Department of the Environment
Guidance on the likely establishment of new timber plantations in Australia
FinalReport

12December 2014A14-20853

Melbourne

DISCLAIMER

Indufor makes its best effort to provide accurate and complete information while executing the assignment. Indufor assumes no liability or responsibility for any outcome of the assignment.

Copyright © 2014Indufor

All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including, but not limited to, photocopying, recording or otherwise.

Document Control Record
Date / Version / Changes/Author
27/10/14 / 0.1 / Drafting report (B Freeman)
12/11/14 / 0.2 / Finalisation of drafting for peer review (B Freeman)
13/11/14 / 0.3 / Peer review and revisions to initial drafting (A Morton)
14/11/14 / 1.0 / Draft report (B Freeman)
3/12/14 / 1.1 / Revisions of draft report based on Departmental feedback (B Freeman)
4/12/14 / 1.2 / Peer review (A Morton)
5/12/14 / 2.0 / Report revisions following peer review (B Freeman)
8/12/14 / 2.1 / Peer review (A Morton)
9/12/14 / 2.2 / Report revisions following peer review (B Freeman)
12/12/14 / 3.0 / Final report (B Freeman)

© INDUFOR: 14-20853 New plantation establishment in Australia1

Preface

This report was prepared at the request of the Department of the Environment (the Client) by InduforAsia Pacific (Australia) Pty Ltd. The intended user of this report is the Client. No other third party shall have any right to use or rely upon the report for any purpose.

This report may only be used for the purpose for which it was prepared and its use is restricted to consideration of its entire contents. The conclusions presented are subject to the assumptions and limiting conditions noted within.

Indufor Asia Pacific (Australia) Pty Ltd

Blair Freeman
Head of Strategy and Sustainability / Andrew Morton
Managing Director

Contact:

Blair Freeman

Indufor Asia Pacific (Australia) Pty Ltd

PO Box 425

Flinders Lane VIC 8009

AUSTRALIA

Tel. +61 417 381 609

TABLE OF CONTENTS

Preface

TABLE OF CONTENTS

1.introduction

1.1Background

1.2Methodology

1.3National trends

1.4Plantation types

2.Regional Analysis

2.1Western Australia

2.2Northern Territory

2.3Mount Lofty Ranges & Kangaroo Island

2.4Green Triangle

2.5North Queensland

2.6South East Queensland

2.7Northern Tablelands NSW

2.8North Coast NSW

2.9Central Tablelands NSW

2.10Southern Tablelands NSW

2.11Murray Valley

2.12Central Victoria

2.13Central Gippsland

2.14East Gippsland and Bombala

2.15Tasmania

3.Summary

4.references

© INDUFOR: 14-20853 New plantation establishment in Australia1

1.introduction

The Australian Government Department of the Environment (‘the Department’) is seeking advice in relation to the consideration of plantation-based projects that can contribute to abatement of greenhouse gas emissions. This report relates specifically to consideration of the likely establishment of new timber plantations in Australia and assessment of the ‘additionality’ of new plantations established for the purpose of providing emissions abatement.

1.1Background

The Department is considering developing a methodology determination under the Carbon Credits (Carbon Farming Initiative) Act 2011 (the Act) for projects that generate abatement by establishing new timber plantations on land that has been previously used for cropping or grazing.

Paragraph 106(1)(a) of the Act provides that a determination must apply to a ‘specified kind of offsets project’. The Department is seeking to determine which kind of projects can meet the relevant requirements in the Act including the offsets integrity standards in section 133.

Paragraph 133(1)(a)of the Act provides that ‘projects of the kind specified in the methodology determination should result in carbon abatement that is unlikely to occur in the ordinary course of events’.This is different from the common practice test, which is the additionality requirement under the Carbon Farming Initiative.

The Department has advised that a new plantationestablished on land that has been previously used for cropping or grazing will meet the requirement in paragraph 133(1)(a), if it was determined as unlikely to be established in the ordinary course of events.Accordingly, the Department has engaged Indufor to advise:

  • whether, in the ordinary course of events, new plantations are likely or unlikely to be established on land that has been previously used for cropping or grazing,
  • what kind of plantation would be established on this land (regardless of likelihood of establishment), and
  • the size of any plantations established on this land (regardless of likelihood of establishment).

