West Coast Forest Industry Review - Ministry for Primary Industries

crown forestryWEST COAST FORESTINDUSTRY REVIEWDecember 2009

Further copiesThis report can be downloaded from www.maf.govt.nz or you can request printed copies from:Crown ForestryMinistry of Agriculture and ForestryPastoral House25 The TerraceP O Box 2526WellingtonNew ZealandTel: 0800 00 83 33Fax: 64 4 894 0300Website: www.maf.govt.nz© Crown copyright – Ministry of Agriculture and Forestry 2009ISBN 978-0-478-35786-8 (print)ISBN 978-0-478-35787-5 (online)Material contained in this report may be reproduced or published without further licence provided it does not claim to be publishedunder government authority, is not reproduced for profit, and the source is acknowledged.DisclaimerWhile very effort has been made to ensure the accuracy of the information contained in this publication, the Ministry of Agricultureand Forestry (MAF) accepts no liability for any error or omissions. The information does not necessarily represent the views of theMinistry of Agriculture and Forestry.

01CONTENTScontentsExecutive Summary 021 Introduction 04Preamble 04Objectives 04Scope and structure 042 BACKGROUND 06Forest ownership/administration 06Genesis of the west coast forest industry 07Crown Forestry assessment of background 093 OVERVIEW OF THE FORESTS 10Physical environment 10Land tenure 11Management issues 13Forest stewardship council (FSC) certification 13Direct employment 13Differentiation into two separate forest estates 14Crown Forestry assessment of forest overview 144 THE South Westland SPECIAL PURPOSESPECIES 15Tenure 15Species distribution 15Age class 15Distance to markets 15Wood quality 16Silvicultural treatment/fertiliser 16Harvest yields/log prices 17Reported forest value (accounting value) 17Crown Forestry assessment of the SPS forests 175 THE NORTHERN PLANTATIONS 18Tenure 18Species distribution 18Age class 18Distance to markets 19Current silvicultural regimes 19Fertiliser 20Growth rate 20Operation costs 20Reported forest value (accounting value) 21Modelling the current plantation estate 22Plantation management issues 24Crown Forestry assessment of the plantations 256 THE WOOD PROCESSING INDUSTRY 26Log supply 26Backloading 28Contractual issues/settlements 2000 to 2009 29Present west coast processing industry 30Return to rimu processing 31Wood for energy 32Crown Forestry assessment of the woodprocessing industry 337 THE EMISSIONS TRADING SCHEME 34Brief outline of the scheme 34Implications for the West Coast forests 35Crown Forestry assessment of ETS 368 other LAND USES 37Gold mining 37Farming 37Life style blocks 37Crown Forestry assessment of other land uses 379 FUTURE MANAGEMENT options – SPS 38Status quo 38Immediate exit 38Continue but stop discretionary expenditure 38Discussion of SPS options 40Crown Forestry assessment of SPS options 4010 FUTURE MANAGEMENT options– PLANTATIONS 41Status quo 41Immediate exit 41Harvest to match unpruned on-coast demand 42Harvest to match unpruned on-coast capacity 42Process all production on-coast 42Complete stop to replanting 42Discussion of plantation options 43Crown Forestry assessment – plantation options 4311 CONCLUSIONS 4712 Glossary 49Appendices 56

02executive summaryExecutive SummaryThis report has been prepared as a result of the February2008 decision by the State-owned Enterprises Ministerthat “the assets of Timberlands West Coast Ltd are totransfer to Crown Forestry”. That decision also “invited theMinister of Forestry to arrange for Crown Forestry to reportto Cabinet on the status of the West Coast timber industry”and “on the proposed replanting programme”.Continuing ownership but stopping all discretionaryexpenditure (at least in the short-term) is considered thebest option for the SPS estate from a commercialviewpoint. This minimises the cost and risk of continuingwith this project but does not rule out the option ofrecovering at least some asset value by harvest or offeringthe trees for sale.The objectives of this report are to assemble all relevantinformation on the West Coast forests, provide an up-todateanalysis of the business, draw conclusions, identifyand cost future options and provide information for theCrown to make strategic decisions. In preparing thereport Crown Forestry has focused on commercial andtechnical forestry matters drawing on ten months tradingexperience.The West Coast forest ownership has always beendominated by the Crown, with the forests having majorphysical challenges of remoteness, low fertility and anadverse climate. There has been continuous politicalintervention and frequent shifts in government policy.This has given rise at least in part to the present situation.The land is either owned by Ngāi Tahu Property Limited(Ngāi Tahu Property), or subject to a right of first refusalthrough Te Runanga o Ngāi Tahu, so Ngāi Tahu needs tobe involved in any future strategy. The forests are ForestStewardship Council (FSC) certified and supportsignificant employment on the West Coast.The forests comprise two separate forest estates and theseneed to be considered separately. The Special PurposeSpecies (SPS) estate was initiated by government toimplement an explicit 1980 policy decision. The SPSforests are located in South Westland, are remote, aresituated on low fertility soils with high rainfall and anysignificant harvest is 15 years away. Continuing with theSPS project is considered a high commercial risk.The Plantation estate is defined as all the forests from justsouth of Hokitika northwards. It dominates the region’sresource and is critical to the wood processing industry.Average regional growth rates are among the lowest inNew Zealand with most soils, but more particularlyterrace soils, relying on fertiliser application for standhealth and growth. A lack of planting and pruninginvestment in the late 1980s has created a serious gap inharvest area availability and pruned log grade volumes.The Plantations are able to support a long-termsustainable harvest of 150 000 cubic metres per annumwith a possible step up after 2019. At a technical levelCrown Forestry has identified the need to review radiatapine silvicultural regimes, replanting on terrace sites andharvest strategy. There is also a need to consider furtherland rationalisation (in conjunction with Ngāi TahuProperty) to create a “core” estate which would mitigategrowing risk and reduce costs without undue reduction inlong-term sustainable yield.The transition from rimu to radiata has fundamentallytransformed the West Coast forest industry’s competitiveadvantage into a competitive disadvantage. There iscurrently a lack of local demand for unpruned logs and nolocal market for residues so that off-Coast sale ofunpruned logs has been a feature since the start of theradiata harvest. This results in increased transport cost forthe forest which adversely affects forest value. Howeverthe industry is reliant on the forests and would not survive

03executive summaryon private or external supply. A return to rimu is notconsidered feasible.The most pressing issue for the Plantations is to reduceoff-Coast log sales and process all or most of the harvestlocally. This can be achieved either by reducing the totalcut to match current local demand or by encouragingincreased local processing to match forest harvest.Depending on the option adopted, forest value could bemore than doubled.Tahu Property needs to be involved in all ETS initiatives,(either pre 1989 or post 1990 forests) because of their landownership.Replanting should continue, to sustain a “going concern”forestry business. This meets the terms of the ForestryRights, enables FSC certification to be maintained andpreserves the asset while rationalisation and/or outrightsale are progressed.The optimum long-term solution is considered tocomprise new investment in an integrated single siteoperation located in the Grey Valley, taking all producefrom the Plantations including residues. This is clearlybeyond Crown Forestry’s mandate or expertise but couldbe tested by offering the Plantations for sale, possibly inconjunction with the land, if agreement could be reachedwith Ngāi Tahu Property.The ETS as it applies to forestry is highly complex and stillnot complete. The potential NZU value of the pre-1990land is in the order of $38 million as a one timeopportunity (open to Ngāi Tahu Property) while theobligations still apply even if the NZUs are not obtained.Offset against ETS benefits, ETS liabilities (deforestationpenalties) deny the opportunity of changing the land use(at least in the initial commitment periods) on those partsof the land where farming would be the highest and bestuse. The post-1989 Crown owned freehold land couldhave an annual income of $750 000 but whether or not toenter the scheme needs very careful consideration. Ngāi

04introductionIntroduction 1PREAMBLEIn February 2008, following a November 2007 report toshareholding Ministers from the Board of TimberlandsWest Coast Limited (Timberlands), the then State-ownedEnterprises Minister announced that “...the assets ofTimberlands West Coast Ltd are to transfer to CrownForestry as the SOE can no longer operate as a successfulbusiness”.The assets were transferred on 1 January 2009. The forestsare now managed by Crown Forestry, a business unit ofMinistry of Agriculture and Forestry (MAF). Timberlandsis being wound up.Crown Forestry’s purpose as stated in its 2009/10 BusinessPlan is to “Prudently manage and administer a portfolio ofcommercial forestry assets to achieve the best return forstakeholders whilst meeting contractual and other legalobligations. Consistent with Government policy, CrownForestry also seeks opportunities for the Crown to sell itsinterest in these assets and works with other agencies toresolve Treaty of Waitangi claims over the Crown forestryassets it administers.”As part of the February 2008 decision, Cabinet “invited theMinister of Forestry to arrange for Crown Forestry to reportto Cabinet on the status of the West Coast timber industry inmid-2009 and on the proposed replanting programme”.A properly considered response to Cabinet’s invitation hasrequired a full review of the forest estate previouslymanaged by Timberlands. This has involved assemblingthe necessary commercial and technical information tounderstand the background and origin of the estate, itsdependent industry and management. This is nowpresented in this review and its appendices.would transfer to the Crown on 1 July 2008. Before thetransfer could proceed, several issues first needed to beresolved by the SOE Minister which delayed the transfer by6 months to 1 January 2009. To allow time for CrownForestry to gain a reasonable working knowledge of thebusiness, this review needed a corresponding delay fromthe original “mid-2009” intention until late 2009.OBJECTIVES› To assemble all relevant information on the West Coastforests.› To provide an up-to-date analysis of the ex-Timberlandsforestry business.› To draw conclusions.› To identify and cost future options.› To provide information for the Crown as forest owner tomake strategic decisions.SCOPE AND STRUCTUREThis review focuses on commercial and technical forestrymatters and endeavours to gather all the necessaryinformation to clearly identify and cost the range of futureoptions under MAF’s management. It draws upon CrownForestry’s first ten months of trading and experience gainedin coming to grips with the new role of managing theseforests.“Best Endeavours” have been applied to preparing thisreview and in order to supplement Crown Forestry’sknowledge, gained from administering the forests since1 January 2009, wide discussion has been undertaken. Keystakeholders involved include PF Olsen Ltd staff whomanage the day to day operations under contract to CrownForestry (all previously worked for Timberlands), logcustomers, contractors and Ngāi Tahu Property Limited(Ngāi Tahu Property) as owner of most of the land.The “mid-2009” review date was based on the originalintention that ownership of the Timberlands forest assetsThe review does not make recommendations – a separatebriefing will be prepared for the Minister of Forestry taking

05introductionthe conclusions from this review and making specificrecommendations on the options for future management.The review is presented in eleven sections including thisintroductory section. At the end of each section there is abrief assessment of the key issues of that section.Appendices are provided in a separate volume includingdetailed forest maps.

06backgroundBACKGROUND 2The Crown has been, and remains, the principal forestowner on the West Coast. Unlike other regions, the WestCoast has not attracted significant private investment inplantations and no other region in New Zealand is sodominated by one forest owner (90 percent ownership byarea). Forestry and the forest industry within the regionhas been characterised by a high and continued level ofpolitical intervention due at least in part to this dominanceof Crown ownership.In this context, a solid understanding of the underlyingissues, the multiple and conflicting agendas and how thesehave led to the present position, is essential in order todevelop realistic future options.FOREST OWNERSHIP/ADMINISTRATIONNZ Forest Service/NZ Forestry Corporation Ltd Pre-1990The NZ Forest Service administered all production forests(both native and exotic plantation) on Crown owned landon the West Coast until it was disbanded in 1987.After the demise of the Forest Service in 1987, the StateownedEnterprise (SOE) NZ Forestry Corporation Ltdcontinued the (profitable) rimu production on the WestCoast and looked at developing native beech production.However, the SOE cut back planting and silviculture ofplantation species on the West Coast in favour of otherareas in New Zealand with better growth rates and returns.These cutbacks are a material cause of the current shortageof pruned logs.In 1989, the Government decided to sell the assets of NZForestry Corporation Ltd, and in 1990 as part of thisprocess, the West Coast forests (exotic plantation forestsonly) were offered for sale but no bids were received.Timberlands West Coast Ltd – Stand Alone SOE 1990 to 2008On 1 December 1990 Timberlands West Coast Limited(Timberlands) was incorporated as a stand alone SOE, tookover ownership of the exotic plantations and entered intoCrown Forestry Licences to occupy the plantation lands.Timberlands also continued the management ofapproximately 130 000 hectares of native production foreston the West Coast under a licence to the Crown. This cameto an end in 2002 when harvesting of native trees on Crownland stopped and these areas were transferred to theDepartment of Conservation (DoC).In 2000, the land subject to the Crown Forestry Licenceswas sold by the Crown to Ngāi Tahu as part of a Treaty ofWaitangi settlement. Timberlands and Ngāi Tahurenegotiated the occupation agreement which wasregistered on the relevant land titles as a forestry right.In February 2008, following a report in November 2007from the Timberlands Board to shareholding Ministers, thethen State-owned Enterprises Minister announced that “...the assets of Timberlands West Coast Ltd are to transfer toCrown Forestry as the SOE can no longer operate as asuccessful business”.Crown Forestry – Ministry of Agriculture and Forestry Post1 January 2009The assets were transferred on 1 January 2009 and theforests are now managed by Crown Forestry, a business unitof MAF. The SOE Timberlands West Coast Limited is beingwound up.The transfer required Ngāi Tahu’s consent on two counts.Firstly, the consent of Ngāi Tahu Property was required toassign the forestry rights. This was obtained followingrelatively minor variations which are described in Section 3.Secondly Te Runanga o Ngāi Tahu Property consent wasrequired in respect of their right of first refusal over theTimberlands shares which had been formalised in a 1998agreement between Ngai Tahu and the Crown (as a

07backgroundcondition of the 1997 Ngāi Tahu Deed of Settlement).Prior to the transfer, Te Runanga o Ngāi Tahu and theCrown entered into a new “Deed granting right of firstrefusal” dated 23 December 2008. This replaced the 1998right of first refusal over the Timberlands shares with abroadly equivalent right over the assets.As part of the transfer arrangements, Crown Forestry’sresponsibilities applied only to management goingforward. All historic matters (particularly matters relatingto historic log supply) were to be dealt with byTimberlands and the Minister of Finance.Coast was still running at 100 000 cubic metres perannum (96 percent rimu) and providing most of thenational cut of native species but public opposition wasmounting over the non-sustainability of these operations.Beech 1920s to 1999The potential for a beech industry based on the WestCoast red and silver beech forests was first identified inthe 1920s. There was a small ongoing harvest of beechsawlogs based around Reefton and the upper Grey Valleybut it was not until the 1970s that any major developmentwas considered to develop this potential.A further condition of the change in control was thatoperations would remain on a more-or-less “status quo”basis until completion of this review. In practice, thatmeant sales commitments would be met, winter 2009replanting would proceed and silviculture for the firsttwelve months would be approximately as planned byTimberlands. This was intended to give a degree ofcertainty to customers, staff and contractors while thereview was in progress.The NZ Forest Service set up a beech project team inReefton in 1972 to prepare for a major beech schemeutilising both sawlogs and chiplogs.Environmental awareness was intensifying at this timeand the scheme was vigorously opposed by environmentalgroups. In hindsight the scheme was overly ambitious(500 000 cubic metres per annum of log production) anddid not proceed.GENESIS OF THE WEST COAST FOREST INDUSTRYThe Rimu Era 1870s to 1990sThe West Coast forest industry was based on nativespecies – principally rimu – from the beginning of majortimber production in the 1870s for over a century untilthe 1990s. Throughout this period, logs were processedlocally on the West Coast. At the height of this periodthere were around forty sawmills on the West Coast with acombined capacity of 200 000 cubic metres of logs perannum.Throughout the 1980s and 1990s, through a combinationof public pressure and a diminishing resource, native logproduction had declined in all regions throughoutNew Zealand except the West Coast. In 1990 productionof native logs from Crown-owned forests on the WestTimberlands revived the idea of sustainable beechharvesting in the 1990s (but at a much more modest scale)and were well on the way to implementing this when thegovernment changed in 1999 and the incominggovernment directed Timberlands (using their powersunder the SOE Act) to cease all beech operations. Thisended all involvement in beech production forestry byCrown agencies.The End of the Rimu Era 1990s to 2002In 1993, Government enacted the Forest Amendment Actwhich provided for all native production forestry tobecome sustainable. The West Coast was a notableexception with non-sustainable harvesting to continue butto be phased out by 2000.

