WoodWeek 4 November 2020
On that score, and as our business is closely linked to technology for business, Fonterra’s first blockchain trade brings a paradigm shift in technology for trade. Blockchain technology may be a way for other Kiwi exporters to China to overcome the screeds of paperwork, but it's still some way from becoming commonplace. Fonterra has just executed its first successful blockchain trade transaction to China slashing processing time from over 10 days to less than 24 hours. However, the pilot took the best part of a year to set up. How long before wood exporters can use the technology? Watch this space and we’ll let you know.
Looking to our key export markets where seasonal trends for log markets in China are firm, this week a wild card from Russia on banning log exports from their country may disrupt that market. President Putin has ordered strict government controls on roundwood and low-value forest products exports, and to clamp down on the illegal trade of logs. He also wants to implement a government subsidised loans for wood processing facilities. WPMA’s Jon Tanner sees that as disturbing move that will affect our manufactured wood exports.
Meanwhile the global trend in forestry is clear - data is clearly the next wave in forestry productivity. We’ve got more on this to come at our FIEA ForestTECH Conference in just over a fortnight. Today, it is the rapid analysis of information from data that is helping companies achieve environmental and production goals, for effective forest management and harvesting processes.
Finally, with our local political infrastructure set, tune in next week for a profile on our new Minister of Forestry, Stuart Nash.
This week we have for you:
Data: The next wave in productivityData: The next wave in forestry productivity – To achieve both environmental and production goals, the forestry industry needs effective management and harvesting processes. Today, they are being transformed through more effective use of data.
Sustainable forestry involves the establishment and management of timberlands for wood production and for social and environmental purposes. Forestry products are pretty much ubiquitous in our lives, whether for wooden homes, tissue paper, or renewable packaging.
Importantly, forests help us address climate change through CO2 sequestration as a natural consequence of tree growth. They provide a renewable resource to substitute fossil fuels in energy and replace more carbon-intensive materials in construction and packaging. Today’s digital advances are helping the forestry industry drive sustainability and production efficiency.
The productivity imperative – Forestry operational productivity has increased dramatically over the decades thanks to several phases of technological advancement. Scandinavia is one of the regions that is leading the productivity journey (Exhibit 1). The first phase saw a switch from conventional, horse-drawn transportation to motorized trucks, with productivity (on a per-worker basis) doubling between the mid- 1950s and mid-1960s. Forest management then benefited from a second phase of efficiency gains following expansion in the use of chain saws, as well as motorized fellers, which delivered a doubling in productivity over two decades.
In the mid- to late 1970s, there was a pause lasting several years when labour productivity plateaued subsequent to that widespread mechanization. Subsequently, even greater productivity gains were realized during a further phase of mechanization between the 1980s and the early years of this century. That phase saw the introduction of automation into forestry, sparked by advances in electronic communications and a surge in computing power. The impact was significant. For example, productivity per worker in Sweden (which has been at the forefront of forestry management) increased by 300 percent within 25 years.
Through the years, most efforts aimed at boosting productivity in the forestry industry have centred on improving the efficiency and effectiveness of machinery, with enhancements being driven by a requirement to handle the greater volumes of wood being harvested, as well as by safety reasons. Today, however, in the era of Industry 4.0 and the age of analytics, using big data and integrating operations across an entire organization have become essential in managing forest resources more effectively.
Registrations continue to pour in for this year’s ForestTECH 2020 conference running on 18-19 November in Rotorua. We are also seeing strong demand for our virtual event featuring on-line coverage for the first time this year. If you are attending in person be quick to register your interest for the practical workshops running pre- and post-conference. These are available at no additional cost for ForestTECH 2020 paying delegates. Workshops places are limited.
Also, planned for April 2021, our most popular conference HarvestTECH will be held in Rotorua. Visit the event website to sign up for monthly updates, and be the first to know when registrations are opened!
Will Putin ban Russian log exports?Log Exports from Russia – Softwood log exports from Russia have been in steady decline for the past 15 years and could reach zero in 2022 if President Putin’s plan for a new log export ban is implemented.
In a recent statement, the Russian President Mr. Putin ordered the government to strictly control the exportation of roundwood and low-value forest products, and to clamp down on the illegal trade of logs (in his terms: “hard-hitting decriminalization of the industry”). He also requested a “complete ban on shipments of unprocessed or roughly processed conifer and valuable hardwood out of Russia by January 1, 2022.” This statement would indicate that lower-value hardwood logs, such as birch pulp-logs exported to Finland, may be excluded from the future export ban.
To encourage domestic processing of Russian timber, Mr. Putin also wants to implement a government program of subsidised loans for investing in wood processing facilities, primarily in Siberia and Russia’s Far East, targeting the growing wood markets in Asia. These industry loans would be available for facilities producing lumber and panels, and pellet manufacturers which predominantly use small-diameter logs for their wood furnish.