1.2Methodology

This report presents guidance on the likely establishment of new timber plantations in Australia. This guidance is based on a desktop review of relevant plantation statistics, notably the most recent publications by ABARES on Australian plantation statistics and Australia’s plantation log supply over a 40year period (Gavran 2014; Gavranet al. 2012; and Gavran & Parsons 2011). These reports provide an informative summary of the location and characteristics of each of the NPI regions, the pattern andquantum of plantation establishment to date, and a projection of the future log supply based on the existing plantation resourceestablished up to 2010.

To complement this,Induforhas applied itsindustry knowledge to providing an assessment of the likelihood of new plantation establishment over the next few years, with reference to not only the historical trends but also taking into account the supply-demand balance in each of the regions with demand as indicated by the existing processing capacity in the region.

No consultation was undertaken in preparing this guidance. However, Indufor acknowledges the ongoing work by ABARES in collecting data and plantation area forecasts directly from plantation owners and managers, and State and Territory agencies.

In accordance with the ABARES reporting on plantation statistics, this guidance on the likely establishment of new timber plantations is based on National Plantation Inventory (NPI regions). These regions (Figure 11) provide the geographic scope for the analysis.

Figure 11 National Plantation Inventory (NPI) regions

NPI region numbering:

1 / Western Australia / 6 / South East Queensland / 11 / Murray Valley
2 / Northern Territory / 7 / Northern Tablelands / 12 / Central Victoria
3 / Mt Lofty Ranges & Kangaroo Island / 8 / North Coast of NSW / 13 / Central Gippsland
4 / Green Triangle / 9 / Central Tablelands / 14 / East GippslandBombala
5 / North Queensland / 10 / Southern Tablelands / 15 / Tasmania

Source: Commonwealth of Australia 2014

ABARES’ forecasts for Australia’s plantation log supply over a 40+ year period are based on a range of assumptions that are incorporated in the analysis of future supply set out in this report. Some of the key assumptions underpinning ABARES’ most recent log supply outlook (notably Gavranet al. 2012) include the following:

  • Most of the forecasts were derived directly from data provided by the owners and managers of large plantation estate, based on their outlook from around 2010. Where plantation owners and managers did not supply log supply forecasts, the estimates are based on yield models developed by the NPI (with source data compiled between 2002 and 2007), using data on plantation areas by species and region.
  • The forecasts assume that harvested areas will usually be replanted with the same type of plantation species.
  • Some plantation owners and managers provided smoothed forecasts. For the modelled forecasts, ABARES did not undertake smoothing.
  • Variations in the area planted from year to year will lead to peaks and troughs in forecast supply. In reality, market demand and supply will influence the actual volumes that are harvested at a particular time, and plantation managers will need to adjust silviculture, scheduling and operational management accordingly.
  • The forecasts assume that for sawlog production, thinning and pruning operations will be undertaken at an optimal level. If this does not happen, future sawlog yields will be lower than forecast.
  • Potential changes in the productivity of future rotations have not been considered in the forecasts produced by the NPI.

Noteworthy implications arising from these assumptions are:

  • The ABARES forecasts will tend to be ‘lumpy’, reflecting plantation area extrapolations and modelled forecasts that do not factor the dynamics of market demand or infrastructure constraints on actual production (e.g. log haulage or port handling constraints); and
  • The ABARES forecasts for production beyond the current (existing) rotations incorporate a level of industry expectations, but also a significant component of modelling assumptions that may overestimate the future log supply if there is no new plantation establishment; or underestimate the log supply if there is a substantive level of new plantings.

However, for the purpose of this review and the outlook to 2020, Indufor considers ABARES’ plantation log supply forecast provides a reasonable basis for considering the supply-demand balance in each of the NPI regions.

Drawing on the ABARES data available, Indufor has considered the historical trend in plantation development; the current status of plantation industry development, including the supply-demand balance; and the most recent data on new plantation establishment.