08backgroundThe rimu-dominated era, and the associated competitiveadvantage of the West Coast industry, ended with thecessation of all non-sustainable native harvesting inDecember 2000. This reduced the native forest log harvestfrom around 100 000 cubic metres down to 12 000 cubicmetres per annum.In 2000, the Forests (West Coast Accord) Act went a stepfurther and set a timetable to completely stop all harvesting(either sustainable or otherwise) of native trees on Crownowned or controlled land by 31 March 2002.This brought a halt to native timber production on the WestCoast. Approximately 130 000 hectares of these formernative production forests (the so-called “stewardshipforests”) were transferred to DoC.The Timberlands 2001 Annual report observed that “…thistrend (decline in rimu cut) more than any other influenceexplains the downturn in Timberlands’ profitability andhighlights the challenges which the company faces as it movesforward.”The “Adjustment Package” 2000To acknowledge that the region had been so highlydependent on native forest harvesting, and to facilitateadjustment to the cessation of native harvesting on allCrown-owned lands, a $120 million “Adjustment Package”was provided by Government to the West Coast in 2000.This consisted of $92 million to the Development WestCoast Trust and $7 million to each of the four localauthorities.The wood processing industry did not directly benefit fromthe adjustment package. It was intended that industrywould be accommodated by switching its cut to theincreasing supply of plantation species. On this basis, therewas and still is a strong expectation from the industry andfrom the wider West Coast community that some form oftimber industry within the region will continue into thefuture.Exotic Plantation Forestry 1920s to 2007Exotic plantation species were first planted on the WestCoast in the late 1920s but it was not until the mid-1960sthat widespread planting was undertaken.A large number of plantation species were tried and theWest Coast climate and soils were found to be generally notwell suited to the major exotic plantation species. Radiatapine emerged as the favoured species largely because of itsready availability, its versatility over a wide range of sitesand the known acceptance of its timber.Even though it was acknowledged from an early stage thatplantation species did not perform particularly well on theWest Coast, major planting was carried out with the aim ofproviding employment to the region as well as continuity tothe local forest industry after log supply from the(unsustainable) native forests had been exhausted. (Nativespecies were seen as too slow growing to provide timber ina realistic time frame.)Harvesting of exotic plantation species commenced in 1989and quickly built up to over 100 000 cubic metres perannum. In its Annual Report for the year ended 31 March2001, Timberlands reported an exotic log harvest of179 971 cubic metres for the previous year and stated thatits sustainable harvest of 290 000 cubic metres per annumwould be reached in three years.A significant feature of the change to plantation species andaway from rimu was that the local processing industryfocused more on producing appearance grade sawn timberfrom high grade pruned logs with a resulting pruned/unpruned log demand imbalance and a need to send lowergrades off the West Coast for processing.

09backgroundBy 2005 it had become apparent that a sustainable yield of290 000 cubic metres of logs per annum was a majoroverestimate and Timberlands initiated a two-stage reviewof yields and woodflows that was completed in October2007. This review revised the sustainable yield downwardsto a maximum of 170 000 cubic metres per annum(although the 2007 Timberlands report also refers to150 000 cubic metres per annum as the sustainable yield).The reasons given by Timberlands for such dramaticreduction were:› The poor growth and yield performance ofTimberlands’ radiata forests versus prior forecasts.› The impact on sustained yield of several catastrophicwindthrow events on its forests.› The effect of ongoing attritional windthrow, which wasproving endemic throughout Timberlands’ forests.Special Purpose Species (SPS) in South Westland 1980 to 2007In 1980, Government initiated a programme to plant upto 10 000 hectares of Tasmanian blackwood (Acaciamelanoxylon) a highly decorative hardwood species. Thisexplicit policy initiative was intended to compensateSouth Westland communities for an equivalent area ofrimu production forest that had been placed into NationalPark or otherwise excluded from production. Ultimately,it was thought that this resource would provide highquality timber that could be managed sustainably.By 1993, 1100 hectares of blackwood had been planted inSouth Westland and the programme was formalised in anagreement between the Crown and Timberlands tocontinue this planting. The 1993 agreement included a$6 million suspensory loan to “fund the commercialshortfall in respect of the plantings”. This loan would beforgiven pro-rata as the planting progressed. It alsoprovided for decorative species other than blackwood(particularly cypresses).The Forest Amendment Act 1993 and the conditions ofTimberlands’ FSC certification relating to the overallestate, reduced the area of sites potentially available forplanting SPS in South Westland. For this reason thenorthern boundary (for the purpose of implementing the1993 SPS Agreement) was extended to the Hokitika River.Scattered plantings of blackwood and cypress occurthroughout the whole West Coast forest estate but theconvention for the purpose of this review is to define theSPS estate as only the four southernmost forests (theoriginal policy intention).In December 2006, Timberlands advised the Crown that itwas still well short of the 10 000 hectare target but by theend of the 2007 planting year would have expended$13.8 million, of which $7.5 million was funded fromTimberlands operational cashflow, a situation that wasunsustainable due to the changed circumstances(complete loss of rimu revenues not contemplated at thebeginning of the SPS programme, and a dramaticallyreduced exotic harvest).In February 2007, Timberlands and the Crown agreed toend any further planting of the SPS after the 2007programme and agreed that the 1993 agreement had beenfully discharged with an SPS planted area of 7020 hectaresrecorded in that agreement.CROWN FORESTRY ASSESSMENT OF BACKGROUNDWest Coast forest ownership has always been dominatedby the Crown and for the last three decades, there hasbeen continuous political intervention and frequent shiftsin government policy which have given rise in part to thepresent challenging situation.A fundamental understanding of this complexbackground is essential to develop technically feasible andpolitically realistic options for the future.

10OVERVIEW OF THE FORESTSOVERVIEW3OF THE FORESTSAs at 30 June 2009 gross land area of the ex-Timberlandsforests on the West Coast was 45 285 hectares. Totalplanted area all species was 28 280 hectares.Timberlands recognised 21 individually named forestareas over some 350 kilometres north to south allrelatively close to the coast. The land is administered byBuller, Grey and Westland District Councils and the WestCoast Regional Council. Map 1 shows the forest locationsand relative size of each.PHYSICAL ENVIRONMENTRainfallAnnual rainfall varies from around 2000 millimetres innorthern areas close to the coast and in the semi-rainshadow areas of the Grey and Inangahua Valleys to over4000 millimetres in the foothills of the main ranges.Rainfall also increases to the south as the ranges are muchnearer to the coast. Among the highest rainfalls inNew Zealand have been recorded close to the main divideinland from Hokitika. Map 2 (attached) is a “broad brush”ten-year (1990 to 2000) rainfall map and gives a generalsense of rain patterns in relation to the forest area.Soils And TopographySoils north of Hokitika were mapped in detail by theDSIR Soil Bureau during the 1970s as part of the beechproject. South of Hokitika there has been no co-ordinatedsoil mapping. Good soil information is available for mostof the forests in the stand records obtained fromTimberlands at handover date (1 January 2009) with soiltype recorded by stand. Most of the soil types underlyingthe forests are described as having low or very lowfertility.The soils underlying the forests are diverse but broadly fallinto two categories – hill country and glacial terrace(pakihi) soils. Most of the hill country soil types aredescribed as better drained or imperfectly drained andlow fertility and the terrace soils are described as poorlydrained and very low fertility. The terrace soils respond todrainage (by machine prior to planting) and fertilising.Timberlands conducted regular foliage sampling tomonitor tree nutrition and health and implemented afertiliser programme of over $1 million per annum inrecent years.Topography mirrors the soils in two broad categories hillor terrace. The hill country is mainly heavily dissectedwith short, steep slopes. Slipping is common, particularlywhere soils are underlain by mudstone (for example,Mawhera and Omoto forests). As its name implies, theterrace country is flat. Individual forest maps are providedafter the appendices and show 20-metre contour intervalswhich give a very good sense of topography in each forest.WindAs the risk of wind loss on shallow soils increases withtree height, wind has been having an increasing impact asmore areas of forest on shallow terrace soils near maturity.The first reference to serious wind losses in Timberlandsannual reports is in the 2001 report which records (inrelation to a storm in 2000) that “Over 100 hectares ofwindthrow in 18 to 24 year old pinus radiata was salvagedafter it blew down.” Since then major storms in October2003, February 2004 and July 2008 have led to significantcrop losses.An August 2006 report entitled Windthrow Events –Impact on Harvest Volumes which was commissioned byTimberlands, emphasises the impact of wind loss on boththe sustainable yield, and equally, or more importantly,the loss of high grade pruned log volume. Even thoughsome volume can be salvaged, the wind event effectivelyforces harvest at an early age and the reduced treediameter means the pruning investment is eitherdrastically diminished or totally lost.

11OVERVIEW OF THE FORESTSAs well as widespread “catastrophic” windthrowfrom major storm events, the same report alsorecognises “attritional” windthrow in whichindividual trees or small groups of trees withinstands are blown over from time to time.Figure 3.1: Land Tenure Class percentAlthough wind was largely ignored as a factor before2000 (possibly because of the limited extent of olderplantings on the shallow pakihi soils) the degree ofwind loss and damage over the recent years meansthat it must now be a major managementconsideration in regard to exotic plantation forestryon terrace areas.LAND TENUREThe breakdown by land tenure is shown in Table 3.1 andillustrated in Figure 3.1. The majority of the land is ownedby Ngāi Tahu Property. Refer Appendix 1 for a full tableshowing breakdown by forest (areas are as at 30 June2009).Table 3.1: Area by Land TenureTenure Category Gross (ha) Planted (ha)Crozier Forestry Right 219 192DoC Cutting Rights 949 913Freehold 3 834 2 992Ngāi Tahu FR “Existing Crop” 709 337Ngāi Tahu FR “Initial Term 2030” 39 573 23 845Total 45 285 28 280Cutover or Awaiting Restocking 1 453Total Productive Area 29 733Figure 3.1 highlights the Ngāi Tahu influence overvirtually all (96 percent) of the land (85 percent ownershipand a right of first refusal over another 11 percent).Descriptions of each tenure category is as follows:Crozier Forestry RightThis is a single block of Pinus Radiata on private landplanted in 1997 by means of a registered forestry right.The entire forestry right is under consideration forpurchase by Trustpower for their proposed Arnold Riverhydroelectric project.A copy of this forestry right is attached in Appendix 2.DoC Cutting RightsThese are areas where the land was allocated to DoC (aspart of the land allocation exercise post-NZ ForestService) but only after the commercial tree species hadbeen harvested. Main features are:››››Rights to harvest the standing trees.After harvesting the land reverts to DoC.Not registered but are subject to a managementagreement formally assigned by Timberlands to theCrown.No rent payable.

12OVERVIEW OF THE FORESTSA copy of the management agreement is attached inAppendix 3.FreeholdAll of the freehold land was purchased by Timberlands inthe early to mid-1990s to expand the plantation estate towhat was considered at the time to be a moreeconomically viable size. Main features are:› Seven main blocks ranging in size from 137 hectares(Walker Block Maimai Valley) to 1476 hectares (ButlersBlock south of Hokitika).› All of the freehold land areas were planted after 1990 soare “post-1989” forests for ETS purposes(Refer Section 7).› Mostly poor or reverted farmland that was available onthe market at the time.› All of the freehold land is subject to a right of firstrefusal in favour of Te Runanga o Ngāi Tahu.The freehold land was transferred to MAF at theTimberlands 2008 book value of $5.6 million.The main features are:› By far the largest tenure category – comprises84 percent of the gross forest area (all tenures).› Commencement date 25 February 2000 (supersededthe Crown Forestry Licences which Timberlands ownedbefore the land was transferred to Ngāi Tahu in 2000).› Has a fixed initial term to 2030 so that rent (“LicenceFee”) and outgoings are payable until 2030.› Rent is indexed by CPI and PPI with a ten-year reviewto market but cannot fall below the February 2000starting amount of $912 974 (excl GST).› Ngāi Tahu can require the licensee to surrender smallareas by paying a 15 percent premium over the marketvalue for the trees on such areas.› Ngāi Tahu retains ownership of the indigenous treeswithin the forestry right area other than any that arewithin the “perimeter of a stand of the licensee’s trees”.› If harvesting has been started in an area to be handedback, the land must be handed back in a state suitablefor replanting as prescribed in a detailed Schedulewhich forms part of the forestry right.Ngāi Tahu Forestry Right “Initial Term 2030”This consists of land owned by Ngāi Tahu Property overwhich there is a forestry right covering the present andsubsequent crops. The original version of this agreementwas negotiated by Timberlands and Ngāi Tahu as thesuccessor agreement to the earlier Crown ForestryLicences. In 2007, this forestry right was renegotiated tosurrender just under 5000 hectares of land to Ngāi Tahu,and to reclassify approximately 1600 hectares as a onetimeterminating forestry right (refer below).In order to obtain Ngāi Tahu’s agreement to theassignment of the forestry right from Timberlands to theCrown, it was again renegotiated into the form dated23 December 2008 which is currently registered on therelevant land titles.A copy of this forestry right is attached in Appendix 4.Ngāi Tahu Forestry Right “Existing Crop”This is for land owned by Ngāi Tahu over which there is aforestry right covering the present crop only. This wasnegotiated by Timberlands in 2007 as a separateagreement from the “Initial Term 2030” forestry right witha commencement date of 25 February 2007 and includedsome 1600 hectares of forest.In July 2008, as a result of a catastrophic wind event,Timberlands surrendered 900 hectares of the Mokihinuiforest in North Buller. This, along with other returns, hasreduced the area remaining in this tenure category toabout 340 hectares as at 30 June 2009.

13OVERVIEW OF THE FORESTSMain features are:› The result of a relatively recent rationalisation of areasbetween Ngāi Tahu and Timberlands (commencementdate 25 February 2007).› The areas concerned were generally not thought ofby Timberlands as worth restocking so there are norenewal rights.› The condition of handed back land is as for the “InitialTerm 2030” forestry right.› Pruned/unpruned demand imbalance.› Closest export port is Nelson.”Thus, on the basis of growth rate/fertility, wind risk andremoteness it is clear that the West Coast forests ingeneral are at the lower end of all New Zealand plantationforests in terms of commercial viability. It is alsosignificant that most of these characteristics are difficult toovercome.A copy of this forestry right is attached in Appendix 5.MANAGEMENT ISSUESThe 2007 Report by the Timberlands Board toshareholding Ministers noted these general features of theWest Coast forests:› “Yield per hectare at harvest is only about half theNew Zealand national average.› Serious ongoing losses of mature trees through unusualwind events exacerbated by shallow saturated soils anddiscontinuous forest stands.› Irregular historical planting and silvicultural policiesresulting in current shortages of mature trees forharvesting.› Irregular terrain, high rainfall and poor soils.› Greater distances to export ports than most otherNew Zealand forests/regions.› Forest thinly spread over 350km which increasesmanagement, operational and transport costs.”In a similar vein, and around the same time, ChandlerFraser Keating described the West Coast forests in areport to Development West Coast as characterised by:› “Low fertility soils.› Exposure to wind.› Terrace sites have high water tables.› Low basic density – unsuitable for structural timberproducts.› Nearest market for pulp is Nelson.FOREST STEWARDSHIP COUNCIL (FSC) CERTIFICATIONThe forests hold FSC certification. This is aninternationally recognised environmentally sustainablebrand and provides log customers with improved marketaccess. Certification is regularly audited for renewal andsignificant changes in the management, for example, achange to no replanting could place renewal at risk.DIRECT EMPLOYMENTWood ProcessingThree major sawmills and a peeled veneer plant are themajor West Coast wood processing industries as atOctober 2009. Crown Forestry sells logs to all three majorsawmills. These are Westco Lagan Ltd, Stillwater LumberLtd and Westimber Ltd. In addition, a small sawmill(Wilson Lumber) takes very minor quantities of logs(under 1 percent of volume).The peeler plant is not currently dependent on CrownForestry for log supply although it could be a potentialcustomer in the future.ForestryThe personnel undertaking day-to-day operationalmanagement are all employed by PF Olsen Ltd undercontract to Crown Forestry. This management contract isoverseen by one Crown Forestry staff member committedfull time to the West Coast operation. PF Olsen subcontractthe logging, log transport, roading, land

14OVERVIEW OF THE FORESTSpreparation, planting and silviculture to local companieswhich were previously contracted to Timberlands.Table 3.2: Direct Employment West Coast ForestIndustry– August 2009SawmillsEmployeesWestco Lagan Ltd 75Stillwater Lumber Ltd 43Westimber Ltd 35Wilson Lumber 4Total 157ForestryManagement 7Logging 42Log transport 25Roading and land preparation 7Planting and silviculture 16Total 97Source: Crown Forestry/PF Olsen LtdTable 3.2 shows 254 full time employees currently dependdirectly on the forests for their jobs.Research done for Development West Coast by Businessand Economic Research Limited (BERL) indicates that therelevant “employment multiplier” is about 2.2. This meansthat when the additional effect of servicing and supportemployees is added, around 560 jobs on the West Coastdepend on the Crown’s West Coast forestry business. Thisis in a context of about 13 000 full time employmentequivalents in the region.A further key statistic identified in the BERL research isthe “Location Quotient” which for the forestry andlogging sector on the West Coast is 3.7. This means thatthe sector is nearly four times as important to the WestCoast as it is to the country on average across all locations.DIFFERENTIATION INTO TWO SEPARATE FORESTESTATESFrom a management and policy perspective, the WestCoast forests consist of two distinct forest estates:› The South Westland Special Purpose Species forests(referred to in following sections as “SPS forests” orthe “SPS Estate”) from Mikonui forest south resultingspecifically from the 1980 policy (refer Section 2) and;› the Northern Plantations (referred to in followingsections as the “Plantations” or the “Plantation Estate”)comprising principally Pinus radiata from Butlers andMahinapua forests northwards, being the balance.The two forest estates are physically separate, comprisedifferent species, were planted for different reasons andare quite distinct for management purposes.CROWN FORESTRY ASSESSMENT OF FOREST OVERVIEWThe West Coast forests have the major physical challengesof being remote, with low fertility and an adverse climate.The land is either owned by Ngāi Tahu Property, orsubject to a right of first refusal (through Te Runanga oNgāi Tahu), so Ngāi Tahu must be a key participant in anyfuture strategy.The overall forests comprise two separate forest estateswith different species and origins. These need to beconsidered separately.The forests are FSC certified and support significantemployment on the West Coast.

