Leading forestry economist highlights need for new forestry investment model in Australia

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Leading forestry economist highlights need for new forestry investment model in Australia

October 05, 2010 - 17:05
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BRADDON ACT, Australia, Oct. 5, 2010 (Press Release) -The global financial crisis has brought the Australian forestry sector to a crossroads, says leading forestry economist David Thompson.

"The past two years on the plantation investment front have seen considerable upheaval with the collapse of several forestry managed investment schemes, withdrawal of resources from forestry research and extension, more sales of government plantations, increased international investment in plantation assets, and much back and forth over wood-based carbon and bio-energy," said Mr Thompson

At the same time, he says, plantation establishment rates have fallen significantly, and investment models appear ripe for a considerable shake-up.

The major obstacle for investment in forestry is the long-term nature of the investment. Pulpwood plantations can take 10-12 years and sawlogs in excess of 20 years to realise a return. To date, only governments, a few MIS projects and some timber processing companies have been willing to bear the risk of investment in long rotation wood projects at a significant scale.

The market focus on initial tax deductibility and/or near-term cash flow persists despite a range of positive investment characteristics associated with forestry including the counter-cyclical nature of returns relative to other investments, the capacity to delay harvest until market conditions are favourable while the wood volume continues to increase, and higher returns than many agricultural investments.

The time is right, says Mr Thompson, to examine the full range of investment scenarios.

"Other countries have used a range of direct incentives such as land grants, low cost loans or free seedlings to boost plantation investment. With the exception of Commonwealth loans to the States for softwood plantings, and grants for environmental trees, Australian policy has essentially avoided direct incentives, and has relied on a supportive policy environment with eligible cost tax deductibility to generate private investment".

"There are a range of other taxation arrangements and investment structures used overseas which could be explored, but the questions should be asked, and particularly in relation to investment in long rotation sawlogs - should a sustainable future Australian wood supply now be regarded as an investment in infrastructure?"

David Thompson is the National Plantation Strategy Coordinator of Plantations 2020 - a strategic partnership between the Commonwealth, State and Territory Governments and the plantation timber industry to enhance regional wealth creation and international competitiveness through a sustainable increase in Australia's plantation resources. He is also a principal at the Centre for Agricultural & Regional Economics.

Mr Thompson will deliver a presentation on the topic of ‘Plantation Models of Investment and Forestry Policy' at the Australian Forest Growers Conference in Mt Gambier from October 10th to 13th. For more information go towww.afg.asn.au