On this basis, Indufor has formed a view on the likelihood of new plantation establishment over the next 5-6 years. These time periods extend to 2020, which aligns with Australia’s current focus on achieving emission reduction targets.

1.3National trends

Australia’s total plantation estate was around 2 million hectares in 2012-13 (Figure 12), and has remained stable for the past five years (Gavran 2014). This follows a period of substantial expansion between 1995 and 2009 (15 years), during which time the national estate grew from around 1.1 million ha to its current level.

Figure 12 Total Australian plantation area by type, 1995 to 2012

Source: Gavran 2014

In broad terms, there have been two main investment models that account for the majority of new timber plantation establishment in Australia. These are:

  • State and Federal Government investment in establishing softwood plantations on Crown land (from the early 1900s onwards but particularly from the 1960s toearly 1990s); and
  • Retail-based Managed Investment Scheme (MIS) investment, primarily in hardwood plantations on private land (from the late 1990s through to around 2009).

State government investment

The establishment of commercial softwood plantation estates commenced in most states in the early 1900s, following development work on suitable species selection that dates back to the 1880s and 1890s, notably in South Australia, Victoria and NSW. Softwood establishment from the 1920s onwards comprised principally radiata pine (Pinusradiata) and maritime pine (P.pinaster) in southern temperate zones, while in Queensland, initial establishment of slash pine (P. elliottii) was followed by loblolly pine (P. taeda) and Carribean pine (P. caribaea).

State-owned and privately owned commercial pine plantations increased incrementally from the 1920s to the 1950s. The major surge in new plantation establishment came in the 1960s, when the Commonwealth Government established the Softwood Forestry Agreements Act 1967, which (with subsequent acts) provided 35-year loans to the States to increase the total softwood plantation estate from under 200 000ha in 1967 to close to 1 million ha by 2000. This created the acceleration phase in softwood plantation development in Australia and was essentially the mechanism responsible for the development of 70% of Australia’s softwood plantation resource (de Fegely et al. 2011).

In its recent Inquiry into the future of Australia’s forest industry, the Parliament of the Commonwealth of Australia (2011) noted a submission by the Department of Agriculture, Fisheries and Forestry, which explained:

‘Max Jacobs, Director-General of the Forestry and Timber Bureau, argued in 1964 that Australia should become self-sufficient in wood. The Australian Government supported the States in strategies to establish more plantations to cover the expected shortages, and find pulpwood markets for the otherwise unsaleable trees so that native forests could be regenerated as future tree crops...This was facilitated through the Softwood Forestry Agreements Act 1967 and subsequent acts (1972, 1976, and 1978), and self-sufficiency became implicitly, if not explicitly, a ‘national’ policy.

From the 1960s to the 1980s the rate of plantation establishment increased to an average of around 25,000 hectares per year...Over 90% of the plantations established in this period are exotic pines managed on [30 – 35 year rotations] primarily for sawlog production.’

This now extensive plantation resource has contributed significantly to Australia’s timber and wood-product output. The establishment of these plantations was assisted by loans from the Australian Government to State and Territory governments; and whilst this policy resulted in a considerable plantation expansion, it was largely through government-managed areas (Parliament of the Commonwealth of Australia, 2011).

MIS-based investment

The next major investment model in terms of creating the Australian plantation estate was the MIS plantings, which leapt forward in the late 1990s.

In 1997, the Australian, State and Territory Governments and the plantation timber growing and processing industry established a strategic partnership with the national forest industry. ‘Plantations for Australia: the 2020 Vision’ was based on the overarching principle to enhance regional wealth creation and international competitiveness through a sustainable increase in Australia's plantations, based on a notional target of trebling the area of commercial tree crops to around 3 million hectares by 2020 (Department of Agriculture, 2014).TheVision was launched by the Ministerial Council on Forestry, Fisheries and Aquaculture, and revised in 2002.

With the 2020 Vision providing a quasi-policy platform, the MIS plantation investment model was developed and refined further on the basis of taxation incentives, which provided retail investors with the capacity to deduct plantation development expenses from other income. The profile of new plantation establishment that followed is shown in Figure 13. This profile highlights the predominant focus of new plantation establishment was hardwood plantations, which were established mainly by MIS investment interests in short rotation (10-12+ year) plantations for high quality wood fibre production.