15sps forests4THE South WestlandSPECIAL PURPOSE SPECIESTable 4.1 SPS Tenure and RentalSPS Forests Tenure Class Prod Area Rent 2009 Base Rent(hectares) ($000) ($000)2030 Forestry Right 5269 144.4 122.1Existing Crop Forestry Right 51 2.4 2.3DoC/Other Cutting Rights Nil Nil NilFreehold Nil Nil NilTotal 5320 146.8 124.4For the purpose of this review the SPS forests comprise allof the four southern most forests – Mikonui, Ianthe,Wanganui and Waitangi. Planted area is 5320 hectares (at30 June 2009).AGE CLASSThe age class distribution of all species is shown in Figure4.2. The area weighted average age is 11 years, highlightingthe relatively young age of the SPS estate.The SPS forests were initiated in the early 1980s to fulfil anexplicit government policy of creating a sustainable highquality timber resource in South Westland in place of therimu that had been excluded from production. Theproject was recognised as falling short of commercialviability with the provision of the suspensory loan (referSection 2).TENUREThe SPS forest estate is entirely located on Ngāi Tahu land.It lies within the “Initial Term 2030” forestry right, exceptfor a small part of Mikonui forest which is within the“Existing Crop” forestry right. Under the conditions of the2030 forestry right, rent is payable for the fixed initial termout to 2030 and rent can not fall below the base rent.Figure 4.2 shows a very distinct breakdown of olderblackwood and younger cypress. Timberlands projected aharvest age of 35 for cypresses and 40 for blackwood.Although older, the blackwood harvest age means that anysignificant harvest is still 15 years away.The cypresses are concentrated in Ianthe forest and havebeen established principally on flat terrace country, usingsimilar land preparation techniques as used for thePlantations on terrace sites further north. The oldeststands are currently only 12 years old and whether theywill exhibit attritional or widespread windthrow as standheight increases is yet to be determined.Figure 4.1: Species Composition of SPS ForestsSPECIES DISTRIBUTIONThe species distribution of the SPS forests is shown inFigure 4.1.The figure demonstrates that the SPS estate effectivelycomprises only two species, blackwood and cypress.Virtually all of the cypress (97 percent by area) is onespecies – Cupressus lusitanica.

16sps forestsFigure 4.2: SPS Age Class by SpeciesDISTANCE TO MARKETSThe area-weighted average distances by road of the SPSforests to Greymouth, the four existing on-Coast processingsites and the two nearest export ports are shown in Table4.2. The table shows that the SPS estate is significantly moreremote from existing processing and export ports than thePlantations except for the Westco Lagan Ltd Ruatapusawmill which currently specialises in cutting prunedradiata pine logs. This remoteness imposes an additionaltransport cost on the forest if existing industry locations areto be used for processing.Table 4.2: SPS Forests Area-Weighted AverageDistancesLocationWtd AvgDistance kmGreymouth 113 (49)IPL 103 (50)Westco Lagan Ltd Ruatapu 60 (75)Stillwater Lumber Ltd 127 (49)Westimber Ngahere 141 (52)Port Nelson 418 (297)Port Lyttelton 329 (261)Note:Figures in brackets are the equivalent Plantation distances for comparison.WOOD QUALITYThe rationale behind the SPS project was to grow speciescapable of producing high value timber. Blackwood(Acacia melanoxylon) is a highly decorative Australianhardwood timber species used for furniture and panellingin the form of both face veneer (sliced or peeled) and sawntimber. Cypress (Cupressus lusitanica) is a stable (andnaturally durable) medium-density softwood with arelatively bland appearance used in panelling and furniture(broadly similar to kauri).There is no doubt that both species are capable ofproducing at least a proportion of high quality timber ifmanaged appropriately but there is a very high degree ofuncertainty including the following:› neither species is cut in any quantity in New Zealand sothey are both relatively unknown;› both require intensive silvicultural treatment (see below) toachieve their potential;› there is no yield information by log grade and the youngage of the forests mean that information collected will bebased on projection rather than experience;› the lower grades will be very difficult to sell profitably (dueto remoteness and being a utility product at best).SILVICULTURAL TREATMENT/FERTILISERIntensive silvicultural treatment (pruning and thinning) isrequired to realise the intended objective of high qualitytimber production for both of the principal species. Becauseof the high rainfall (leading to leaching of nutrients) and lowsoil fertility, fertilising is required in conjunction with tendinginvestment.The prescribed silvicultural schedules and fertiliser regimesfor the SPS forests developed by Timberlands in recent (2004)operational management policy consist of:Blackwood: Final crop 200 stems per hectare with a cleanbole of 4 to 6 metres.› Form prune at age 4.› Three stem-pruning lifts to achieve a 4 to 6 metres prunedbole by age 11.

17sps forests› Thinning to 200 stems per hectare within 3 years of finalprune.› Fertiliser based on foliage sampling but 1 application(age 15) expected.› Harvest age 40.Cypress: Final crop 400–450 stems per hectare with75 percent of stems pruned to 6.5 metres.› Three pruning lifts to 6 metres.› Fourth pruning lift to ensure that at least 75 percent ofstems are pruned to 6.5 metres.› Two thinnings to a stocking of 400–450 stems per hectare.› Fertiliser based on foliage sampling but 2 applicationsexpected (age 15, 25).› Harvest age 35.The above regimes are obviously intensive and costly. Ofequal concern is that if left untreated, stands will notproduce a significant proportion of high grade timber.There is already evidence that blackwood which has notbeen form pruned at an early age often develops multipleleaders from ground level – almost worthless from atimber perspective (except perhaps for a cottage industrytype use for example, short pieces for wood turning).Since January 2000, silviculture and fertiliser investmentin the SPS areas was reduced as Timberlands adjusted toreduced cash surpluses from the loss of its high marginrimu production business.HARVEST YIELDS/LOG PRICESNationally, there is limited information available on logvolumes or log prices for the SPS species and the quantitiescurrently cut are not sufficient to feature in annual foreststatistics. Table 4.3 shows the prices and volumes usedrespectively by Timberlands and Crown Forestry forestimating book values for accounting purposes. CrownForestry’s view was that the Timberlands estimates wereoptimistic and was anxious not to repeat the experience ofover-estimates that occurred for the Plantations.Given the area planted is about half of that originallyintended and the likelihood of lower per hectare yields itmay well prove challenging to establish a viable sustainableindustry located close to the resource.REPORTED FOREST VALUE (ACCOUNTING VALUE)The value of the SPS forests brought into MAF’s accounts inJanuary 2009 was $7.211 million. The transfer price wastaken directly from the reported value in Timberlands’accounts. This represented historic cost less impairment.(Refer Timberlands 2008 Annual Report Page 27).Crown Forestry revalues its forests annually at 30 June foraccounting purposes. To obtain an accounting value for theyear ended June 30 2009, Crown Forestry used the samediscounted cashflow valuation model that Timberlands hadused to estimate “impairment” from historic cost.The modelling exercise indicated that a further“impairment” from the transfer price was appropriate andresulted in a 30 June 2009 value of $5.677 million for thepurpose of MAF’s accounts.Table 4.3: Volumes and Average Log PricesTimberlands (2008)Species/Harvest age Volume $ Wtd Avg All % Premiumm 3 /ha Grades GradeAcacia (age 40) 180 269 36.1%Cypress (age 35) 320 144 20.3%Crown Forestry (2009)Acacia (age 40) 165 207 36.4%Cypress (age 35) 320 126 17.2%CROWN FORESTRY ASSESSMENT OF THE SPS FORESTSContinuing with the SPS project is a high commercial riskwith high ongoing input costs, uncertain revenueoutcomes and any significant harvest 15 years away.

18northern plantations5THENORTHERN PLANTATIONSTable 5.1 Plantations Tenure and RentalSPS Forests Tenure Class Prod Area Rent 2009 Base Rent(hectares) ($000) ($000)2030 Forestry Right (Ngāi Tahu) 19 982 935.4 790.8Existing Crop Forestry Right (Ngāi Tahu) 327 15.1 15.1Crozier Forestry Right 192 28.9 28.9DoC Cutting Rights 919 0.0 0.0Freehold 2 992 0.0 0.0Total 24 412 979.4 834.9The Northern Plantations (the Plantations) comprise allforests from Butlers and Mahinapua forests northwards.Planted area (as at 30 June 2009) is 22 960 hectares,productive area (including cutover and area awaitingreplanting) is 24 412 hectares (refer Table 5.1).TENUREThe Plantations are predominantly (82 percent byproductive area) located on land within the “Initial Term2030” Ngāi Tahu forestry right. Rent is payable for the fixedinitial term to 2030, indexed annually, with provision forreview but not able to fall below the base level.SPECIES DISTRIBUTIONThe species distribution is shown in Figure 5.1.Figure 5.1 Species Composition of Plantation EstateThe Plantations are dominated by radiata pine(82 percent) but to a slightly lesser extent than mostNew Zealand plantation forests which typically compriseover 90 percent of radiata pine.AGE CLASSThe species age class distribution for the Plantations isshown in Figure 5.2. Pre-1959 areas have been excluded asthey mainly consist of old unthrifty stands or remnantsthat were bypassed in earlier harvesting operations forsome reason (often inaccessibility). The area-weightedaverage age for the total plantation estate is 15.1 yearsindicating a relatively balanced estate, although the profilehighlights a significant gap in the late 1980s/early 1990s.This is the gap resulting from the cutbacks immediatelyafter the NZ Forest Service was disbanded (described inSection 2).For the radiata resource only, the average age is 13.4 yearsand the same gap is apparent in Figure 5.2. This gappresents major difficulties for sustaining a consistent levelof forest harvest (addressed in later sections).

19northern plantationsFigure 5.2: Plantations Age Class by Species (Post 1959) As well as the dominance of radiata pine, Figure 5.2demonstrates the following:› The gap in age classes in the late 1980s and early 1990s(end of the NZ Forest Service).› The narrow band of Pinus muricata currently at or nearharvest age.› The reasonable spread of Douglas-fir (Pseudotsugamenziesii) age classes showing some potential for asmall ongoing harvest of this species.DISTANCE TO MARKETSThe area-weighted average distances by road of allPlantations to Greymouth, the four existing on-Coastprocessing sites and the two nearest export ports are asfollows:Table 5.2: Plantations Area-Weighted AverageDistancesLocationWtd AvgDistance kmGreymouth 49IPL 50Westco Lagan Ltd Ruatapu 75Stillwater Lumber Ltd 49Westimber Ngahere 52Port Nelson 297Port Lyttelton 261Table 5.2 shows that the Plantation estate is clearly welllocated for processing plants located anywhere from thecentral Grey Valley through to just south of Greymouth.Even the southern most on-Coast sawmill, Westco Lagan,although not as well located, is not remote from theforests by New Zealand forestry standards.CURRENT SILVICULTURAL REGIMESA condition of Crown Forestry taking over control of theex-Timberlands forests was for the 2009 operationalprogramme to remain more-or-less “status quo” asplanned by Timberlands (pending the outcomes from thisreview).Prescribed Regimes All SpeciesThe prescribed silvicultural schedules for the predominantplantation species developed by Timberlands in theirrecent (2004) operational management policy and in placeat the time of transfer were as follows:P. Radiata Site Index 20 or more:(This covers all stands as recorded in the transferred standrecords at 31 Dec 2008.)Final crop 350 stems per hectare pruned to 5.5 metres.

20northern plantations› First lift prune to half height at mean top height6 metres+.› Second lift prune to 5.5 metres at mean top height10 metres+.› Thinning after second lift to leave 350 stems perhectare.› Minimum harvest age 28.Douglas-fir: Final crop 450–500 stems per hectare.› First thin at mean top height 16 to 18 metres (approxage 18) to leave 650 to 800 stems per hectare (650 onV-ploughing sites, 800 elsewhere).› Second thin at age 29 to 450 to 500 stems per hectare.› Harvest age 45.of wind events since 2000 as in general, hill sites aresignificantly more wind-firm than terrace sites.FERTILISERMost West Coast forest soils have at least some fertilitylimitations. Timberlands identified the soil types thatexhibit “severe” nitrogen, phosphorus or potassium (NPK)deficiencies. These are noted in the stand records.Timberlands carried out an annual foliage samplingprogramme, focusing on the most deficient soils, and thisprogramme prioritised their annual fertiliser budget forthe Plantations of around $800 000. This annualexpenditure is ongoing as the low fertility and highrainfall apparently prevent fertility build up.P. muricata: All past tending age.Discussion of Radiata Pine Silvicultural RegimesKey features of the current regimes are:› The reasonably intensive (two prune, one thin) regimeas universally prescribed for all radiata pine stands isdriven by the strong local demand for pruned logs.This regime needs to be re-examined because of itshigh costs in comparison to other regions (2008/09“status quo” budget equated to $1.1 million perannum).› Although some radiata pine stands have not beenpruned through lack of funds or suitable labour,structural regimes, where the focus is maximising logssuitable for structural grade timber, are not providedfor within the silviculture policy current at handoverdate. Structural regimes (normally a higher final cropstocking than pruned regimes with only one thin towaste) are much cheaper and new research shows astrong relationship between tree taper and timberstiffness. Structural regimes need to be reconsidered.› No distinction is made between hill and terrace siteseither in silvicultural treatment or in harvest age. Thisneeds review in the light of accumulated knowledgeThe necessity to apply fertiliser to the West Coast forests isin contrast to most of the New Zealand forest estate whichrequires no fertiliser for stand health or growth. There arespecific exceptions such as the Northland clays, and thesand dune stabilisation forests but second rotation standsin these forests generally require less input that the firstrotation so fertiliser use can be reduced over time.GROWTH RATEFigure 5.3 shows that on a regional comparison basis, thegrowth rate expressed as cubic metres per hectare per yearis lower than for other regions in New Zealand.OPERATION COSTSForest GrowingForest growing costs are high compared with otherregions in New Zealand as a result of the region’s climaticand soil conditions. The high rainfall encourages heavyundergrowth which hinders within-stand operationalaccess (for example, for pruning or thinning). The soils arewet, highly variable and mostly infertile, all adding tocosts.

21northern plantationsFigure 5.3: Pinus Radiata Growth Rate by RegionSourceMinistry of Forestry Zone Studies 1994HarvestingAverage logging cost for the first 10 months of 2009 was$33 per tonne which is already high compared with otherregions but even higher when the average volume weightconversion is applied to give $38 per cubic metre. Thereasons for such high costs are topography, low volumesper hectare (requiring more area to be covered) and oftendiscontinuous areas. Salvaging wind affected stands, withadditional associated costs, has been an ongoing addedfactor in recent years.Roading costs per kilometre are comparable to nationalaverages. However, because the forests are notconcentrated in large contiguous blocks, more kilometresof road network are required than is usual elsewhere. Thisfactor, combined with the generally low per hectareharvest volumes and the volume to weight conversion,mean that roading costs per cubic metre are among thehighest in the country.Transport costs are high as discussed elsewhere because ofthe high proportion of logs currently transported off-Coast. VALUE)REPORTED FOREST VALUE (ACCOUNTINGTransfer ValueThe opening value of the Plantation forestsbrought into MAF’s accounts in January 2009upon transfer from Timberlands was $16.681million. This was taken directly from thereported value in Timberlands’ accounts (ReferTimberlands 2008 Annual Report Page 27) asvalued by an independent, NZ Institute ofForestry Registered Consultant. The valuationwas determined by discounting the future aftertax net cashflows arising from the forest(current crop only) at 8 percent per annum.Crown Forestry 2009 RevaluationTo obtain a forest value for accounting purposes for the yearended 30 June 2009, Crown Forestry commissioned thesame valuer who had determined the 2008 Timberlandsvalue. The valuation method was the same except thatCrown Forestry uses a 7 percent post-tax discount ratebased on independent expert advice. The forest valuederived in this way was $13.339 million for the purpose ofMAF’s 30 June 2009 accounts. Note that this excludes thevalue of the freehold land and excludes all improvements(roads boundary fences and buildings). The reason for thereduction in value was principally due to higher harvestcosts (by amending the volume to weight conversion) andslight decreases in log price assumptions.In line with the current accounting convention (NZIAS 41)both the Timberlands and the Crown Forestry values aremanaged harvest liquidation values and relate only to thecurrent tree crop with no provision for cashflows forreplanting or applying silvicultural treatment to subsequentcrops. This convention tends to give higher forest valuesthan for an “ongoing forest operation” when the rate ofreturn earned by investment in subsequent crops is lowerthan the discount rate used (which is currently the case formost forests nationwide).

