Forestry plantings look set to dry up after this year as industry frustration over Emissions Trading Scheme uncertainty grows, prompting investors to look elsewhere.
This is according to Forest Owners Association president Grant Dodson, who said the recent package of proposed changes to the ETS and to forestry planting rules leave little reason for foresters to want to invest beyond the plantings they have in front of them for this season.
Estimates by Te Uru Rakau NZ Forestry Service are that up until early 2023, 474 million trees were planted under the One Billion Trees scheme, with an additional 120 million to be planted this year.
In addition, there have been significant plantings by farmers who have not applied to the fund, or who may have been funded through projects such as catchment groups and hill country erosion programmes.
The total area under exotic forests to April last year was estimated at 1.76 million hectares, with about 45,000ha of new plantings, up from 34,000ha the year before. The greatest area planted annually was in 1994, at 98,000ha.
While some in the pastoral sector may be celebrating the slowdown in forestation, Dodson said it is a spectacular own goal for the farming sector, which could still benefit enormously from having more, not less, forestry plantings.
Proposals to give councils more power over what forests go where, and the halving of the carbon price since December, were particularly hard for the sector to bear.
“The message has clearly gone out that forestry investors, particularly on farmland, are not wanted,” Dodson said.
He said the withdrawal of investors will also see the end of a lucrative and dignified exit strategy for the growing demographic of farmers seeking to sell their farm and retire.
Dodson cited the example of a property that he said his company, City Forests in Dunedin, had lined up for forestry conversion.
“The farm owner wanted to exit and move on. But that rug got ripped out from under them with carbon prices collapsing. The farm would now be worth at best 60% of what we offered them.
“We could no longer guarantee the value of the NZ units coming off it, so the business case just does not stack up anymore.”
Longtime forestry management director Dave Janett agreed with Dodson.
He said most overseas investments being made now are applications that carried over from the special forestry test aimed to encourage forestry investment.
That has since been changed to the same as farmland purchases, known as the Special Benefit to NZ test.
“And I don’t think anyone has been game to try and apply through the Special Benefit test. Everyone is now really gun-shy given the proposals that are coming out from both Labour and National.”
Of particular concern is any retrospective legislation that could further impact carbon prices.
Dodson said the collapse in carbon prices from a high of $89 a unit late last year to $39 now had already wiped $4 billion of wealth from farmers, foresters and iwi who had invested in ETS forestry.
Both men estimate the removal of forestry as a land use option will see farm prices drop back to historic drystock farm levels, possibly by as much as $8000-$10,000 a hectare.
“I can see next year being quieter for planting, then it will drop to a trickle,” Janett said.
“The irony is that in three to four years’ time NZ will not be achieving its minimum planting targets and government will realise that and try to get industry to re-engage.
“But forestry has been played around with so many times now. Capital has legs and it will go elsewhere.”
Dodson said overseas investors are relatively indifferent to where their forestry investment goes, and can consider Scotland, Wales, and Canada as options.
Peter Harington, president of the NZ Forest Nursery Growers Association, said this year has proven to be a big planting year for his Rotorua Nursery operation.
His nursery has 12 million trees or 12,000ha due for planting through Bay of Plenty, Waikato, Hawke’s Bay, and Tairāwhiti regions.
“Our orders are looking full for next year, but everyone is talking that the boom may well be over for pine planting.
“Government policy does not look like it is going to support forestry in the ETS, and forestry sequestration could be pulled out of the ETS.”
Janett said with the exit of foreign buyers and domestic forestry firms, only farm plantings would be left, and these are endangered by rising farm costs.