The MIS model proved to be an effective form of incentive to attract investment funds and establish non-industrial plantations; however, in broad terms, it was not successful in creating superior returns for investors (de Fegely et al. 2011). Under pressure from less-than-anticipated growth returns and financial returns, coupled with the impacts of the Global Financial Crisis and tightening credit requirements, the late 2000s saw the financial collapse of the main MIS promoters and a dramatic decline in new plantation development in Australia.

Figure 13 New plantation establishment in Australia, 1995 to 2012

Source: Gavran 2014

The national profile of new plantation establishment shows:

  • The generally flat and then declining profile of new softwood plantations since the mid-1990s, and particularly since the mid-2000s. At a national level, the total area of new softwood plantations established in 2000-01 was around 10,000 ha; in 2004-05 it was around 6,500 ha; and by 2011-12 and 2012-13, it had declined to 700 ha and 300 ha respectively (Gavran 2014); and
  • The significant decline in new hardwood plantations from 2007 onwards, down to a minimal level of new plantings within the last 3-4 years. This follows the slowing and then winding up of MIS timber plantation programs from 2009 onwards.

As a result of these national trends in softwood and hardwood plantation interests, the rate of newplantation establishment across Australia has declined markedly in recent years.These national trends set the tone for the regional analysis that follows in Section 2. Asummary of the outlook for new plantation establishment across NPI regions is set out in Section 3.

1.4Plantation types

This advice for the Department considers the types of plantations established in Australia. Asimple categorization can be based on whether plantations are hardwood (predominantly eucalypts) or softwood (predominantly pines); and whether they are managed on a long rotation (for sawlogs plus pulpwood) or a short rotation (for pulpwood only). This categorization, set out in below, is used for this analysis.

Table 11 Broad categorisation of timber plantation types in Australia

Short rotation / Long rotation
Hardwood /
  • Typically Eucalypts, e.g. Eucalyptus globulus (blue gum) or E. nitens (shininggum), grown for 10-15years for pulpwood fibre
/
  • Typically Eucalypts, e.g. Eucalyptus nitens (shining gum) and E. pilularis (blackbutt); or Khayasenegalensis (AfricanMahogany), grown for 16-25+years, for sawlogs and pulpwood fibre

Softwood /
  • Nil known examples in Australia
/
  • Typically pines, e.g. Pinusradiata (radiata pine) or P. caribaea (Caribbean pine), grown for 28+ years, for sawlogs and pulpwood fibre

Source: Indufor

The vast majority of timber plantations established in Australia to date fall into two categories – softwood long rotation; and hardwood short rotation.

There has been some significant areas of hardwood long rotation plantations established across most states. The total area of plantations in this category currently is in the order of 110,000 ha, or around 11% of the total hardwood estate (Gavran, 2014). In this context, it is a much smaller category than the two primary categories, but nonetheless significant.

In relation to softwood short rotation plantations, there are no significant areas established to date, and Indufor has not seen any investment models or other commercial drivers to date to suggest that softwood short rotation plantations will be established in the short to medium term.

2.Regional Analysis

The trends and outlook for plantation establishment in each of the NPI regions around Australia, in the short to medium term, are set out below.

As noted above, various ABARES publications, most recently its research on Australia’s plantation log supply 2010-2054, provide an informative summary of the location and characteristics of each of the NPI regions, the pattern and quantum of plantation establishment to date, and a projection of the future log supply based on the existing plantation resource established up to 2010 (refer Gavran et al. 2012).

This Indufor report was prepared to complement this regular ABARES reporting, by providing an assessment of the likelihood of new plantation establishment over the next few years, with reference to not only the historical trends but also the supply-demand balance in each of the regions.

2.1Western Australia

Western Australia has the largest area of hardwood timber plantations in Australia (approximately 300,000 ha) and, combined with a substantial softwood plantation estate (approximately 98,000 ha), has the second largest area of timber plantations behind Victoria (Gavran 2014).

The plantations are located in the South West of the State, stretching across an arc from the north of Perth to the east of Esperance.