22northern plantationsComparison with Timberlands Historic ValuesIn the mid-1990s, Timberlands’ annual accounts show areported forest value in the order of $100 million,dramatically higher than their reported 2008 value. Incommon with most other New Zealand forest owners,Timberlands experienced steadily declining reportedforest value from the mid-1990s due to falling prices(most notably the decline from the 1993 “price spike”) andrising costs. The Timberlands case has been moredramatic than most. This is firstly because of the volumeover-prediction discussed elsewhere, and secondlybecause of the narrower stumpage margins in the firstplace, such that a small reduction in projected revenuesaccompanied by a small increase in projected costs gives alarge percentage reduction in net stumpage (and henceforest value).MODELLING THE CURRENT PLANTATION ESTATEFor the purpose of this review, Crown Forestry carried outa major estate modelling exercise for the Plantations. Themodelling work, using a linear programming(optimisation) approach, updates and builds upon theearlier work done by Timberlands in 2007 and is fullydescribed in Appendix 6.Objectives of the Modelling ExerciseKey objectives of this work were:› To review the long-term sustainable yield from thePlantations.› To test the absolute maximum capability of thePlantation estate as measured by net present value(NPV).› To investigate the effect on NPV of different harvestingand transport options to assumed mill locations.The modelling reported in this section only relates to theexisting forest (that is, ignores replanting). The pressingissues facing the Plantations are the level of harvest,bridging the “planting gap” and improving the forestrybusiness. These issues relate only to the existing crop.Model Optimisation FactorThe linear programming model solves each “model run”to optimise a given “optimisation factor” subject to aseries of constraints that are imposed. Thus, the singlemost important assumption in estate modelling isselection of the optimisation factor. For the 2007Timberlands modelling, the optimisation factor was“maximum pruned volume”. For this Crown Forestrymodelling, the optimisation factor has been changed to“maximum NPV”. This shifts the emphasis to maximisingthe return to the forest owner.NPV was determined as the present value of future netcashflows, discounted at a pretax rate equivalent to the7 percent post tax rate used to determine the accountingvalue. It is used as a modelling tool to objectively comparethe various options that were modelled.Results – Sustainable YieldThe modelling showed that it is possible to bridge theplanting gap (see Figure 5.2) and maintain a long-termsustained yield of 150 000 cubic metres per annum. This issomewhat below the 170 000 cubic metres per annum thatTimberlands estimated in 2007, mainly as a result of thewidespread windthrow at Mokihinui forest in July 2008which led to the surrender by Timberlands of 900 hectaresfrom the forestry right.A step-up in harvest is possible after about 2019 but thisshould be viewed with some caution as it is dependent onthe accelerated planting of the freehold land purchases inthe mid-1990s much of which is terrace country.Results – Maximum Estate CapabilityThe totally unconstrained model run gave an NPV of$37.9 million as shown in Table 5.3. The unconstrainedscenario is obviously unrealistic, as with no constraints atall, the model will assume unlimited on-Coast processingcapacity that can be switched on and off such that very

23northern plantationshigh volumes could be harvested in some years and nonein other years, depending on age class availability.However, the unconstrained model run sets the absolutemaximum as a benchmark for assessing the impact ofimposing various constraints.Results – Impact of Harvesting and Transport OptionsAs shown in Table 5.3 below, the forest value isdramatically impacted by harvest level and transport toassumed processing locations.Discussion of Modelling ResultsThe relative NPVs of the different model runs shown inTable 5.3 highlight the need for forest management tofocus principally on transport cost reduction viamaximising on-Coast processing to improve forest value.The level of harvest is also important but there arephysical limits of sustainability.In absolute terms, if all logs could be sold on-Coast thereis the potential to more than double the forest value.However, as shown in the final model run in Table 5.3, theharvest still needs to be at or close to the sustainable level.If simply reducing the harvest to match the current on-Coast unpruned demand, the resulting revenues struggleto support the fixed costs (for example, rent, rates, forestprotection, management fees).Sensitivity AnalysisSensitivity to both modelled log prices (+ and–10 percent) and discount rate (+ and –1 percent) wastested. Uniform changes to the assumptions across alloptions did not change the option rankings shown inTable 5.3.PLANTATION MANAGEMENT ISSUESThis review has identified a number of technical andmanagement issues relating to the Plantations that CrownTable 5.3 Modelling Results for the Plantation EstateDescription of “Model Run”Unconstrained.All logs sold to a single on-Coast processing site at “centre of gravity” of the Plantation estate – Stillwater.(Model run 1 “Base Case”).NPV ($m)37.9All Log Grades Sold on-Coast from year 5.Unpruned restricted to 45 000 m 3 in years 1 to 3, then to 95 000mV in years 4/5 then unconstrained for total volumeof all log grades. (Model Run 8).All Sawlog Grades Sold on-Coast from year 5.Unpruned restricted to 45 000 mV in years 1 to 3, then to 95 000mV to in years 4/5 then unconstrained for sawlogsonly. (Model Run 7).31.525.8Current Sales level on-Coast , Balance Sold off-Coast.Absolute maximum harvest but with transport cost savings (by backloading refer Sec 6) (Model run 4). 19.3All Sawlog Grades Sold on-Coast.Unpruned harvest restricted to 45 000 m 3 V in year 1 to 3 then to 95 000 mV. (Model run 6). 18.3Current Sales level on-Coast, Balance Sold off-Coast.Absolute maximum harvest but with no transport cost savings (that is, no backloading). (Model run 3). 13.3Sawlog Grades Sold on-Coast.But total harvest of unpruned sawlogs restricted to 45 000 mV. (Model run 5). 8.8NoteOnly the current crop is included. See Appendix 6 for further details of Model run numbers.

24northern plantationsForestry needs to address.Review of Silvicultural RegimesThe “status quo” radiata pine pruning regime needs amajor review in the light of wind events since 2000.Although wind affects all forests, terrace forests inparticular appear seriously wind prone once they reach aheight over about 20 metres. Blow down at this age iseffectively a complete loss of the pruning investment as,even if salvaged, the trees are too small to meet areasonable pruned log specification. A change in approachis needed to reduce or eliminate the loss of pruninginvestment on terrace sites.Structural regimes need to be reconsidered because oftheir much lower cost and better site suitabilityperformance.Review of Harvesting and Replanting Terrace StandsDisruptive and costly salvage operations of wind damagedstands have been a major feature of recent harvestplanning. Since Crown Forestry took over, the harvestingplan has undergone constant review to salvage standsseriously damaged by wind. This has raised costs andadversely affected pruned log deliveries.An increasing proportion of terrace stands are comingdue for harvest in the short to medium-term, so thatharvesting these sites needs to be reconsidered. It may bemore practical to harvest these sites early to avoidwindthrow and retain the less windthrow-prone hill sitesto a later harvesting age. Even without wind damage,feedback from customers is that the pruned wood fromterrace stands is of inferior quality compared with prunedlogs from hill country areas. This could be a furtherreason for reconfiguring the hill/terrace harvest.The factors referred to above along with the increasedmanagement experience of growing radiata pine onpakihi sites, and the necessity for fertilising just tomaintain stand health, questions the logic of replantingpakihi areas. Conversion of these areas to farming wouldbe a better land use and bring benefits to the region, butETS liabilities (deforestation penalties) effectively denythis opportunity in the short-term.Approach to Harvest PlanningThe overall harvesting strategy and the detailed harvestplanning has historically been directed at maximisingpruned log production because of the difficulty of meetingcontractual pruned log commitments. Other (unpruned)grades have been viewed as “arisings” with much of thevolume sold off-Coast and with limited attention paid tonet returns. The focus on pruned logs has resulted in adispersed harvesting effort, with multiple logging crews inwidely spread locations, split loads, extra roading, extrasupervision and more machine shifts, all of which addcost.Harvest strategy needs to be reviewed to develop a moreco-ordinated approach based on the entire range of loggrades.A “Core” Plantation EstateA “first cut” rationalisation exercise has been undertakenaimed at eliminating the most remote, least fertile andmost wind prone areas to identify a “core” Plantationestate.This exercise indicates a potential core estate of about16 000 hectares of productive area (compared with thecurrent 24 400 hectares) that would:› Create a very compact estate by national standards byremoving the remote outliers (for example, remainingMokihinui and Charleston blocks and areas west of theInangahua River). Weighted average distance of the“core” estate to Stillwater (the geographic centre of thePlantations) would reduce from 49 to 39 kilometres.

25northern plantations› Lower the wind risk by removing the extensive pakihiareas (for example, Craigieburn).› Improve the average fertility and yield by removing theareas showing the lowest site index. (Coincidentallythese also tend to be the most wind prone areas.)Initial indications from the estate modelling are that a16 000 hectare core plantation estate would still enable asustainable cut at around the current level of150 000 cubic metres per annum. In developing thisconcept, those areas not falling within the core estate butten-years or less away from harvest age would be retaineduntil after harvest (except for the most remote) as requiredto fill in the age class gap.To further this concept would need detailed field testingand renegotiation of the forestry rights with Ngāi TahuProperty and addressing issues that may arise due to ETSobligations.CROWN FORESTRY ASSESSMENT OF THE PLANTATIONSThe Plantations dominate the region’s resource and arecritical to the region’s wood processing industry.A lack of planting and pruning investment for the fewyears immediately before and after the NZ Forest Servicewas disbanded has created a serious gap in harvest areaavailability and pruned log grade volumes.Average regional growth rates are among the lowest inNew Zealand with most soils, but more particularlyterrace soils, relying on fertiliser application for standhealth and growth.Reported forest value has dramatically reduced from over$100 million in the mid-1990s to $16 million on transferand $13 million now.The Plantations are able to support a long-termsustainable harvest of 150 000 cubic metres per annumwith a possible step up after 2019.Estate modelling has identified the critical need to reduce,if not cease, off-Coast deliveries as these result in very lowor negative margins.At a technical level Crown Forestry has identified a needto review radiata pine silvicultural regimes, replanting onterrace sites and harvest strategy. There is also a need toconsider further land rationalisation (in conjunction withNgāi Tahu Property) to create a “core” estate of about16 000 hectares to mitigate growing risk and reduce costswithout undue reduction in long-term sustainable yield.

26wood processing6THEWOOD PROCESSING INDUSTRYLOG SUPPLYTransition from RimuAs outlined earlier, rimu was themajor source of revenue to the WestCoast industry up until thereduction to a sustainable level(2000) and then complete cessationof native harvest (2002).In 1989, immediately before thefirst significant exotic harvestbegan, there were a dozen mediumor larger sawmills (over10 000 cubic metres per annum loginput capacity) on the West Coastfrom north of Buller to Whataroa in the south, and apeeled veneer plant at Gladstone.By 2002, when native logs were no longer available (as aconsequence of the West Coast Accord Act 2000) theBuller and South Westland mills had all closed and theremaining mills in the Inangahua and Grey Valleys andsouth as far as Hokitika competed for the increasing exoticharvest.Figure 6.1 shows the rapid decline in rimu, and the highlevel of radiata harvest for a few years before thesustainable harvest was revised downwards. The radiataharvest is now at a broadly similar level as the rimuharvest was in the early 1990s. The Timberlands annualreports for the 1990s contain insufficient detail to providean equivalent graph showing the rimu and radiatarevenues breakdown. From the information available,average returns from rimu logs during this period wereabout four times the radiata average. Thus there was amuch greater financial reliance on rimu than the volumereliance illustrated by Figure 6.1.Figure 6.1: Transition from Native to Plantation (Radiata pine) Harvest NoteFigures are from Timberlands Annual reportsThe transition brought with it a shift in competitiveadvantage. With rimu, West Coast processors enjoyed acompetitive advantage, with an effective monopoly in aspecies that produced high grade and high value timber.With the shift to radiata pine, the West Coast sawmillersare now at a competitive disadvantage compared withtheir Canterbury and Nelson counterparts. There is nopoint of distinction with species, they are remote frommajor domestic market/export port and there is no readysale for their mill residues for example, city garden centresfor bark or a nearby chip mill. Characteristically, rimu wasalso a significantly higher margin business than radiata sothere is also an implicit adverse effect on industryprofitability, given broadly similar levels of cut for bothspecies.Plantation Log Supply 2000 To 2007Following on from their native timber businesses, most orall of these mills preferred pruned logs as the “best fit”with their scale, knowledge and customer base. Howeverpruned logs only comprise about a quarter of total logavailability from the Plantations.

27wood processingIn 2000 and 2001 Timberlands entered long-term supplycontracts based on estimates at that time of a sustainableharvest of 290 000 cubic metres per annum. Within thesecontracts 52 000 cubic metres per annum of pruned logswere committed to four customers.From about 2004 it became apparent that sustainablesupply had been grossly overestimated. At that stage, sixsawmills and the peeler plant were still operating.Because of the lack of demand for unpruned logs therewere no over-commitment issues in these grades, butthere were several additional factors which impactedprincipally on pruned log supply:› the planting and pruning cutbacks of the 1980s wereshowing up in maturing stands;› there were increasing losses from wind as large areas offorests (nearly all of which had been pruned) on the flatshallow terrace soils neared maturity;› there was an increasing proportion of terrace to hillcountry;› terrace stands proved to produce poorer pruned logquality.Between December 2004 and June 2006, Timberlandsgave notice of termination to all four of its pruned logcustomers (1 to 5 years as required under their respectivecontracts) and advised that it would not be possible tosupply the required quantities of pruned logs in the future.From 2005 until mid-2008, Timberlands itself procured atotal volume of 37 000 cubic metres of logs from outsidethe West Coast to make up the contracted shortfall. InMarch 2007, Timberlands advised its pruned logcustomers it intended to enter into new supply contractswith them, with reduced volumes allocated in proportionto earlier contracted supply.By the end of 2008, two of the pruned customers(Inangahua Sawmilling Co Ltd and W E Whiley & CoLtd) had closed. Westco Lagan Ltd had entered into a newagreement (see below) and the fourth pruned logcustomer Westimber Ltd, had agreed to take a mix ofother log grades.Throughout this time, all customers taking upruned logsconsistently uplifted less than their contracted volume oflogs and at no time was Timberlands able to match on-Coast log sales in proportion to pruned and unprunedforest production.Present and Projected Log QualityRadiata pine is, and will continue to be, the mainstay oflog supply. The main quality features are as follows:› Customers have full access to a FSC Certified logsupply.› The wood is low density by New Zealand standards andhas grown without water stress. This is an advantagefor appearance grade sawn lumber but a disadvantagefor structural grades. It has proved difficult to supply asonic grade of over 3.0 metres per second which is anindustry norm elsewhere.› The low density and high water content gives alow volume to weight ratio. Throughout most ofNew Zealand, one cubic metre to one tonne is a goodapproximation and customers will buy logs based onweight, but on the West Coast a ratio of 0.875 cubicmetres per tonne is standard and West Coast customerswill only buy logs on volume. This is a major cost factorwith logging and transport both paid on tonnes.The future harvest will contain an increasing proportionof terrace country (pakihi areas). This is cause for concernon two counts:› Firstly, wind damage is now known to be endemic topakihi sites and there is a high likelihood of furtherserious wind damage in the maturing terrace stands.

28wood processingSalvage of trees at younger ages than planned forharvest means the pruned logs do not have sufficientclearwood and cannot be sold at normal pruned prices.› Secondly, customer feedback indicates that for terracestands that do reach maturity the pruned log quality islower than on hill country sites , with taper, knotty coresize and internal defect proving problematic.P. muricata occurs in very limited age classes (plantedaround 1980). Although there is only a small area (about400 hectares) this species is an important consideration innear-term woodflows because of its age. Although it canbe sold as radiata pine, most domestic customers willdiscount it and log quality is low (principally industrialgrade or chip).Douglas-fir has not exhibited any log quality problemsand appears entirely comparable to the same specieselsewhere. There is sufficient area to sustain a smallongoing supply.BACKLOADINGLogging trucks typically deliver a load of logs from theforest to the customer and return empty. Backloadingrefers to co-ordinated cartage with different log productsgoing in both directions (either totally or in part). Thisimproves truck utilisation and reduces the per unit cartagecosts.50 000 cubic metres per annum), pays a premium priceand for many years has sourced logs from anywhere inthe South Island.› Westco Lagan Ltd has recently sourced up to about70 percent of its 55 000 cubic metres per annumrequirements from Nelson and Canterbury forests.Over recent years the interdependency of both mills andforests on backloading has become increasingly entrenched.The availability of (cheaper) backloads has facilitated off-Coast log supply to IPL and Westco, and at the same timehas enabled sale of unpruned logs to off-Coast customerswith a lower transport cost than would be possible with oneway cartage.In negotiating cartage rates where backloading wasavailable, Timberlands routinely sought to build in a bias infavour of the unpruned logs that were sold off-Coast at theexpense of pruned logs that were being imported. This wason the basis that because of their higher value, pruned logscould accommodate a higher cost structure.In a strong market, there are small positive margins sellingoff-Coast via backloads but analysis of recent trends in logprices and harvest and transport costs (including theincreased cost of fuel) shows that under current marketconditions the lower log grades show a negative net returnto the forest when sold off-Coast.Since the switch to exotic harvesting it has only beenpossible to sell about 40 percent of the unpruned harvestlocally. The balance has been sold to Nelson andCanterbury processors or sent to those ports for logexport.The dependency on backloading really only partly mitigatesthe benefit of processing all logs – both pruned andunpruned – on the West Coast. It is fair to say that thecomplete transition from rimu to radiata will only haveoccurred when all logs are processed locally.West Coast log processors also import logs into theregion:› International Panel and Lumber Ltd (IPL) processespremium grade logs in its peeling plant (log inputThe effect of different transport destinations costs is shownfor “typical” current operations in Table 6.1.

