Wood Matters

With many changes happening in the New Zealand forestry sector some people have been asking what's happening at PF Olsen. With so much happening, where do we start…? Here's a brief update on the key goings-on.

The big silviculture programmes of the large early-mid 1990 plantings came to an end some five years ago. It then it became clear to PF Olsen that it had to shift resources to either forest establishment or harvesting.

Despite a short Emissions Trading Scheme (ETS) inspired upturn in new planting during 2010-2012, new planting has pretty much fizzled out again.

PF Olsen was active during the ETS formative years and contributed to getting the best possible deal for forest owners. This makes it particularly disheartening that the current pathetically low carbon price is seriously constraining potential ETS opportunities for forestry. Some investors responded to the government's policy framework and got busy with new planting a few years ago; some have now moved on (many facing sizeable capital losses), and some are relying on the carbon price rising to viable levels for their projects. We continue to disagree with the government's assertion that NZ emitters pay the international carbon price.

The chart below traces the wild swings in new forest planting. The current policy settings are seeing renewed deforestation and conversion of forest-land to dairy.

The most likely future harvesting scenario is an increase in harvesting levels from the current estimated 26 million m³ per year to 30-35 million m³ from 2015 to 2025. After that volumes could fall to 20-25 million m³ based on current planting levels and deforestation. This will struggle to attract the massive investment required to establish new world-scale processing in New Zealand; something widely agreed as desirable for both the forestry sector and the NZ economy.

Chart reproduced from the National Exotic Forest Description, Dec 2012

Getting back to the topic at hand, with declines in forestry management work, PF Olsen has been putting more resources into the harvesting and marketing side of the business. Currently we are harvesting around 3.3 million m³ of timber per year, or about 12 % of the national annual harvest.

Our most successful harvesting and marketing initiative has been what we call our Market-Direct programme. This has involved identifying parties who are closer to the end-user in Asian log markets and working with them to establish efficient supply chains to deliver logs from New Zealand to their established customer bases. The value in this programme is taking cost out of the supply chain and increasing the price paid for PF Olsen clients' logs. It also provides an opportunity for us to learn more about what logs are being used for and develop new grades and cutting strategies to increase net returns from clients' harvesting. The Market-Direct programme has been successfully developed at Southport (Bluff), Lyttelton, Picton, Napier, Tauranga and Marsden Point (Northland).

PF Olsen logs being processed in a sawmill near Shanghai. By understanding the market and supply chain better, PF Olsen is able to lower costs in the supply chain, supply more fit-for-purpose logs to market and increase the price paid to its forest owner clients.

Li Chen is a large purchaser and processor of Radiata pine based in Lanshan (Shandong). This company is leading market development of Radiata pine in China. This concept house at Li Chen's complex is almost entirely built from Radiata pine from New Zealand.

Peter Clark from PF Olsen with a finger-jointed, edge-glued clearwood panel made from Radiata pine from New Zealand. These sorts of high-end products help to lift the market perception of Radiata pine from a commodity-based packing/construction-support material to a high-value, appearance-grade product.

PF Olsen's Harvest-Ready service is also proving popular. The concept here is to prepare forests for harvesting well in advance. This can often be done for relatively low cost and sometimes PF Olsen is able to hold these costs on account until the full harvesting programme commences. Becoming Harvest-Ready usually includes harvest planning, obtaining a resource consent, undertaking a timber inventory and possibly constructing some roads and landings. The benefit of getting Harvest-Ready early is that it greatly improves the marketability of forests – for all sales methods. It also reduces the time to go to market putting forest owners in a better position to capitalise on a strong log market.

PF Olsen continues to support several pan-industry research organisations such as the Radiata Pine Breeding Company (RPBC), Future Forests Research (FFR) and the Solid Wood Initiative. All these organisations have exciting research programmes driving innovation promising large and relatively near-term pay back for forest owners. One of the most exciting RPBC programmes involves genomic selection (see Wood Matters - Issue 50 - Genomic selection) which has the potential to halve, or even quarter, the traditional 25-30 year breeding and development cycle. Other research now being delivered to clients includes LiDAR remote sensing to develop highly detailed digital terrain models for faster, lower-cost and more detailed harvest planning and protection of environmental values. Safer and higher productivity harvesting on steep slopes is also being achieved via research coordinated by FFR.

Our control pollinated seed orchard near Seddon (Marborough) has been expanded and a stand-select seed developed for clients wanting lower-cost seeds but still with the confidence of reasonable quality genetics. Recent analysis of past research and using the latest growth models in Forecaster is showing very high rates of return from utilizing control pollinated and family-cross seedlots.

Control pollinated seed involves introducing pollen from a known "father" to a known mother (female cone) using bags to prevent unwanted pollen interfering. This allows the production of family crosses and enables clients to design their own seedlots with desired genetic characteristics.

Innovation at PF Olsen's container tree-stock nursery near Waiuku (just south of Auckland) has resulted in consistently higher quality (and larger) tree-stocks and lower growing costs. When lifted and packed for transport to the planting site, these tree-stocks retain an intact root system in a fertile plug/planting medium. This "packed lunch" reduces planting shock and makes the tree-stocks more resistant to water stress and promotes very rapid post-planting growth. Containerised tree-stocks out-perform bare rooted tree-stocks especially on dry, light soils (such as sandy soils) and harsh sites.

An intact and undamaged root system surrounded by a nutrient-rich planting medium makes containerised tree-stocks more resistant to planting shock and faster to commence growth and colonise the site.

And last, but not least, PF Olsen Australia has been growing steadily as the forestry sector there goes through the restructuring associated with changes in ownership from managed investment schemes (MIS) and government ownership to institutional investment. PF Olsen Australia now has 23 staff operating from five offices around Australia.