If the log ban is enacted, it will be the end of Russia’s long-lasting role as one of the world’s largest exporter of softwood logs. Over many decades, the country exported large volumes of wood raw-material, predominantly to forest products manufacturers in Asia and Europe. Softwood log export volumes peaked at 37 million m3 in 2006, but when log export tariffs were implemented in 2008, shipments fell dramatically and were down to only 8.5 million m3 in 2019 (see chart).
This year, the decline has continued and only an estimated six million m3 is likely to be exported, according to the Wood Resource Quarterly. A majority of the shipments have gone to China (about 75%) and Finland (10%) in the first half of 2020.
Russian hardwood log exports have fluctuated between 7-8 million m3 the past five years but are likely to fall in the next two years if higher-value logs such as oak and ash are banned for exports.
China has sourced about 10-12 million m3 of softwood and hardwood logs annually from Russia for the past five years. Subsequently, the log export ban will substantially impact the future sourcing of both wood raw-material and processed products to China, a potentially troublesome scenario due to their outlook for increased consumption of forest products.
Source: Wood Resources International LLC (www.WoodPrices.com)
BREAKING NEWS: Possible bans for Australian exportersAustralian exporters to China face $6 billion 'D-Day' - Australian exporters to China are facing a $6 billion cliff after unconfirmed instructions from Chinese customs authorities threatened to ban Australian wine, copper, barley, coal, sugar, timber and lobster from Friday.
The notice, distributed by a customs clearance agent on Tuesday, has not been confirmed by the Chinese government, but its publication was enough to send shares in ASX-listed copper miner Sandfire Resources falling by 8 per cent.
Queensland timber logs have also been banned after tree-destroying bark beetles were allegedly found in a shipment along with barley from Emerald Grain Australia. The claims have been strongly denied by Australian exporters.
The trade dispute followed Australia's push for an inquiry into the origins of the coronavirus in April but has continued to intensify after Beijing imposed new national security laws on Hong Kong and advanced its territorial claims on the South China Sea.
The Chinese Foreign Ministry has denied it is ratcheting up economic pressure to win diplomatic concessions.
Source: Sydney Morning Herald
ForestTECH: Turning point for monitoringBrazil is a nation of superlatives. It is one of the most biodiverse countries in the world, and home to the largest rainforest, the largest freshwater preserve, and a quarter of the world’s species. It also one of the world’s largest grain producers and a major producer of coffee, sugar, and beef.
Brazil’s tropical forests are critically important for biodiversity, human livelihoods, and climate stability, but remain threatened. Despite zero-deforestation pledges from the government and agricultural companies, rapid deforestation in Brazil persists. Agricultural expansion continues to be the biggest driver of forest loss — driven by the world’s growing appetite for soy and other agricultural crops.
A new frontier in land classification and monitoring
Brazil was among the first countries to pioneer the use of satellite imagery to track annual land use change. However, these initiatives have been constrained by a lack of frequent, high-resolution data — making it difficult to segment different land use classes or detect degradation early enough to intervene. This could soon change.
Recent improvements in the spatial and temporal resolution of satellite imagery by Planet and the availability of machine learning and imagery analysis at global scale by Google offer new opportunities to disrupt historical limitations.
The NexGenMap project is an R&D collaboration with Planet, Mapbiomas, Google, the Gordon and Betty Moore Foundation, to pioneer new practical and cost-effective solutions to track forest loss, classify change, and ultimately make more effective decisions about land use. The project is focused on 16 areas of interest across seven distinct ecosystems in Brazil — a total of 300,000 square kilometres.
As part of the upcoming ForestTECH 2020 event running on 18-19 November, Tara O'Shea, Director of Forest Programs at Planet will be presenting to the local industry on the significant advances that have been made recently combining remote sensing and analytics technologies and how they are being deployed operationally by forest owners and managers. Tara, based out of the US, oversees the company’s strategy for leveraging its Earth observation and analytics technologies to improve global forest monitoring systems.
Tara began her career advancing ecosystem services research at Duke University’s Nicholas Institute for Environmental Policy Solutions. In 2012, she helped start a non-profit focused on engaging the private sector in reducing emissions from deforestation and forest degradation (REDD+), a financial mechanism for sustainable land use under the United Nations Framework Convention on Climate Change.
Prior to joining Planet, Tara advised several foundations and investment firms on integrating the reality of climate and environmental change into their portfolios, including organising a Climate & Capital summit that brought together investors representing over $1 trillion AUM alongside the COP21 in Paris.
Full details of the programme for ForestTECH 2020 can be found on the event website.
WPMA: Subsidised imports threaten local producersIncoming wall of wood threatens local processors - New Zealand needs to get ahead of a wall of subsidised wood products heading this way as overseas players shore up their processing industries in response to the covid-19 pandemic, local manufacturers say.