29wood processingTable 6.1: Indicative West Coast Radiata Pine Return to Forest GrowerSawlogDescription s grade L Grade PulpON–COAST DELIVERY Price $/m 3 $85.00 $65.00 $50.00Location Harvest Transport Del Cost Return to Forest GrowerSouth $49.49 $14.34 $63.83 $21.17 $1.17 –$13.83Central $47.57 $6.79 $54.36 $30.64 $10.64 –$4.36North $49.01 $15.39 $64.40 $20.60 $0.60 –$14.40OFF–COAST DELIVERY BEST BACKLOADCOSTLocation Harvest Transport Del Cost Return to Forest GrowerSouth $49.49 $31.30 $80.79 $4.21 –$15.79 –$30.79Central $47.57 $30.00 $77.57 $7.43 –$12.57 –$27.57North $49.01 $28.72 $77.73 $7.27 –$12.73 –$27.73OFF–COAST DELIVERY BEST NONBACKLOAD COSTLocation Harvest Transport Del Cost Return to Forest GrowerSouth $49.49 $42.00 $91.49 –$6.49 –$26.49 –$41.49Central $47.57 $33.00 $80.57 $4.43 –$15.57 –$30.57North $49.01 $35.31 $84.32 $0.68 –$19.32 –$34.32NoteHarvest is typical Hill sites and includes Log & Load, Harvest Road and Admin costs.Table 6.1 demonstrates that although backloading gives amaterially lower transport cost than one way cartage, itstill gives low or negative margins over direct productioncosts such that increasing on-Coast sales is a far betteroption from the forest grower’s viewpoint.Complete local processing would require:› In the short-term reducing the total harvest such thatthe unpruned log volume can all be sold on-Coast; orincreasing efforts to sell unpruned logs to on-Coastcustomers (up to the limit of their current plantcapacity).› In the long-term, new investment in on-Coast capacityto process unpruned, industrial grade and chip gradelogs.CONTRACTUAL ISSUES/SETTLEMENTS 2000 TO 2009In 2000, when government policy changed to stop allnative harvesting, none of the $120 million “AdjustmentPackage” went directly to industry. It was assumed thatindustry would be catered for by changing to log supplyfrom exotic species. Industry representatives now contendthat they would not have accepted this if they were awareat that stage of the shortfalls in exotic log supply andquality.In spite of its procurement programme, Timberlands stillundersupplied pruned logs to Westco Lagan Ltd (thiscustomer only processes pruned logs) to the point thatthere was the likelihood of legal action. An out-of-courtsettlement was agreed between Westco Lagan Ltd and

30wood processingTimberlands which settled all matters relating tocontracted log supply. A new log supply contract was thenentered into between these two parties.After the transfer to Crown Forestry (in 2009)Timberlands agreed an out-of-court settlement withInangahua Sawmilling Co Ltd for pruned log supply issuesgoing back to 2005.In September 2009, the incoming government Ministerfor Economic Development picked up discussions that hispredecessor had been having with the West Coast TimberAssociation over the dramatic downward revision ofTimberlands’ projected log volumes, and the adverse effectthis had had on the (pruned log) customer members. Thisultimately led to a $4 million settlement which was sharedbetween the four pruned log customers.› Westimber Limited at Ngahere which processes prunedand unpruned logs and draws most or all of its supplyfrom the Crown Forestry estate.› International Panel and Lumber Ltd (IPL) at Gladstone.This mill processes high grade pruned and unprunedpeeler logs. It currently takes no logs from CrownForestry but is a potential customer for peeler grades. Itrelies to some extent on Crown Forestry backloads forits off-Coast log supply.The former Coastpine Ltd sawmill site in Reefton was soldin 2009 to NZ Sustainable Forest Products LP. Majorinvestment has been made with a view to processingnative logs (small volumes are available from privatelyowned land) into sliced veneer. The company hasexpressed a potential interest in blackwood from SouthWestland.PRESENT WEST COAST PROCESSING INDUSTRY(OCTOBER 2009)West Coast IndustryThe present local industry associated with the CrownForestry estate comprises three sawmills and a peeler plantas follows:› Westco Lagan Ltd at Ruatapu (south of Hokitika),which has historically processed only pruned logs butrequires significant additional pruned log supply fromoutside the region to make up its supply shortfall.› Stillwater Lumber Limited at Stillwater which processes“run of bush” logs (principally unpruned but caninclude lower quality pruned logs). This mill drawsmost or all of its supply from the Crown Forestryestate. As this review went to print, Stillwater Lumber’ssawmill was damaged by fire, but the Directorsreported in a press release following the fire that they“are committed to rebuilding the sawmill using state ofthe art technology suited to the intrinsic qualities of theWest Coast radiata pine resource”. The kiln drying andprocessing facilities were not damaged by the fire.Current Log Supply Agreements – (October 2009)On-Coast CustomersThere are two formal log supply agreements with on-Coast customers. As part of the transfer to CrownForestry, formal Deeds of Assignment were executed byTimberlands, Crown Forestry and the Continuing Partyfor these contracts.The main features of each contract are as follows:› Westco Lagan Limited.– Completely new agreement.– Commencement date 5 September 2008 (assigned31 Dec 2008).

31wood processingLog sale volume and price details are confidentialbetween Crown Forestry and the customer.›››››Stillwater Lumber Limited.– Variation to an earlier agreement dated25 March 2002.– Commencement date 1 October 2007(assigned 31 Dec 2008).Figure 6.2: Log Sales by Destination 1 January to 31 October2009Main features are as follows:› Variation to an earlier agreement dated 3 October 2001.› Commencement date 1 May 2008 (assigned31 December 2008).Following the November 2009 fire, Stillwater Lumber hasstock until February 2010 for processing and will becontinuing to take logs (which will be sawn elsewhere)until rebuilding at Stillwater is complete.As well as the two formal contracts, Westimber Ltd wasalso being supplied logs on a casual basis at handover date(1 January 2009) while discussions were taking place toenter into a formal log supply agreement. Crown Forestryhas since advised Westimber of its intention to enter into aformal agreement for ongoing supply of logs as follows:Since 1 January 2009 a new off-Coast sale has beennegotiated with Southpine (Nelson) Limited in Nelson(owned by McAlpines). This sale is on a 12-month rollingbasis and has particular transport arrangements that arepractical in moving specific log grades at present.In addition to these formal agreements, there are anumber of other off-Coast customers who are supplied ona casual basis. These include log export sales throughNelson and Lyttelton ports.Off-Coast CustomersAt the 1 January 2009 handover, there was also one off-Coast log supply agreement to McAlpines Ltd at Rangiora.Figure 6.2 highlights the dominance of off-Coast sales atclose to two-thirds of total sales.

32wood processingWithin the last few months (August to October 2009)sales to Canterbury (particularly export) have halved.Sales to Nelson at more favourable cartage rates haveincreased and there has also been a slight increase in on-Coast sales as the local industry has become aware ofCrown Forestry’s increasing focus on local sales.RETURN TO RIMU PROCESSINGThe loss of competitive advantage, through the transitionfrom rimu to radiata, poses the obvious question ofwhether a return to rimu processing is feasible.naturally white but stains well into any colour in fashionat the time, is always available, has high standards ofdrying and is sustainably managed.Even if the “stewardship areas” were returned from DoC,the background of continual political intervention and thespecific policy shifts discussed earlier mean that potentialrimu customers would be very wary of investing inprocessing and market redevelopment, in the knowledgethat a policy change is highly likely at some point in thefuture.Rimu resourceCrown Forestry essentially owns no rimu resource at all.Under the terms of the Ngāi Tahu forestry rights, it ownsonly those rimu trees “within the perimeter of a stand” ofthe Plantations. All other rimu inside the forestry rightareas (for example, gullies or native enclaves) belongs toNgāi Tahu. These are also very limited in scale. The othertenure classes (freehold, other cutting rights) containnegligible or nil quantities of rimu.Crown Forestry cannot return to rimu harvesting withouta change in government policy and obtaining a new rimuforest resource. A minor area could come from Ngāi Tahubut to be significant in terms of scale, return of the formernative production forest areas that were transferred toDoC in 2002 would be required. This would need a majorreversal in government policy.MarketsAlthough there is a ready market on a “cottage industry”type scale for a small and inconsistent quantity of rimulogs (up to a few hundred cubic metres sawn per annum),a rimu market on any significant scale would need to beredeveloped. For high grade solid wood furniture timber,manufacturers have generally moved on to importedspecies where a reliable and sustainable supply is available.An example is imported American white oak which isWOOD FOR ENERGYIn 2007, the Timberlands Chairman approached the StateOwned Enterprise Solid Energy, to investigate theirinterest in combining the Timberlands business into themuch larger Solid Energy business. Solid Energy has avery strong presence on the West Coast, principally incoal production. Solid Energy declined any involvement.Since the earlier Timberlands approach, Solid Energy hadexpanded its involvement in the wood for fuel area withwholly owned Natures Flame owning a wood pellet pilotplant at Rolleston (approximately 30 000 tonnes greeninput per annum) and in the process of commissioning avery large plant (capacity 600 000 tonnes per annum) atTaupo.Crown Forestry therefore made a new approach in 2009 tosee if there was a possibility for “greening” of Solid Energyby providing FSC certified wood as a renewable energysource. Two different scale options were discussed inprinciple with the SOE (along with variations to the largerscale option):Small scale optionKey features proposed:› Scale approx 30 000 tonnes green wood input perannum from forest and mill residues.

33wood processing› Relocate the Rolleston wood pellet plant to a centralWest Coast (brownfields) site with an intended subsidyfor the relocation costs (that is, to enable a low or nilsetup cost).› Long-term supply agreement for forest residues atcost of production as long as the SOE remained inmajority Crown ownership (so that any upside wouldpredominantly fall to the Crown).› Green log input cost comparable to a nationwideaverage delivered chip price.› Supply of mill residues to be negotiated with individualprocessors but in a favourable negotiating position(as present situation is a net cost of disposal of millresidues).Larger Scale OptionKey features proposed:› Scale a minimum of 100 000 tonnes green wood inputper annum (including mill residues).› Total forest production would go to a new plant on theWest Coast (brownfields site, centrally located to theforests).› Premium log grades only extracted for sale to WestCoast log customers.› Balance volume supplied to Solid Energy at cost ofproduction under some form of long-term supplyagreement.› Green log input cost would need to be 20 to 30 percenthigher than current nationwide average delivered chipprice because medium and lower grade sawlogs wouldbe utilised.Solid Energy again declined but agreed to keep an opendialogue if any of the underlying variables changedsignificantly. Their view was that the small-scale optionwas too small to be of interest (adding marginal capacityto their Taupo facility would be preferred) and the largerscale option was too costly in terms of green log inputcost.In March 2009, Crown Forestry entered into an optionwith Greenenz Ltd which was also looking at wood toenergy opportunities. The option extended for a 120-dayperiod while Greenenz undertook feasibility studies todecide whether to enter into a formal log supplyagreement. During the option period, Crown Forestryundertook not to enter into any long-term commitmentsin respect of West Coast forest residues. Greenenz did nottake up the opportunity of obtaining a formal log supplyand the option lapsed.CROWN FORESTRY ASSESSMENT OF THE WOODPROCESSING INDUSTRYThe transition from rimu to radiata has fundamentallytransformed the local industry’s competitive advantageinto a competitive disadvantage.The current West Coast industry has an overcapacity forpruned logs, a lack of demand for unpruned logs and nolocal market for residues.As a direct result of this imbalance, importing of prunedlogs and off-Coast sales of unpruned logs has been afeature since the start of the radiata harvest.The industry is reliant on the forests and would notsurvive on private or external supply.An enduring return to rimu is not feasible.“Wood to energy” opportunities are possible but haveproblems of scale and log input cost.

34emissions trading scheme7THEEMISSIONS TRADING SCHEMEPrior to being passed into law in October 2008, theEmissions Trading Scheme (ETS) had considerableexposure and consultation. It is retrospectively effectivefrom 1 January 2008. Since the change in Government,the ETS has been under review but the broad tenetappears likely to be unchanged. The ETS is complex and isexplained fully in a number of MAF publications whichare available on the MAF website.BRIEF OUTLINE OF THE SCHEMEA brief outline of the scheme is required to understandthe implications for the West Coast forests:ParticipationForest land is included in the ETS in two ways:› Compulsory – when pre-1990 forest land is deforested› Voluntary – when owners of post-1989 forest landchoose to bring it into the ETS.mapping manual to define the requirements.3) Calculate changes in carbon stocks on the forest.Note that for forest land holdings less than 50 hectareslookup tables can be used for filing returns but forareas of greater than 50 hectares lookup tables mayonly be used for interim returns and fieldmeasurements will be required for the 2013 andsubsequent 5-yearly mandatory returns.4) File an emissions return.Annual interim returns can be filed so as to receiveNZUs but mandatory returns are required in 2013 andevery 5 years thereafter.5) Surrender NZUs as required.Transfer of NZUs to Participants does not trigger anincome-tax liability. However, if NZUs are sold it isdeemed to be income and is assessable income for taxpurposes.Post-1989 forest› Entry is voluntary for both exotic and indigenous forest.› No NZUs are earned for carbon sequestered before2008.› Land had to be non forest land at 31 December 1989.› All or part of the forest can be registered and additionalareas added at any time.› If a forest is not registered no NZUs are allocated andno deforestation liability applies.› Once registered, deforestation will attract a requirementto pay back NZUs.If post-1989 forest enters the ETS then the Participantmust register and carry out the following actions:1) Obtain a holding account from the New ZealandEmissions Unit Register.2) Determine the Carbon Accounting Areas.This allows the Participants to decide how they wouldlike to specify the post-1989 forest so they can accountfor age classes and likely harvest patterns. There is aAll transactions of emissions units are zero rated for GSTbut any GST incurred in dealing and supply is able to beclaimed.Pre-1990 forest› Only applies to forests that were predominantly exoticat 1 January 2008.› Sustained ongoing forest operations are possiblewithout having to enter the scheme. However, ifdeforestation of more than 2 hectares occurs in any fiveyearperiod starting 1 January 2008 the landowner willautomatically be considered a Participant.› Can apply for allocation of NZUs but the AllocationPlan has yet to be finalised.› Allocation of NZUs (if applied for) is a one offopportunity intended broadly to compensate for loss inland value due to the deforestation liability.Owners of pre-1990 forest land who deforest more than2 hectares in a 5-year period automatically become ETS

35emissions trading schemeParticipants. A number of actions are required by theParticipant who must:1. Notify MAF of becoming a Participant.2. Obtain a holding account from the New ZealandEmissions Unit Register.3. Calculate the emissions associated with deforestation.4. File an emissions return by 31 March each year.5. Surrender units to meet emissions liabilities.Most transactions of NZUs which relate to pre-1990 forestdo not trigger an income tax liability. NZUs awarded underthe Forestry Allocation Plan do not incur tax if sold.GST treatment is as for post-1989 forests.Mapping RequirementsA Geospatial Mapping Information Standard specifies howforests are to be mapped, and the format of geospatialinformation. The Standard applies to post-1989 forestregistration, applications for exemption from deforestationand emission returns in relation to deforestation. Aseparate standard will be specified for the issuing of unitsunder the Forestry Allocation Plan.31 December 2012 and 37 NZUs after 2012 (but so far thescheme does not specify when after 2012).The planted area of pre-1990 forest in the Ngāi Tahu andDoC rights totals 25 095 hectares. Assuming that area isentitled to 60 NZUs and that these are priced at $25 perunit then the potential value is in the order of$37.6 million, potentially available to Ngāi Tahu Property.Offset against this however is the inability to change landuse in the short or medium-term due to the prohibitivecost of ETS deforestation penalties.Post-1989 ForestThis covers all the freehold land of 2992 planted hectaresand the Crozier forestry right. Some of this land hadvegetation cleared to facilitate planting so would not beeligible to enter the scheme. Assuming 70 percent landeligibility to enter the scheme and assuming a growth of15 units per annum, would mean that some 30 000 unitsin gross could be claimed each year, if entering thescheme. At $25 per NZU this could give an annual incomeof $750 000 although provision is still needed for repayingunits upon harvesting.IMPLICATIONS FOR THE WEST COAST FORESTSETS and Land OwnershipMost of the West Coast forest estate is on land subject toforestry rights (Ngāi Tahu, Crozier and DoC) with land andtree ownership split. The landowners are entitled to applyfor units under the Forestry Allocation Plan, and are liableif any pre-1990 forest land is deforested. The Crown cannot enter post-1989 forests into the scheme without thelandowner consent and vice versa.Pre-1990 ForestThis covers all of the Ngāi Tahu and DoC forestry rights. Asall the land was owned by the parties pre 2002, the pre-1990 entitlement is 60 NZUs under the revised allocationplan proposal with 23 NZUs transferred beforeSPS Estate – All Pre-1990 ForestAt 31 December 1989, some of the SPS estate was alreadyplanted but most comprised indigenous tree species(cutover native forest and native scrub species) that wouldbe capable of reaching 5 metres in height. The SPS estatetherefore falls entirely under the ETS definition of forestland at that date. Although Timberlands planted most ofthe SPS areas after 1989 on areas that were not previouslyin exotic species, this did not constitute a change in landuse in terms of the ETS.Accordingly, the SPS estate is defined as pre-1990 forestand qualifies for an allocation of NZUs. The SPS consistsentirely of Ngāi Tahu land and with a stocked area of 5320hectares has potential allocation of 319 200 NZUs with a

