Government policy changes in forestry and climate change will make forestry a more appealing land-use option for some New Zealand landowners. However, landowners should carefully consider a range of financial, strategic and environmental issues to ensure they make informed decisions, according to a new report by food and agribusiness banking specialist Rabobank.
In the report, Seeing the Carbon for the Trees: A Framework for Assessing New Zealand’s Forestry Opportunities, Rabobank says new planting incentives from the government, include funding under the One Billion Trees Programme, along with changes to how forestry earns and repays carbon credits under the Emissions Trading Scheme (ETS) which have lowered establishment costs and provided greater clarity for landowners considering entering the carbon market.
Report author, RaboResearch sustainability analyst Blake Holgate said the key question for landowners considering planting trees on a portion of their property is whether the benefits to the overall farming business are greater with the land in trees or in its existing use.
“The opportunities forestry presents for individual landowners vary widely according to their own specific situations. This includes a range of options from targeted planting integrated into existing farm systems, to large-scale planting to generate income from land that had previously produced very little return,” Mr Holgate said.
“There’s ‘no one-size-fits-all’ approach when deciding whether to plant trees and it’s important that landowners gather the appropriate information and seek expert advice to ensure both the long-term implications of planting are well understood and that any planting is done in the right place, with the right species for the right purpose.”
New planting incentives
Since the inclusion of forestry within the ETS in 2008, landowners have had the opportunity to generate a revenue stream from the carbon sequestered by trees planted after December 31,1989.
According to the RaboResearch report, weak carbon price signals and ongoing climate change policy uncertainty have meant landowners have generally been reluctant to register existing forest land or plant new land to forestry. However, three major new Government initiatives are likely to encourage new planting.
The first is the One Billion Trees Programme, which aims to have one billion trees planted by 2028.
“Under the programme, landowners can access funding that will lower the planting barriers they currently face, including land clearance, preparation and planting. The two funding options most relevant for non-commercial forestry landowners are the direct landowners grant or entering into a Crown Joint Venture,” Mr Holgate said.
The second major Government initiative incentivising planting is the introduction of the Zero Carbon Bill.
“If enacted, the Zero Carbon Bill will commit New Zealand to long-term emissions reductions. With the ETS being the primary mechanism for New Zealand to reduce its emissions, this will provide an increased level of policy certainty that Rabobank expects will help to underpin a stronger, more consistent, long-term New Zealand Unit (NZU) price for sequestered carbon than that experienced over the last decade,” Mr Holgate said.
The third government initiative, Mr Holgate said, was recently announced amendments to the Climate Change Response Act that will change how post-1989 forests earn and repay carbon credits in the ETS.
“The changes, known as the averaging approach, will eliminate the requirement for landowners to repay NZUs when forest is harvested or when a reduction in carbon stock occurs due to an adverse event such as a storm or fire,” he said.
“And this will remove the existing contingent liability risk, enabling ETS participants to sell their NZUs as they earn them to establish a regular cash flow.”
Assessing forestry opportunities
The report says any landowners considering converting some of their existing land to forestry should consider the long-term profitability, broader strategic implications and the value of the environmental benefits of the proposed planting.
In assessing profitability, Mr Holgate says, there are a range of factors for landowners to weigh-up.
“When modelling the returns under the existing land-use scenario, landowners will need to consider the longer term-price expectations for the commodities produced on farm, the long-term price expectations for relevant input costs and the potential productivity gains through genetics, farm system changes and/or development,” he said.
“These factors will also be relevant when assessing long-term returns under a planting scenario. In addition, landowners looking to go down this path will need to take into account the impact on the existing farming operation, the potential income stream from new forestry plantings and the timeframe forestry will generate cash flow.”
Mr Holgate says a host of strategic implications should also be considered by landowners considering forestry opportunities.
“Taking land out of food production and planting in trees effectively locks that land into forestry indefinitely, so landowners should carefully consider not just the short-medium term economics of the decision,” he said.
“It is important that landowners take into account a wide array of business and personal factors, including the land use/farm system opportunity cost, the impact on long-term income and land value, succession plans, lifestyle, community implications and risk appetite.”
Mr Holgate says the environmental benefits of planting should be a further consideration for landowners.
“Key environmental benefits of forestry planting include erosion control, shelter and shade, biodiversity enhancement, and reduced Greenhouse Gas Emissions and nutrient losses if trees are replacing livestock,” he said.
“The environmental benefits or risks that planting represents will vary depending on location, mix of land classes, farm systems and landowner philosophy. By giving careful thought to what species is planted where, landowners can maximise the environmental benefits while minimising any potential environmental risk.”
Rabobank New Zealand is a part of the global Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 40 countries, servicing the needs of about 10 million clients worldwide through a network of close to 1000 offices and branches. Rabobank New Zealand is one of the country's leading agricultural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 32 offices throughout New Zealand.
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