An export log ban announced by Russia a month ago is the latest in a string of measures that are going to drive “major shifts” in the direction of wood product flows out of China and Europe, said Jon Tanner, chief executive of the Wood Processors and Manufacturers Association.
The Russian ban, proposed from January 2022, will reduce log supplies to China and likely increase that country’s demand for logs from NZ and Australia, he said. At the same time, cheap loans will be available from next year to encourage Russian wood processors to modernise and expand their operations.
The Russian measures come just as Canada opted to join the US in imposing high tariffs on Chinese wood products. The ongoing spruce beetle infestation in Europe continues to kill forests which are then felled, pushing more volume into international log and timber markets.
Tanner said those combinations will see more subsidised wood products heading this way and into NZ’s export markets and officials will have to act.
“We can’t wait for this for another couple of years,” he told BusinessDesk. “It’s getting more and more difficult by the day because of the trade restrictions being put in place.”
Prime Minister Jacinda Ardern yesterday appointed Stuart Nash the new forestry minister, replacing NZ First minister Shane Jones, who held the portfolio in the last Parliament.
FOA: Single ministry for forestry?Foresters keen on single ministry - A combined agriculture-forestry portfolio is one of the forestry industry’s hopes as the Government allocates ministers’ roles in the post-election shuffle. Forest Owners Association president Phil Taylor says given the central role forestry will continue to play for this country to meet its climate change obligations, and the role farmers can play in planting trees, it made sense to integrate the two.
“In the past we have had an integrated ministry, but then it mainly had a pastoral focus, with forestry going to an associate minister. With the right, positive minister, an integrated ministry would make sense,” he said.
While having had no indication yet what the Government may do, Taylor says Damien O’Connor has proven a sound minister for agriculture, and one who appreciated the links between farming and forestry.
Taylor says the challenges New Zealand faces in trying to reduce its carbon emissions have not diminished in the past three years, if anything they had increased and meeting the Paris Accord using tree planting was still the best short-term approach.
“Unless we plant more trees, we as a country will be required to spend more on carbon credits. This was central to Shane Jones wanting the one billion trees policy,” he said.
The industry’s concern was that with a swing to a centre-left government there may be some loss of momentum around the project, with more controls on forestry making the sector a “sacrificial lamb” to appeal to the pastoral sector.
“Leading up to the election there was a lot of talk about the need to control afforestation to deal with unfounded fears of a loss of pastoral land,” he said. “This government will have to be really careful about the sights it sets. If it does not want forestry, it will pay for the carbon. You can’t have your cake and eat it.”
Taylor says while the publicity from groups like 50 Shades of Green was a concern to him, he was heartened by the interest farmers were showing in farm forestry.
“And it is not a case anymore of a farmer planting trees and seeing no income for 25 years. From year eight those trees can start to earn income in carbon credit value,” he said.
Increased extension and education are key areas foresters want to see the Government invest more in over coming months to help capitalise on the interest farmers have in planting.
Source: Farmers Weekly
Forest company results: RayonierNew Zealand operations beat analyst forecast - New Zealand (NZ). Slight beat. Adj. EBITDA US$18.1mm; BMO at US$17mm, 2Q20 US$9.9mm, 3Q19 US$17.7mm. 3Q harvest vols +2.9% y/y (export +8%, domestic -3%). Export sawlog prices fell 1.1% y/y due to high inventories in China (European competition). Domestic sawlog prices fell 6.7% q/q.
Looking at the whole company - Q3 was ahead of target. Real estate and Southern Timber drove the upside. EBITDA guidance raised across all segments due to higher volumes and stronger pricing. Unlike most peers, RYN lacks direct exposure to lumber/panel pricing, but did benefit from better demand. BMO maintaining market perform and target price of US$31.
Source: BMO Capital Markets
Farm conversion: Foreign forester blockedForeign forester blocked from turning Marlborough farmland into plantation - Overseas investors were barred from turning Marlborough farmland into forest after a minister questioned its benefits. Malaysian-owned forester Ernslaw One asked to buy 630 hectares of "uneconomic" land from a sheep and beef farm in the Waihopai Valley which neighboured its plantation.
The farmland is currently owned by a family trust featuring former Marlborough councillor Geoff Evans (pictured). The Evans have farmed in the Waihopai Valley for four generations. But Minister for Land Information Eugenie Sage and Minister for Revenue Stuart Nash disagreed on whether the application met the "substantial and identifiable benefit" to New Zealand test under the Overseas Investment Act.
Nash believe it would, but Sage was "not satisfied". Without her support, the act required the Overseas Investment Office to decline Ernslaw One's application. Speaking this week, Sage said she declined the application after "careful consideration", as it created "very few jobs", generated little income and invested little development.