36emissions trading schemevalue of about $8 million on the above assumptions. Note,however, that the definition of -re-1990 forest specifies“predominantly exotic species before 1 January 2008”.Based on stem count or basal area, it could be argued that,even though exotic species were present, some of the SPSareas were predominantly in native species at that date,hence could be classified as native forest, falling outside ofthe ETS altogether.Plantation Estate – SummaryThe Plantations on Ngāi Tahu and DoC land are all pre-1990 forest land, subject to a liability if the land isdeforested, but also eligible for an allocation of units.The Plantations on freehold land and the Crozier forestryright are all post-1989 forest. In the case of the Crozierforestry right, ETS considerations will become part ofnegotiations over the proposed hydro scheme involvingthis land.In the case of the freehold land, entry (or not) into theETS needs very careful consideration on a case-by-casebasis. If entering, the issue of whether to hold or sell whileconsidering potential obligations relating to carbon stockdecreases would require consideration.MappingAlthough the West Coast forests are mapped for stockedarea the ETS area is not necessarily the same and earlyindications are that a slight increase on NSA is likely. Atleast some new mapping and ground proofing of forestedareas would be required to meet the ETS mappingstandards.CROWN FORESTRY ASSESSMENT OF ETSThe ETS as it applies to forestry is highly complex and stillnot complete.The potential NZU value of the pre-1990 land is in theorder of $38 million (falling to Ngāi Tahu Property aslandowner, but effectively denying any change in land use)and the post-1989 land could have an annual income of$750 000.Ngāi Tahu Property is likely to apply for the allocation ofNZUs for pre-1990 forests given that this is a one timeopportunity.The freehold land is post-1989 forest but whether or notto enter the scheme in the case of these areas needs verycareful consideration.Both pre-1990 and post-1989 forest land provisions in thelegislation are currently being amended, so the finalimplications for the West Coast forests won’t be clear untilthis legislation is in place.

37other land usesother LAND USES 8Although not a technical forestry matter, other land useshave come up for discussion during the course of this review,and for completeness are reported in this section. The mostobvious non-forestry land uses on the West Coast that couldbe classed by land valuers as the “highest and best use” onsome of the subject land are briefly discussed as follows.GOLD MININGGold mining is the highest and best land use on some sites,principally within the Ngāi Tahu forestry right areas. Ingeneral such areas are small and very specific.Mining as a land use fundamentally conflicts with forestryexcept during a very limited “time window” immediatelyafter harvesting.within the forest estate. These mainly comprise large tractsof flat terrace lands least suited to forestry because of windrisk and low fertility, for example the Craigieburn pakihi(Paparoa forest) and most of Ianthe forest.The major barrier is the prohibitive deforestation penaltyunder the ETS in the case of pre-1990 forests. Fertility is alsoan issue as these areas require major and ongoingapplications of fertiliser to become high-producingfarmland.Most of the freehold land which, being post-1989 forest, canbe cleared without penalty if not entered into the ETS, wasmarginal farmland prior to purchase so may have limitedattraction for going back into farming.In general, Crown Forestry will not agree to mining onforest areas that are close to maturity because of thedisruption to the planned harvest and thus commitments tolog customers.A framework for enabling mining under various conditionshas been outlined to mining interests and is being furtherdeveloped in conjunction with miners. One of the optionswithin this framework, contemplates forestry giving wayentirely to mining on discrete areas with independent legalaccess and clear boundaries (for example, demarcated byroads, or geographical features). This would be put intoeffect by the purchase of Crown Forestry’s trees and interestin the subject land, assuming the gold mining prospectswere sufficiently attractive to justify this.Negotiation with Ngāi Tahu Property as the landowner isrequired for all mining activities on the forestry right areas.Ngāi Tahu Property generally permits gold mining on itsland, believing that this is necessary to the viability of thegold mining industry in the region.FARMINGFarming could be the highest and best use on some sitesAny proposals to change land use to farming will need toinvolve Ngāi Tahu Property because of their land ownershipand first right of refusal through Te Runanga o Ngāi Tahu.LIFE STYLE BLOCKSIt is worth noting that small areas of land within the NgāiTahu forestry right areas, particularly within easycommuting distance from the main West Coast centres ofGreymouth and Hokitika, are suitable for subdivision andsale as life style blocks. Examples are small parcels on thefringes of Mahinapua and Kaniere forests with existing legalaccess. The loss of such minor areas from the Plantationestate would make minimal difference to the estate from aharvest potential or forest management perspective. Ifsurrendered, they could provide an immediate return toNgāi Tahu Property from sale of the land that wouldrepresent a much greater present value than the futurereturns from forestry right rents.CROWN FORESTRY ASSESSMENT OF OTHER LAND USESOpportunities for changing the land use away from forestryare limited and potential non-forestry land uses requirenegotiation with Ngāi Tahu Property.

38future management options SPSFUTURE MANAGEMENT optionsSPSThree future management options for the SPS estate havebeen investigated. The assumptions for each of theseoptions are set out below. Ten-year cashflows have beenestimated and are shown in Table 9.1. (Note thatcashflows have not been projected beyond ten-yearsbecause of the high level of uncertainty noted below andelsewhere in this review.)Costs, benefits and risks of each option are presented inTable 9.2.As all the land is owned by Ngāi Tahu Property, noconsideration of ETS matters in terms of obligations andcredits has been presented.9IMMEDIATE EXITThis option effectively means transferring ownership ofthe trees to Ngāi Tahu Property at nil value, buying outthe forestry right obligations and writing off the forestvalue.AssumptionsImmediate exit requires a negotiated settlement with NgāiTahu Property but an indicative “base case” can beestimated by calculating a discounted present value of theforestry right rent and outgoings commitments whichoccur until 2030. Write-off of the total forest value wouldbe required as shown in the cashflows. (Note that a formalappropriation approved by Cabinet would be required forthis write off).STATUS QUOThis option effectively continues the original intent of theproject.Expenditure AssumptionsOperational expenditure levels are based on the“preferred” Timberlands management approach overrecent years. Because of funding constraints since rimuharvesting ceased, this approach is less than ideallyprescribed and should be regarded as the minimum tocontinue the project’s original intent. Further investmentcould be undertaken (on pruning, thinning and fertiliser)to maximise the quantity and quality but returns on suchadditional investment would be even riskier than thecurrent approach.Overhead costs are assumed to continue at current levels.Revenue AssumptionsExpected returns are still 15 years away and estimatingharvest revenues for the SPS is extremely difficult andunreliable as there is no hard data on which to base eithervolumes or log price estimates. Minor revenues from theolder age classes are included in the cashflows in 2016 and2018.An estimate of the cost of this option is determined by:› Assuming base land rent is indexed at 3 percent perannum.› A discount rate of 7 percent applied to future rents andrates.› Allowing time for the exit to be negotiated with NgāiTahu Property, taking the buy-out of the forestry rightinto year beginning 1 July 2010.› An immediate write-off of the forest asset at the 2009MAF book value.› Assuming half the current level of overhead costs forthe first year, stepping down again the following yearbut still at a level that acknowledges some legal costswill be incurred while the exit is being negotiated.CONTINUE BUT STOP DISCRETIONARY EXPENDITUREThis option consists of laissez faire management bystopping all investment in silviculture and fertiliser andstopping all other costs except legal obligations andcompliance.Ownership of the trees is retained and that would allowthe opportunity for Crown Forestry to closely investigatethe estate in terms of technical matters to assess whether

39future management options SPSsome targeted investment is worthwhile. It also wouldallow harvesting prior to the termination periodcommencing.Cost AssumptionsAs required within the terms of the forestry right,payment of rent and rates is assumed until 2030, the endof the fixed initial term.The overhead costs are assumed to step down during2009/10 by excluding discretional maintenance, andthereafter consisting of only a small contingency overheadto cover compliance costs (for example, to meet localauthority by-laws).Revenue AssumptionsThis option maintains the right to either sell or harvest thecrop if an opportunity arises at any time prior to 2030 butno provision is built in to the cashflows for this.It is simply not known what effect the lack of investmentwill have on revenue expectations compared with thestatus quo. For the purposes of this option, the minorrevenues from the oldest age classes that are shown in the“status quo” option have been ignored.Table 9.1 Ten-year Pre-tax Cashflow ($000) SPS EstateStatus QuoYr Beginning 1 July 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Revenue $19.2 $9.9ExpenditurePrune/Thin $320.0 $411.1 $414.7 $544.2 $431.2 $243.6 $252.1 $189.0 $193.1 $229.2Fertilise $99.4 $100.4 $107.3 $162.2 $123.2 $138.0 $136.9 $86.1 $87.9 $104.4Rent/Rates $170.7 $170.7 $170.7 $170.7 $170.7 $170.7 $170.7 $170.7 $170.7 $170.7Overheads $342.2 $342.2 $342.2 $342.2 $342.2 $342.2 $342.2 $342.2 $342.1 $342.1Total Costs $932.4 $1024.3 $1034.9 $1219.3 $1067.3 $894.5 $902.0 $788.0 $793.8 $846.4Cashflow –$932.4 –$1024.3 –$1034.9 –$1219.3 –$1067.3 –$894.5 –$902.0 –$768.8 –$793.8 –$836.5Ten-year total –$9473.8Immediate ExitYr Beginning 1 July 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018RevenueExpenditurePrune/ThinFertiliseRent/Rates $320.0 $2350.2Overheads $171.1 $114.1Total Costs $491.1 $2464.3Asset Write off $5670.0Cashflow –$6161.1 –$2464.3Ten-year total –$8625.4Continue but Stop Discretionary ExpenditureYr Beginning 1 July 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018RevenueExpenditurePrune/ThinFertiliseRent/Rates $170.7 $170.7 $170.7 $170.7 $170.7 $170.7 $170.7 $170.7 $170.7 $170.7Overheads $171.1 $49.7 $49.7 $49.7 $49.7 $49.7 $49.7 $49.7 $49.7 $49.7Total Costs $341.8 $220.4 $220.4 $220.4 $220.4 $220.4 $220.4 $220.4 $220.4 $220.4Cashflow –$341.8 –$220.4 –$220.4 –$220.4 –$220.4 –$220.4 –$220.4 –$220.4 –$220.4 –$220.4Ten-year total –$2325.5

40future management options SPSTable 9.2: Costs, Benefits and Risks of SPS OptionsStatus Quo Immediate Exit Stop Discretionary ExpenditureCosts High cost.Approx $1million per year for at leastHigh cost.Costs all up front.Low cost.Ten-year total $2.3 million.10 years.Ten-year total $9.5 million.Ten-year total $8.6 million.Benefits Meets original policy intent.Expectation of future revenues(although uncertain).Clean exit with no costs after 2011. Opportunity to recover at leastsome asset value (for example,investigate sale).Opportunity to review estate for anyparts worth retaining/gather some harddata (currently lacking).At least some chance of harvest returnsbefore the initial term ends in 2030.Risks Ongoing investment but no short ormedium-term returns.Returns still uncertain as no hard dataon which to base expectations.Potential for wind damage to cypressesin Ianthe forest.Forfeit all chance of recovering anyasset value.Needs discussion to avoid damage tolandlord relationship.Forfeits ETS opportunities (if any).Low risk.DISCUSSION OF SPS OPTIONSContinuing the status quo is risky with a requirement forongoing investment but any returns some years away andlargely unknown because of the lack of any hard data.Although an immediate exit has some appeal in view ofthe SPS project’s inherent risks, it has a high cost as itrequires writing off the forest value and buying out theforestry right obligations. It requires discussion with NgāiTahu Property to avoid damage to the landlordrelationship and thus effect more than just the SPS estate.Continuing ownership but stopping all discretionalexpenditure minimises the cost and risk of continuingwith this project but does not rule out the option ofrecovering at least some asset value by harvest or offeringthe trees for sale.It also enables time to try and develop hard data(currently missing) on which to base reliable volume andlog price projections to reconsider the SPS estate in detail.It also allows the possibility of some harvesting (andrevenue) before the end of the initial fixed term of theforestry right.CROWN FORESTRY ASSESSMENT OF SPS OPTIONSContinuing ownership but stopping all discretionalexpenditure (at least in the short-term) is considered thebest option for the SPS estate from a commercialviewpoint.

41future management options PLANTATIONSFUTURE MANAGEMENT optionsPLANTATIONSFour future management options for the Plantations havebeen developed from the estate modelling exercisedescribed in Appendix 6. A fifth – immediate exit – is alsoconsidered. The options are set out below.The four management options provide for replanting andinvestment in silviculture whereas the modelling reportedin Section 5 for the purpose of broad comparisons onlymodelled the current crop. The model determines the levelof reinvestment subject to the criteria imposed in the“model run”. The five options presented cover the range ofstrategic outcomes, although variations on each option werealso investigated.Cashflows have been estimated for each option (for60 years, the extreme end of the modelling exercise). Thefirst 20 years of these cashflows are shown in Table 10.1along with the NPV of the first 20-year cashflows.Costs, benefits and risks of each option are presented inTable 10.2.STATUS QUOThis option maintains log supply to on-Coast and off-Coastdestinations at present “status quo” levels based on actualsales over the 10 months under Crown Forestry’smanagement.Main assumptions are:› Sustainable non-declining level of harvest as at present(approx 150 000 cubic metres per annum).› Market destination assumes on-Coast capacity forunpruned logs is limited to 45 000 cubic metres perannum (equals annualised actual deliveries from1 January to 31 October 2009).› Off-Coast supply has access to backload log cartage ratesup to the present level (50 800 cubic metres per annum),and one-way cartage rates will apply above this level.› Replanting after harvesting.›10Silviculture and fertiliser at status quo prescribed levels.› Pulp, roundwood and industrial log grades delivered tooff-Coast destinations.IMMEDIATE EXITThis option means forfeiting ownership of the trees on theNgāi Tahu and Crozier forestry rights, buying out theforestry right obligations and writing off the forest value.It also requires abandoning the DoC cutting right areas,selling the freehold land (subject to the Te Runanga o NgāiTahu right of first refusal) and settling other contractualcommitments.The only operational contractual obligations that extendbeyond 18 months are the three formal log saleagreements and the Crozier forestry right.It is difficult to accurately predict the cost of settling thelog sale contracts. All historical issues have beenextinguished by the series of earlier settlements referred toin Section 6, so it is only the forward expectations relatingto the contracts that would need to be considered. Noestimate has been made for this in this report, so thesettlement and legal costs would be in addition to thecosts for this option shown in Table 10.1.Exit would need to be negotiated with Ngāi Tahu Propertyin regard to the 2030 forestry right as well as the freeholdland over which Te Runanga o Ngāi Tahu has right of firstrefusal.A likely total cost of buying out the forestry rights isestimated using the following assumptions.› Land rent at the 2009 level indexed at 3 percent perannum.› A discount rate of 7 percent applied to future rents andrates to the end of the fixed term.› 75 percent of current book value of freehold land

