential of farm forestry has yet to be realised and many of the public benefits – which justify government investment in farm forestry activities – are ignored by both farmers and industry stakeholders in farm forestry.

This suggests that training is required for extension workers, forest industry silvicultural advisers, and farm consultants who help farmers make decisions about how they use and manage their land resources.

Industry is a critical stakeholder – research and farming communities continue to forget the importance of treating the forest industry as a client and key stakeholder. Much of the investment focus still leaves out industry stakeholders. The onus is on the investment community and forest growers to engage industry on terms which meet commercial needs of forestry industries – without which there will be very little commercial farm forestry in Australia.

This suggests that future regional farm forestry investment programs should actively encourage formal partnerships with the forest processing industry to enhance the recognition of industry as a critical stakeholder in farm forestry. The nature of these partnerships is discussed further in a Short Report on ‘Links between small-scale growers and industry: principles and practices for commercial farm forestry’.

Differentiate by labour-intensive value adding – the one asset which farmers have to differentiate themselves from plantation forestry managers is time. The nature of silvicultural management means that farmers can use discretionary time with a low opportunity cost to add value to farm forestry plantations.

This suggests that a focus on farm forestry for timber production is an appropriate focus of public forestry research investments.

On-farm harvesting as currently practiced is inefficient – the scale, occupational health and safety, and environmental management of most small-scale forestry harvesting are significantly below industry best practice. Apart from the obvious safety issues, the landcare implications of this finding are of concern. Commercial farm forestry which leads to land and water resource degradation because of inefficient harvesting techniques will not contribute to national ecologically sustainable development.

This suggests that work is needed on best practice guidelines and developing support systems to help commercial farm forestry producers to link with professional tree harvesters.

Contract harvesting is risky for farmers – without better information about the costs of harvesting, industry best practice and how to link harvesting and timber industry needs, farmers face considerable risks if they contract out harvesting operations.

This suggests that there is an opportunity for a joint program, to be developed with the forest services industry, to develop a step-by-step guide to help farmers engage and monitor contract silviculture and harvesting services.

Generally focus on timber – except where regions suited to commercial farm forestry have access to pulp mill infrastructure or ports capable of handling bulk woodchip exports, the principal commercial farm forestry opportunity is in production of timber. Because of the time-lag involved, this emphasises the need for multiple-use farm forestry systems and raises the need for better design principles for such systems.

Industry doesn’t recognise landholders rights to choose land use – many forest industry stakeholders do not recognise that landholders have the right to select land use on their properties. There is no guarantee that landholders with first crop, short-rotation farm forestry plantations will maintain the farm forestry landuse for a second rotation. Landholder decisions are determined by commodity prices, the risks and relationships associated with alternative land uses, and the confidence in the relationship with forest industries. This suggests that forest industries need to manage the harvest stage of the first rotation very carefully to maintain landholder commitment to the second rotation. Joint venture relationships may be a way of establishing this commitment. Ways of developing and maintaining relationships between forest industry groups and forest growers are discussed further in a Short Report on ‘Links between small-scale growers and industry: principles and practices for commercial farm forestry’.

Existing commercial relationships are practical – the types of commercial relationships that are evolving between forest growers and forest processing industries are leading towards practical and realistic linkages. Forest growers prefer low-risk arrangements such as annuities and share farming but pay a significant premium in reduced prices for this risk reduction.

Emerging issues

There are several issues emerging from recent commercial farm forestry developments which investors and government regulators should consider, both in terms of their role and where they should invest.

Farm forestry is an attractive target for researchers and environmental lobby groups because the subject has the attention of public sector investors and decision-makers. The attractiveness has generated a number of national and regional groups and programs, collaboration and coordination between State agency staff, researchers and program managers which confuses industry, growers and decision-makers.

The reasons for this attractiveness should be understood by service providers and research organisations so that they can make genuine contributions to farm forestry. The key reasons for farm forestry being attractive, which service providers and researchers should integrate into their activities, include:

Forest industry reform – changing values held by the community for native forest resources have required the reform of forest industries depending on these resources for their viability. Plantation resources have become more attractive because of these changing values. Since farm land is the land resource available for plantation establishment, farm forestry is an attractive strategy for structural adjustment in the Australian forest industries.

There is an opportunity for economic and social research to identify the best ways of using existing human and infrastructure resources in the forest industry for developing commercial farm forestry.

Decline in commodity prices – significant real price decline for livestock and crop commodities has increased the attraction of commercial farm forestry in regions of Australia suited to commercial timber production. The emphasis has been on short-term, joint venture strategies which minimise risk, maintain medium-term land-use options and provide greater returns than traditional land uses under current commodity market conditions.

There is an opportunity for economic and biophysical research to identify switching prices to define the risks of short-term farm forestry being abandoned if prices for traditional agricultural commodities increase and to determine the impact of short-term farm forestry plantations on long-term productivity of soils.

Growing awareness of landcare – landholders, governments and the urban community are increasingly aware of the need to manage Australia’s land and water resources differently if their productivity and amenity is to be sustained for future generations. The role of trees in landcare is recognised by many. The multiple-use approach of farm forestry adds an attractive, commercial edge to landcare. A market for environmental services would quickly result in adoption of farm forestry in property management plans.

Growing demand for timber products – medium-term projections suggest that the world market for timber products is firm to growing. Countries such as New Zealand, Sweden, Canada and Chile have also identified these opportunities and have well advanced, commercial strategies in place. Australia is behind the leaders but has some geographical advantages for supply to SE Asia – seen as one centre of demand growth.

There is an opportunity for economic and biophysical research to enable commercial partnerships between Australian forest growers and processors and international forestry industries.

This juxtaposition of market demand, environmental sustainability, popular support and commercial opportunity have made farm forestry attractive to governments. Objective research programs need to adopt a less popular role and look to objectively solving problems which remain as barriers to the successful establishment of commercial farm forestry production in Australia.

	WA	SA	VIC	TAS	NSW	QLD
Coniferous	0.10	1.41	na	na	0.95	na
Broadleaved	9.98	1.99	na	na	1.16	na
Total	10.08	3.4	na	na	2.11	0