"I was also concerned that there was no commitment to supply logs to the domestic market to ensure jobs were created in New Zealand," she said. Sage added she was also concerned that Ernslaw One had not promised substantive contributions or commitment to controlling wilding pines that escaped from its plantation.
Wilding pine control was a major issue in several Marlborough catchments, including the Waihopai Valley.
New Zealand requires overseas individuals and companies that want to invest in sensitive land or businesses to first obtain consent. Farmland was considered sensitive land.
It's tree-felling, but not as we know itNorthland: Tree-felling technology improves safety and efficiency - A new technology approach to pruning or removing roadside trees that is much safer and more efficient than traditional methods is being put to use in Northland.
It’s a remote-controlled tree removal system called Tree-Mek, which combines a knuckle boom crane and a 360 degree grasper and saw operated from the safety of the ground. The system operated by Auckland-based company Arborist 360, is the first of its kind in New Zealand.
“This is a fantastic improvement on the traditional approach to tree-felling, especially in a road maintenance environment. It’s so much safer for our workers, as they don’t have to climb trees or use chain saws at height,” says Waka Kotahi NZ Transport Agency Northland System Manager Jacqui Hori-Hoult.
The specially designed chain-saw is remotely manoeuvred to grasp a trunk or branch of up to 800mm in diameter before cleanly sawing it off. The severed log is then safely lowered to the ground, vastly reducing risks associated with workers using cutting machinery at heights. The crane’s 32 metre extension means it can reach over obstacles and into awkward or limited workspaces.
The system, including the saw, is hydraulically driven which makes it much quieter than a hand- held chain saw.
Arborists are usually called in to remove vegetation or prune trees to improve visibility or lighting on corners or when aging trees overhanging the road pose a safety hazard. Due to the specialist nature of the work, it’s sub-contracted to qualified arborists with traffic management teams keeping them and road users safe.
“As well as being much safer to operate, the Tree-Mek is also much quieter so it can be used at night, which is another big asset in roadside tree management. It helps reduce costs and disruption for motorists because we can work at night, clean up and reopen the road before there’s much traffic around.”
“It’s a great workplace innovation that improves safety and efficiency,” says Jacqui Hori-Hoult.
Small forestry investor woes continueWho’s protecting mum and dad forestry investors? - Investors in a series of forestry schemes, who have received minimal returns after 30 years, say they have been let down by a scheme's managers and by the statutory supervisor they believed was there to look after them. Now, in a final disappointment, they have been told by the heads of the Financial Markets Authority, the body that regulates the sector, and by the disputes resolution body, Financial Services Complaints Ltd, there’s nothing they can do.
Investors have been left wondering what the role of a statutory supervisor is, if it is not to protect investors. And they warn the same system that hasn’t protected them, could well not protect others.
It all started in the mid-1980s, when a former NZ Forest Service ranger called Peter Martin and an accountant named Peter Bould had a great idea - a forestry investment fund. They would raise money from people wanting a long-term plan for their retirement, and use that money to buy land and plant trees.
Everyone would wait 25 years for the trees to grow and voila! - they would chop them down and everyone would get a massive windfall. A few thousand dollars grown to hundreds of thousands, they said.
In theory it was a fine plan. Other forestry investment schemes have yielded reasonable returns for their investors - though not as much as Martin and Bould were promising with their Arbor forests. Instead, in 2002, Martin and Bould formed an unrelated company, which invested in a sawmill at Waverley, near Whanganui.
In 2012, they decided the sawmill needed a multi-million dollar upgrade, and some of the Arbor forests were put up as security for a $6.5 million bank loan. Suddenly, instead of fire or disease being the main risk with the forestry investment, there was a new one.
As the mill failed, logs from the forests were handed over for processing, but up to $4 million-worth were never paid for. And investors lost millions when the bank exercised its security over the forests to get its money back.
The failed sawmill was eventually sold for $1.5 million - a fraction of the $6.5 million cost of the upgrade - with the full purchase price finally being paid this year. But while the sawmill chewed up investor profits, the scheme's managers continued to pull in fees. Most recently, Peter Martin negotiated a termination payment worth $500,000, after some of the forests were put up for sale.
To begin at the beginning - Investing in forestry seemed a good plan to Susan and her husband James*. He was a plasterer, and in 1987 someone from Peter Martin’s team turned up at the building site he was working on to sell the scheme to tradies.
Inflation at the time was high - more than 15 percent - meaning Susan and James worried about their savings being whittled away. Kiwisaver was still 10 years away. Forestry was promoted as a great way for self-employed people to safely tuck money away for their retirement.
Susan and James bought into Greenoch Forest, one of Martin and Bould’s earliest Arbor forest funds.
Buy and Sell
... and finally ... your mid-week humour
'Eucalyptus are the only trees named after what they would say if pruned'. (try saying it out loud) Ha!
That's all for this week's wood news.
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