42future management options PLANTATIONSrealised spread over years 2 to 5.› Ongoing contingency costs to year 5 to complete thewindup.This option will also require an appropriation to write-offthe forest value (currently $13.3 million).HARVEST TO MATCH UNPRUNED ON-COAST DEMANDThis consists of reducing the cut, thereby matching logproduction to the current level of on-Coast demand forunpruned logs based on actual sales from 1 January to31 October 2009.In effect, pruned logs would become an arising but are setat a minimum base level of 12 000 cubic metres perannum.annum when possible.› Unpruned volume excess, industrial, roundwood and chipgrade logs sold off-coast using backload cartage rates.› Silviculture and fertiliser as modelled.PROCESS ALL PRODUCTION ON-COASTThis consists of assuming new investment on the West Coastthat would be capable of processing the total forestproduction, including industrial grade, roundwood and pulpbut assuming it would take a 3-year lead in time for this tooccur.Main assumptions are:› Sustainable non-declining level of harvest.› All logs sold on-Coast after year 3.› Silviculture and fertiliser as modelled.Main assumptions are:› On-Coast cut is set at 45 000 cubic metres per annumof unpruned sawlogs.› Pruned log minimum of 12 000 cubic metres perannum when harvest is possible.› Arising industrial, roundwood and chip grade logs soldoff-coast using backload cartage rates.› No replanting of most remote or lowest fertility areas.› Silviculture and fertiliser as modelled.HARVEST TO MATCH UNPRUNED ON-COAST CAPACITYThis consists of matching log production to the currenton-Coast capacity to process unpruned logs. This isconservatively estimated to be 95 000 cubic metres/yrwith no or minimal new investment in processing plant.(It may require limited upgrading of existing plant.)Main assumptions are:› On-Coast unpruned cut is set at 45 000 cubic metresper annum to year 4 then increasing to 95 000 cubicmetres per annum to allow time to achieve theincreased sales.› Pruned log minimum of 12 000 cubic metres perComplete Stop to ReplantingExcept for the status quo, all of the options discussed aboveimply at least some reduction in replanting, as rationalisationof the Plantation estate proceeds. For completeness, onefurther option needs to be discussed– continuing harvesting the current crop but putting acomplete stop to all replanting.Although this was identified as an option, it was consideredthat it should be dismissed, or at least deferred until theoptions of estate rationalisation or sale of the estate had beenadequately explored. Cashflows have not therefore beenestimated for this option.The reasons for dismissal of not replanting at this stage are asfollows:› It would create a “fire sale” impression that wouldprejudice the likelihood of achieving a favourable returnfrom a sale.› It would signal a “sunset industry” to log customers whowould be likely to close down prior to log supply dryingup altogether.› It breaches government’s implied undertaking at the time

43future management options PLANTATIONS››››rimu production was stopped, that the Plantations wouldprovide for a continuing long-term timber industryon the West Coast. This would be a major issue for theindustry (who did not receive any payment within the2000 “adjustment package” on the basis of continuity viaaccess to a radiata harvest).It would also be an issue for the West Coast communityin general who shared the expectation of an ongoingindustry.FSC certification of the forests would lapse assustainability is a key FSC objective. This would directlyaffect log customer viability.Deforestation liabilities under the ETS apply to the pre-1990 forests.Forestry right obligations require the rent and land coststo be paid until 2030.Neither continuing the status quo nor an immediate exitappears commercially sound. Both are costly and risky andperform much worse than other options in terms of NPVanalysis.Limitations of the CashflowsIn order for the modelled cashflows to be refined intooperation plans or budgets, field checking of the costs andrevenues modelled is needed as the model solves for the“ideal optimum”. An example is where major roadconstruction serves more than one stand over five years. Inpractice, the cost may all be incurred in the first year whereasthe model assumes it is incurred as each stand is harvested.Likewise, the option to increase on-Coast processing up tothe local capacity assumes 100 percent is possible, whereasbudgeting to achieve 80 percent may be more realistic.DISCUSSION OF PLANTATION OPTIONSThe overwhelming issue arising from the analysis is thatselling the major proportion of wood off-Coast can notcontinue if the forestry business is to survive. Theimmediate aim should be to lift local unpruned log sales. Ifthis is not possible then a reduction in harvest to match themaximum available local demand is still preferable to thestatus quo (in NPV terms).Maximum value of the estate would result from anintegrated single site processing operation located in theGrey Valley (at or near the “centre of gravity” of thePlantation estate) taking all produce from the Plantationsincluding residues.No account is taken of potential NZU allocation credits in thecashflows. (The allocation plan is not finalised, the forestryright allocations fall to the landowner and the freehold land ispost-1989 forest so will not necessarily enter the scheme.)In Section 5 technical management issues have beenidentified aimed at cost reductions. Any such reductions willbe incorporated into future modelling and operationalplanning but cost savings are not anticipated in the cashflowspresented.To achieve this directly, Crown Forestry would need newinvestment, specialist expertise and a change in currentgovernment policy which is to generally disinvest fromcommercial forestry activities. One alternative is to offer thePlantations for sale. A wider market appeal would occur ifthe forest and land could be sold together. This wouldrequire a joint sale agreement with Ngāi Tahu Property.

44future management options PLANTATIONSTable 10.1 Twenty Year Pre-tax Cashflow ($000) Plantation EstateStatus Quo20 YearCashflow –$6 28420 YearNPV –$8 222Year beginning 1 July 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028Total Gross Revenue $9 714 $9 761 $11 062 $12 110 $12 483 $11 929 $12 050 $14 738 $14 775 $14 879 $14 109 $12 395 $14 493 $13 177 $12 980 $18 402 $17 978 $22 930 $22 642 $21 139Total Harvest Costs $8 269 $7 825 $9 198 $8 447 $8 974 $9 882 $9 983 $10 887 $10 837 $10 984 $10 791 $10 240 $10 736 $9 252 $8 933 $13 395 $13 267 $16 644 $17 303 $17 713Stumpage Revenue $1 445 $1 937 $1 864 $3 663 $3 510 $2 047 $2 067 $3 851 $3 938 $3 895 $3 318 $2 154 $3 757 $3 925 $4 047 $5 008 $4 711 $6 287 $5 339 $3 426Expenditure GrowingCosts$2 202 $2 295 $1 382 $1 759 $1 575 $1 436 $1 684 $1 418Rent and Rates $942 $931 $922 $916 $907 $904 $901 $894 $890 $888 $886 $879 $876 $870 $865 $861 $855 $845 $837 $830Other Overheads $1 510 $1 524 $1 503 $1 484 $1 479 $1 456 $1 450 $1 451 $1 436 $1 426 $1 421 $1 428 $1 412 $1 410 $1 398 $1 390 $1 387 $1 384 $1 364 $1 350Total Costs $4 653 $4 750 $3 807 $4 159 $3 961 $3 796 $4 035 $3 763 $3 620 $3 809 $3 704 $3 743 $3 260 $3 528 $3 306 $3 437 $3 904 $3 510 $3 791 $3 934Net Cashflow Pre–tax –$3 209 –$2 813 –$1 943 –$496 –$452 –$1 749 –$1 968 $88 $318 $86 –$386 –$1 588 $497 $396 $740 $1 571 $807 $2 777 $1 547 –$50820 YearCashflow –$27 88620 YearNPV –$25 326Immediate ExitYear beginning 1 July 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028Total Gross RevenueTotal Harvest CostsStumpage RevenueExpenditureGrowing CostsRent and Rates $1 104 $15 196Other Overheads $1 538 $923 $513 $359 $250Total Costs $2 642 $16 119Asset Write off $13 339Sale of Freehold land $1 053 $1 053 $1 053 $1 053Net Cashflow Pre–tax –$15 981 –$15 066 $1 053 $1 053 $1 053Harvest to MatchCurrent Unprunedon–Coast Demand20 Yearashflow –$4 16120 YearNPV –$4 133Year beginning 1 July 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028Total Gross Revenue $7 246 $7 527 $7 668 $8 072 $7 281 $7 639 $7 400 $7 721 $7 820 $8 886 $7 810 $6 404 $6 330 $7 469 $7 908 $7 464 $7 405 $7 877 $7 588 $8 071Total Harvest Costs $4 593 $4 730 $4 721 $4 830 $4 521 $4 638 $4 460 $4 782 $4 686 $5 909 $4 876 $3 806 $3 634 $4 488 $4 707 $4 553 $4 483 $4 209 $4 480 $4 562Stumpage Revenue $2 652 $2 797 $2 947 $3 242 $2 760 $3 002 $2 939 $2 939 $3 134 $2 977 $2 934 $2 598 $2 695 $2 981 $3 202 $2 911 $2 922 $3 668 $3 108 $3 509ExpenditureGrowing Costs $1 810 $1 514 $1 042 $1 024 $981 $826 $1 013 $889 $861 $855 $1 024 $760 $479 $402 $318 $600 $547 $497 $339 $389Rent and Rates $942 $941 $939 $937 $930 $926 $923 $923 $923 $921 $919 $917 $915 $909 $909 $907 $904 $899 $894 $893Other Overheads $1 521 $1 506 $1 505 $1 506 $1 509 $1 492 $1 483 $1 477 $1 474 $1 477 $1 475 $1 473 $1 469 $1 474 $1 453 $1 458 $1 454 $1 454 $1 445 $1 430Total Costs $4 273 $3 961 $3 486 $3 467 $3 420 $3 244 $3 420 $3 289 $3 258 $3 253 $3 418 $3 151 $2 863 $2 785 $2 681 $2 965 $2 905 $2 849 $2 678 $2 712Net Cashflow Pre–tax –$1 620 –$1 164 –$539 –$225 –$660 –$242 –$480 –$350 –$124 –$275 –$485 –$552 –$168 $195 $521 –$54 $17 $819 $430 $797

45future management options PLANTATIONSTable 10.1 continued...Harvest toMatch Unprunedon–Coast Capacity20 YearCashflow $12 60220 YearNPV $676Year beginning 1 July 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028Total Gross Revenue $9 714 $9 625 $11 042 $14 641 $13 736 $13 291 $13 746 $15 486 $15 798 $15 717 $15 182 $13 496 $15 720 $16 255 $16 655 $17 201 $16 561 $16 870 $16 269 $18 535Total Harvest Costs $8 269 $7 723 $9 185 $8 864 $9 070 $9 798 $9 910 $10 311 $10 546 $10 753 $10 503 $9 918 $10 599 $10 703 $10 384 $11 353 $11 220 $10 911 $11 747 $14 553Stumpage Revenue $1 445 $1 902 $1 857 $5 777 $4 665 $3 493 $3 835 $5 175 $5 252 $4 964 $4 679 $3 577 $5 120 $5 551 $6 270 $5 848 $5 342 $5 959 $4 523 $3 982ExpenditureGrowing Costs $2 214 $2 295 $1 375 $1 818 $1 566 $1 432 $1 944 $1 441 $1 361 $1 637 $1 482 $1 377 $1 069 $1 355 $1 222 $1 138 $1 478 $1 263 $1 303 $1 616Rent and Rates $942 $931 $922 $915 $904 $902 $899 $892 $889 $886 $883 $877 $874 $868 $857 $853 $847 $840 $837 $826Other Overheads $1 510 $1 524 $1 503 $1 485 $1 482 $1 448 $1 448 $1 448 $1 432 $1 427 $1 420 $1 422 $1 406 $1 407 $1 407 $1 379 $1 372 $1 366 $1 347 $1 356Total Costs $4 665 $4 750 $3 800 $4 218 $3 952 $3 782 $4 291 $3 781 $3 682 $3 949 $3 785 $3 675 $3 349 $3 630 $3 486 $3 369 $3 698 $3 469 $3 487 $3 798Net Cashflow Pre–tax –$3 220 –$2 847 –$1 943 $1 559 $713 –$289 –$455 $1 393 $1 570 $1 015 $894 –$98 $1 771 $1 921 $2 784 $2 479 $1 644 $2 490 $1 036 $184Total on–Coast20 Year20 YearProcessingCashflow $40 992NPV $12 833Year beginning 1 July 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028Total Gross Revenue $9 704 $9 585 $11 042 $15 943 $14 581 $14 571 $14 910 $16 490 $17 079 $16 751 $16 225 $15 040 $16 837 $15 387 $18 423 $20 856 $19 950 $19 297 $17 548 $17 885Total Harvest Costs $8 248 $7 683 $9 174 $8 875 $8 948 $9 953 $9 486 $10 096 $10 336 $10 169 $10 118 $9 773 $10 330 $9 052 $10 032 $12 679 $12 277 $11 455 $12 425 $12 643Stumpage Revenue $1 456 $1 903 $1 868 $7 068 $5 632 $4 618 $5 424 $6 394 $6 743 $6 582 $6 107 $5 267 $6 506 $6 335 $8 391 $8 178 $7 673 $7 842 $5 122 $5 243ExpenditureGrowing Costs $1 938 $2 049 $908 $1 251 $1 301 $1 211 $1 419 $1 442 $1 250 $1 550 $1 674 $1 194 $1 243 $1 472 $1 140 $1 294 $1 166 $1 358 $1 453 $941Rent and Rates $942 $931 $922 $914 $904 $902 $897 $891 $886 $883 $880 $874 $872 $867 $860 $847 $840 $833 $818 $803Other Overheads $1 510 $1 524 $1 503 $1 487 $1 478 $1 450 $1 450 $1 446 $1 432 $1 422 $1 416 $1 416 $1 400 $1 401 $1 400 $1 397 $1 364 $1 356 $1 357 $1 333Total Costs $4 389 $4 504 $3 333 $3 652 $3 683 $3 563 $3 766 $3 778 $3 568 $3 855 $3 970 $3 484 $3 515 $3 740 $3 400 $3 538 $3 370 $3 547 $3 628 $3 078Net Cashflow Pre–tax –$2 933 –$2 601 –$1 465 $3 415 $1 949 $1 056 $1 658 $2 616 $3 175 $2 727 $2 137 $1 783 $2 991 $2 595 $4 991 $4 640 $4 304 $4 295 $1 494 $2 165

46future management options PLANTATIONSTable 10.2: Costs, Benefits and Risks of Plantation OptionsStatus Quo Immediate Exit Match Current UnprunedOn-Coast DemandCosts High cost.High cost.NPV of 20 yearNPV of 20 year Costs all up front. cashflows iscashflows is –$8.2 NPV of 20 year –$4.1 million.million.cashflows is –$25.3 Requires ongoing netRequires ongoing net million.funds for the next tenfunds for the next tenyears.years.Benefits No change needed. Clean Exit with no Will improvecosts after 2011. stumpage returns.Match UnprunedOn-Coast CapacityNPV of 20 yearcashflows is$0.7 million.Largely cash positiveafter three years.Will improvestumpage returns.TotalOn-Coast ProcessingNPV of 20 yearcashflows is $12.8million.Cash positive afterthree years.Best long term option.RisksContinuing negativeRequires write off ofGenerally low risk.Generally low riskNeeds new investmentannual cashflows.asset value.Overhead and fixedMay be resistance toin processing plant.Unknown cost/costs spread overincreased uplift evenLikelihood of thislitigation risk for exitsmaller volume.though processingunknown.from contracts.May create difficultiescapacity is already inNot within CrownVery damaging to allfor on-Coast prunedplace on-Coast.Forestry’s expertise orcommercial/log customers.Assumes demand formandate.communitysmaller diameter logsrelationships.than are currentlyForfeits ETSprocessed on-Coast.opportunities.CROWN FORESTRY ASSESSMENT – PLANTATION OPTIONSContinuing to manage the Plantations as a going concernbut maximising efforts to increase the on-Coast unprunedlog sales is the best short-term commercial option for thePlantations.Long-term forest value would be maximised by newinvestment to enable on-Coast processing of all logproducts including residues. A possible means offacilitating this is by sale of the forest asset. The appeal tothe market would be widened if done in conjunction withthe land which requires Ngāi Tahu Property involvement.

