Why Forestry?
Forestry investment has occurred for centuries; it is a tangible, profitable, sustainable, and socially responsible way to grow your wealth, backed by the ownership of freehold land.
Forest & Carbon Markets - New Zealand's Advantage
Stable government - strong commitments to emission reduction and carbon neutrality
Developed log and lumber infrastructure including ports, mills and forest services
Forest growth rates - highest forest growth rates in the world due to ideal climatic conditions
Rising demand for sustainable wood products - proximity to global regions experience high population growth, GDP per capital growth and Urbanisation
Freehold land ownership for overseas investors (entities) via the Overseas Investment Act
Deep pool of brownfield and Greenfield assets
Forestry recognised via an Emissions Trading Scheme - Enhanced and diversified revenues from carbon sequestration
Exports increasing due to New Zealand’s sustainable forest management and drive for renewable resources
Sector Significance - Forestry is New Zealand’s third largest export earner and significant contributor to GDP
Key Benefits Of Forestry Investment:
The World Bank predicts that demand for wood products will rise by 4.0% per annum, quadrupling between 2016 and 2050.
The traditional drivers of timber consumption are:
- Population growth (materials for housing and energy)
- Urbanisation (building intensification)
- GDP per capita growth (accelerating wood demand from developing countries)
The 20 years to 2020 has seen global timber consumption rise by 1.1% per annum. Modern times are contributing to new drivers of timber consumption, namely:
- Renewable energy (natural biomass growth)
- Sustainable management (environmental and social drivers)
- Decarbonisation (carbon sequestration and bioenergy)
- Timber uses (technologies broadening timber use)
- All of these growth drivers are expected to culminate in accelerated global timber demand.
Developing and urbanising countries tend to have rapidly increasing rates of timber demand, this has been evident with China and is commencing in India.
Demand from China will continue to rise, consuming 0.16m³ per capita per annum (an increase of 96% over the last 20 years) when compared with USA, consuming 1.1m3 per capita per annum. By comparison, India consumes 0.04m3 per capita per annum and Finland as the highest, consumes 6.1m3 per capita.
According to the UN, 68% of the global population is expected to be urban dwellers in 2050, this currently stands around 56%.
New Zealand is located in excellent proximity with established markets in these developing countries, presenting the opportunity to capitalise the forecast
burgeoning demand.
While demand for timber is forecast to grow at an accelerated rate, the global supply of timber is expected to be constrained with less land being afforested and harvest of old growth forests restricted for climate obligations.
Global net deforestation is a long term issue with an estimated 80 million hectares deforested since 1990, 10 million hectares per annum between 2015 and 2020.
In recent times, productive forest areas across Europe, USA and Australia have been lost to natural disasters. Many of these areas, if replanted, will be in long rotation species, diminishing timber supply over the next 50 years.
The supply and demand imbalance is expected to result in increased timber prices over the medium and long term.
New Zealand is in a strong position to capitalise this imbalance due to net levels of afforestation, high growth rates, emphasis on value chain improvements and access to developing countries.
The transformational scenario provided by the NZ Forest Owners Association (FOA) forecasts a decreasing dependence on log exports and the requirement for 15 additional sawmills by 2030.
Commercial forest prices are impacted by a different set of market and economic factors than other asset classes such as stocks and bonds, offering diversification to the modern investment portfolio.
The rise of climate and environmental directives look favourably upon forestry and New Zealand’s Emissions Trading Scheme allows the investor to monetise this. The sale of sequestered carbon adds a diversified revenue stream to the typical forest investment.
Forests tend to be a good inflation hedge due to the underlying biomass growth. Furthermore, radiata continues to have a high growth rate well beyond 30 years meaning that harvest does not have to commence if conditions are unfavourable.
Sustainably managed investment in forestry can span multiple rotations and multiple generations, a safe and reliable way to pass wealth intergenerationally.
Sustainably managed plantation forestry sequesters carbon, improves the land, protects wildlife habitats and provides strong direct and indirect employment.
Current Market
Forestry is New Zealand’s third largest contributor to GDP with $6.25 billion of export revenue forecast.
New Zealand has approximately 1.7 million hectares of production forestry. All pastural farms make up another 11.1 million hectares. Each year our forests harvest around 35 million cubic meters of wood. Of this, 38% is processed in New Zealand for domestic consumption and 62% is exported. The World Bank has estimated that the demand for wood products will quadruple by 2050!
New Zealand has some of the fastest growing conditions in the world, from planting to harvest in just 25 years. Our primary species, Radiata pine, is a highly desirable product for its ease of use and diverse range of end uses such as construction, finishing, furniture and other engineered wood products. Waste wood products are highly desirable for bio fuels and other pulping.
New Zealand’s southern hemisphere location and proximity to the Asian continent where some of the highest rates of population growth, GDP per Capita growth and Urbanisation exist holds additional future potential for New Zealand Forest owners.
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