47CONCLUSIONSCONCLUSIONS1. The Crown dominates West Coast forest ownershipholding 90 percent of the planted area along with themajority of native forests.This ownership dominance by the Crown has been themajor single influence on the region’s forest industrywith continual government intervention for the lastthree decades impeding stability of direction.2. About 90 percent of the forest is on land owned byNgāi Tahu Property subject to forestry rights. NgāiTahu (through Te Runanga o Ngāi Tahu) has a rightof first refusal over the forest assets including thefreehold land.Ngāi Tahu Property therefore needs to be directlyinvolved in any moves to vary, reconfigure or sell eitherthe SPS or the plantation estate.3. The forests have major physical challenges ofremoteness, low fertility and an adverse climate.There are 21 forest areas spread over 350 kilometres, onsoils described as low or very low fertility and subjectto high rainfall. Recent wind events have impacteddrastically on mature to near mature trees. Regionalgrowth rates are low and operational costs are higher incomparison to other regions.4. There are two distinct forest estates with differentpolicy origins that need to be considered separately.› The Special Purpose Species (SPS) in South Westlandarising from an explicit 1980 government policy, and;› The Plantations, principally radiata pine, with an originakin to plantations elsewhere in New Zealand.5. The SPS estate is more remote (being in SouthWestland) and is not material to the current industrywith any significant production at least 15 yearsaway.The forests are largely “unproven” and information onharvest volumes and outturn is almost non-existent. In11commercial terms further investment is riskier thanforest growing in other locations.6. The Plantation estate is geographically centred onthe Grey Valley.In comparison to other regions in New Zealand theforests are well located to serve industry located in theGrey Valley. Alternative markets in Nelson orCanterbury by comparison are remote with transportcost to those markets resulting in very low or negativemargins.7. A review of the Plantation estate harvest projectionsshows that while the age class gap of the late 1980spresents difficulty for harvest management, itreaffirms harvest projections of a sustainable cut ofabout the current level (150 000 cubic metres perannum).The level of harvest can be increased but the timingwithin the next years depends on future industryconfiguration. At an increased harvest level, continuingoff-Coast delivery is not commercially rational for theforest grower.8. The West Coast forest industry’s transition fromrimu production has been difficult.This transition has transformed the local industry’scompetitive advantage into a competitive disadvantage.It has resulted in many mill closures and is still notfully complete with a continuing over-reliance on highgrade logs which make up only a minor proportion ofthe available supply and requires selling the lower valuelog grades off-Coast.9. The current West Coast forest industry is heavilyreliant on the Crown’s forests.The Crown’s forests provide log supply to the threesawmills. The direct employment is significant and theforest industry is nearly four times more important to

48CONCLUSIONSthe West Coast region than to other regions nationally.(The “location quotient” is 3.7 compared to a nationalaverage of 1.)10. Under the present configuration, forest growing onthe West Coast is not commercially viable.The Timberlands Board came to the same conclusionin its 2007 report to shareholding Ministers. Theoverwhelming immediate factor is the imbalance inpruned/unpruned log demand from local mills. Lowyields, remoteness from markets and high harvest coststructure under the current harvest strategy are alsocontributing factors.11. Under the ETS the value of NZUs is significant.For the pre-1990 forests, the proposed Allocation Planvalue of the NZUs could be in the order of $38 millionwhich (with minor exceptions) would fall to Ngāi TahuProperty as landowner. Offset against this however, isthe inability to change land use in the short or mediumterm due to the prohibitive cost of ETS deforestationpenalties. For the post-1989 land, annual revenue fromsale of NZUs could be in the order of $750 000 ifCrown Forestry opts to enter the scheme but entrywould also create carbon liabilities.12. Alternative land uses are possible for some of theland but the ETS is a major barrier.Wide scale conversion to other land use is effectivelyprohibited by ETS deforestation penalties, at least inthe initial ETS commitment periods.13. Immediate exit from the forestry business is notattractive (it would be costly and problematic) butthere are options for improving the present situationfor the forests.› SPS Estate:Stop discretional expenditure, at least in the short termwhile a long term strategy is negotiated withlandowner Ngāi Tahu Property. The SPS forests areremote, harvesting is still 15 years away, markets forthese species are untested and there is no hard volumeor price data so returns are speculative. Continuedinvestment is risky.› Plantations:1) Reduce off-Coast log sales and process all or most ofthe unpruned logs locally either by reducing thetotal cut to match current local unpruned demandor by encouraging increased local processing ofunpruned logs to match forest harvest.2) Re-evaluating the silvicultural regimes to build inrecent experience of wind risk and refocusing theharvesting strategy. This would reduce costs withoutundue reduction in long term sustainable yield(3) Rationalise the Plantations to a “core” estate byremoving areas of higher and better use, exiting orapplying a low cost regime to the lowest fertility andhighest wind risk areas,.4) Continue replanting to sustain a “going concern”forestry business. This meets the terms of theForestry Rights and preserves the asset whilerationalisation and/or outright sale are progressed.14. The optimum long term solution is considered tocomprise new investment in an integrated single siteoperation located in the Grey Valley, taking allproduce from the Plantations including residues.Undertaking such new investment directly is clearlybeyond Crown Forestry’s mandate or expertise, butcould be facilitated by offering long-term saleopportunities or by offering the Plantations for salepossibly in conjunction with the land if agreementcould be reached with Ngāi Tahu Property.

49glossaryGlossary12BlankingReplacing either individual trees or areasClearwoodWood showing no (or negligible) defectsthat have failed (for example, stocking lesscaused by knots, resin pockets orthan 85 percent) following the initialmechanical damage and usually displayingplanting operation. Usually carried out atstraight and even grain patterns.the end of the planting season or at theClearwood in small amounts is found instart of the next planting season.all trees. Pruning is designed to growadditional amounts, especially in longButt logThe first log above the stump. The largestlengths.diameter log and usually having thegreatest unit value of all the logs in theCompartmentA contiguous area within a forest definedtree. If the tree has been pruned this logand recorded on a map (or by recordingwill contain most of the clearwood in thenoticeable boundary markers) used as thetree.basic unit of forest record and description.Usually contains stands which areCashflowThe flow of cash payments made to or byreferenced with respect to thean “enterprise”. Costs may be regarded ascompartment.negative cash flows and “revenues” aspositive.Crop treeAny tree harvested or expected to beharvested for the production of wood fibreNote: Cashflows are generally “transaction”(as opposed to cull trees which arebased. Value increments (for example) inremoved by thinning).a forest are not cashflows. For the purposeof analysis cashflows are projectedCroptypeAn aggregation of “stands” for the“transactions” and may include flowspurposes of recording, analysis and forestwhich are not strictly “transaction” basedmanagement. The aggregation parametersbut are implied “transactions” to fit allwill vary dependent on the purpose of thevalue effects into an “enterprise life”.grouping, but single croptypes willgenerally be comprised of trees ofChipsWood in the form of small fragments andidentical species that have similar growthgenerated either in a whole log chip milland yield patterns and will haveor as a by-product of the manufacture ofexperienced similar silviculturallumber and plywood and used in thetreatment. Sometimes, when harvestingmanufacture of pulp and paper andcharacteristics are at question, a givenvarious composite panel products such ascroptype will also exhibit similarmedium density fibreboard, or particleharvesting characteristics. Croptypes mayboard. (See also “pulp log”.)also be allocated according to forestownership and regional location.ClearfellingThe practice of felling all the trees in agiven area.

50glossaryCubic metres (m³) The standard volume measurement offorest stands, logs (cubic metres round) orsawn lumber (cubic metres sawn). Ameasure of actual volume contained in thetree, log or piece of lumber.Cutting Strategy A set of log grade specifications withmarket values assigned to each grade. Theforest inventory software uses a cuttingstrategy to simulate the cutting of a treeinto logs in such a way as to maximisetotal value.DBHAn acronym of “Diameter at BreastHeight” and now usually used in acronymform. A term used to describe a treediameter measurement taken at thestandard height of 1.4 metres above“ground level”. (Note that in somecountries DBH is taken at 1.3 metres).Usually measured and expressed over barkon the standing tree.Discount rate The annualised rate at which projectedcosts and revenues are deflated to reducethem to a Present Value.Discounted Projected costs and revenues multiplied bycashflow the “Discount factor” at the givenDiscount Rate appropriate to the futureyear.Domestic log A domestic log is a log which for reasonsof market or grade is sold in New Zealand,as opposed to an export log which is soldoverseas (although some local sawmillswill buy export equivalent logs). (Exportlog grades are sold in fixed lengths andprice is usually based on the averagediameter and proportions of each fixedlength.)Establishment Describes all of the physical steps requiredin creating a stand of trees. This includesthe clearance and control of competingweeds, new planting, and any fertilisingand supplementary planting carried out inthe first few years after planting.Estate Model A generic term for a series of tables ormathematical relationships between aforest and its management inputs andproduction outputs (for example, logs, andlog revenues). Most forest state modelsused in New Zealand are in the form ofeither a computer optimisation model, orelse a computer simulation model.Forest An area of land fully or partially stockedwith growing trees. See also plantationforest.Framing lumber Grades of lumber suitable for structuralpurposes in buildings and for other loadbearing applications. Appearance is not aprime consideration and accordingly,subject to adequate or specified strengthand stiffness, “framing lumber” may showknots and other grain imperfections.Growth Model A computer programme or mathematicalroutine which projects future stand height,stocking, volume and timber yield fromcurrent stand measurements.Hardwood Tree species which are angiosperms(flowering trees) and whose woodstructure contains vessels. Also referred toas broadleaved species. The term is alsoused for the wood from these species.

51glossaryHaulerHarvestingGeneral term applied to cable logging,where a machine operates from a setposition and is equipped with winches tohaul logs from stump to skid.The processes of felling, in-forest,processing and transport of logs to theskid site (also called logging). May alsoextend to loading onto trucks and cartageof logs from the forest.K Log A sawlog of grade that meets Koreanexport standards. Branch size is normallyless than 140mm.Land preparation Any operation or combination ofoperations which prepares the land tomake the planting of trees possible, forexample, scrub-cutting, burning, ripping,desiccation, wind rowing, cultivation,mounding and roller crushing.InventoryJASCable or hauler harvesting refers toharvesting where logs are extracted bystationary winches, usually on steepterrain. Ground-based or skidderharvesting refers to harvesting where logsare extracted by tractors.Refers to any field measurement of all orpart of a stand. As a minimum themeasurement will be of tree DBH, height,as well as an assessment of the stocking ofstems/ha. Pre-harvest inventory will alsoinclude an assessment of the quality of thestem, as it relates to utilisation for veneerlogs, sawlogs and pulp. An inventory isnormally carried out over a sample area ofthe stand, typically between 1 and4 percent of the total stand area. Thereforeany inventory estimate of stand density,height and yield will have an associatedsampling error.The Japanese Agricultural Standard (JAS)formula is used to assess the volume oflogs required by customers in Asian logmarkets.LEDAn acronym for “Large End Diameter”.Used in log measurement. Usually refersto an under bark measurement.L Grade An unpruned sawlog with large branches.LogMerchantable lengths of the tree stem tobe selected at harvesting. The raw materialfrom which lumber, plywood and otherwood products are manufactured. Alwaysrefers to produce after felling.Logging See HarvestingMean Crop Height The average height of the crop trees.(MCH)Mill door Logs (or roundwood) delivered to thesawmill or log processing plant. Used as apricing reference point (for example, byadding stumpage, logging, loading andtransport costs).Net stocked Area The area of land currently occupied by the(NSA) tree crop.

52glossaryNet Present Value Is the present value of future net(NPV ) cashflows, discounted at a specified pre orpost tax discount rate. It is used as ameans of objectively comparing variousfuture options.New Zealand Unit A carbon emission unit or carbon credit(NZU ) that is specific to the New ZealandEmissions Trading Scheme.Peeler A log suitable for the production ofveneers by rotary peeling on a lathe (seealso “Veneer Log”).Plantation forest Areas of land predominantly covered intrees that have been planted or that haveregenerated from planted trees, and thatare grown for cropping and are managedfor commercial purposes and excludingnatural forests.PLEProbable limit of error. A term whichrefers to the confidence limits expressed asa percentage of the mean. For example aPLE of 10 percent at the 95 percentconfidence level implies that the truemean is likely to lie within 10 percent ofthe estimated mean 95 times out of 100.Pricing Point A geographic point where a commercialtransaction is assumed to take place.Differs from Point of Sale in that in fact notransactions as described may actuallytake place at the Price Point. The PricePoint is a convenient point to which costsand prices may be adjusted to bring alltransactions in an area on to a commonbasis.Pruned height The height above ground level of thelowest branch whorl remaining after thelast pruning operation.Pruned log A large high quality log, containing asubstantial proportion of clearwood, usedprimarily in the veneer and plywoodindustries and in the production ofclearwood lumber for furniture andinterior and exterior finishing uses.Pruning The silvicultural practice of removing thelower branches of a tree by mechanicalmeans (for example, Shears, saws) whilethe tree is still growing to eliminate orprevent the formation of knots anddeformation of the grain in the woodsubsequently grown. A strategy to growclearwood.Pulp log A low grade log used as fibre input for theproduction of pulp and paper andreconstituted wood products.Sometimes referred to a chipwood log orchip log. Logs which are too small orwhere form or branching is too poor toallow the log to be utilised for sawn timberor veneer.Recoverable yield The amount of wood, usually expressed asa volume of round logs of above aminimum length produced from a standduring the harvesting operation. This maynot coincide with merchantable yield, assome potentially merchantable wood maybe wasted while cutting logs to prescribedlength.

53glossaryRegimeThe forest management regime is theparticularly managing all aspects of theparticular management applied to a stand.establishment, composition and growth ofIn forest planning the term “regime” isforests. (Excludes harvesting).used for the outline of key managementactivities such as timing and intensity ofSite Index (SI)A measure of the productivity of a forestpruning and thinning operations.site expressed in terms of the heightgrowth attained by trees growing on it. InReleasingRemoving competing vegetation to allowNew Zealand the parameter usually usedmaximum tree growth, for example, handis the “Mean Top Height” of Pinus radiataspraying of herbicide around trees in aat age 20, or – more rarely – Douglas-firpasture, aerial spraying of gorse regrowth,at age 40.or hand slashing bracken, etc. Usuallycarried out within one or two years ofSoftwoodUsually refers to the wood from theplanting.botanical groupings including coniferoustrees, gymnosperms, usually with needlesRotationThe span of years in which a tree or standor scalelike leaves such as pines, firs,grows from first planting at the forest sitespruces and other similar genera. Alsothrough to felling.used for the wood from these species.RoundwoodSawlogSEDMost commonly (and in the context ofthis review) used to mean posts or polesthat is, log products with a final use inround form. (If used in association withforestry statistics for example,“Roundwood Removals” can refer to alllog products from the forest).A log used in the lumber (sawmilling)industry to produce a range of lumberproducts.An acronym for “Small End Diameter”.Used in log measurement, usually asunder bark SED. Written SED.Stand A block of trees (usually contiguous butnot necessarily so) of the same age, speciesand silvicultural regime. A unit of forestarea record, usually a subdivision of a“compartment”.StemThe major vertical structural member of atree (that is, trunk).Stems per hectare The number of live trees existing on one(Stems/ha) hectare. Compounded uses of the terminclude “Crop stems/ha”, “Pruned stems/ha”, etc, all of which have obviousmeanings. Commonly referred to as“Stocking”.S GradeAn unpruned sawlog with small branches.Stocked areaThe measured area within a stand of trees,which is considered to have a sufficientSilvicultureThe practice of tending forest crops basednumber of stems to be productivelyon the knowledge of forestry – moreharvested. Scattered individual trees or

54glossaryareas of wasteland are not included withinthe stocked area of the stand. Stocked areais sometimes referred to as net stockedarea (NSA).Stocking See Stems per hectareStructural Grade A sawlog where branch size does notexceed 60mm, and where(S1/S2) Log stem quality and straightness are sufficientto allow cutting of lumber for structuraluse.Stumpage Value of or price paid for standing trees(on the stump). Values may be expressedas $ per cubic metre, $ per tonne or $ perstand.Sweep A measure of the bend in a log calculatedas the maximum distance of the mid pointof the log from a straight line joiningbetween each end of the log. Sweep can beexpressed as a proportion of the small enddiameter of the log.ThinningTree heightUtility GradeVeneer logThe silvicultural practice of removingtrees (usually the poorer trees) to promotethe more rapid growth of the residual croptrees. May be “to waste” where the thinnedtrees are left on the forest site or“production” where the thinned trees areremoved for use.Defined as the measured distance fromthe base of the tree to its highest growingtip. The height of all crop trees in thestand can be averaged to produce anindicator of overall stand productivity.This average is termed mean crop height.Mean top height refers to the averageheight of the one hundred largest diametertrees per hectare in a stand.Unpruned sawlog of low quality, bigbranches and short lengthsA log, usually of large diameter and highquality, used for making veneer (eithersliced or peeled). Also called a “Peeler”when used for rotary peeling.TendingA collective term for silviculturalVolumeIts use as a forestry term usually refers tooperations that are directly applied to thethe potentially usable wood content of thegrowing tree for example, pruning andstem of a tree.thinning are referred to as “tending”,whereas aerial fertilisation and fireWharf gateA pricing point for logs or roundwoodprotection are not usually referred to asdelivered to wharf for export.“tending”. See also “Silviculture”.YieldThe quantity of forest produce that is, or isTerrainSimilar to “Topography” but also hasexpected to be, recovered from a unit areaconnotations to the effect of the soil,of land. Net yield generally means thewater, rock and vegetation coversame as “Merchantable Yield” orconditions on the ability to traverse the“Recoverable Yield”. Usually expressed incountry.either cubic metres, tonnes, or JAS cubicmetres per hectare.

55glossaryYield TableA table which depicts the yields that canbe expected from a croptype, as a functionof age. The yields are usually expressed ona per hectare basis, and are broken downby log grades, the sum of which gives thetotal recoverable yield.

56appendicesAppendicesAppendix 1: Area by Land Tenure.Appendix 2: Crozier Forestry Right including Deed of Assignment.Appendix 3: Department of Conservation Management Agreement including Deed of Assignment.Appendix 4: Ngāi Tahu Initial Term 2030 Forestry Right.Appendix 5: Ngāi Tahu Existing Crop Forestry Right.Appendix 6: Estate Modelling.Schedule of MapsMap 1: West Coast ForestsMap 2: West Coast Mean Annual RainfallForest Maps – Special Purpose SpeciesForest Maps – Northern Plantations

Ministry of Agriculture and ForestryTe Manatü Ahuwhenua, ngÄhereherePastoral House, 25 The TerracePO Box 2526, Wellington 6140New Zealandwww.maf.govt.nz