Keith Woodford says that despite the LUC being a 'shambles' there remain very good reasons for many farmers of Class-6 land to join farm foresters for the benefits they enjoy

These are good times for sheep and beef famers with record product prices for meat. That is precisely why now is the time for sheep and beef farmers to be looking again at farm forestry.  It is always easier to diversify when existing business activities are providing a profit.

The Climate Change Response (Emissions Trading Scheme—Forestry Conversion) Amendment Bill is currently working its way through Parliament. As I write this article, it is at the Select Committee stage.

I expect changes to be made before it becomes enacted later this year, with the current plan being for an October enactment, but one key message in relation to purpose is clear. This is a bill that is aimed at sheep and beef farmers, giving them options but supposedly keeping the big and largely overseas-owned forestry corporates at bay.

Note that I use the word ‘supposedly’. It is only after some hours of pouring over the draft legislation that I satisfied myself that the legislation does not stop whole-farm conversion of good quality sheep and beef land to forestry. More on that later.

There are two quite separate pathways that farmers can use to enter into forestry. The first is to convert anything up to 25% of land use classes (LUC) 1-6 of the farm into forestry.

There are minimal restrictions on this Class 1-6 pathway.  This is the route which most farmers should choose to follow, typically with well under 25% of the farm converted to forestry, at least initially.

Something more like 5% is a good way to take an initial nibble with forestry, focusing on the lowest productivity land of a farm. Unlike sheep and beef, forests can grow well on the poorer land as long as they are looked after in relation to pests.

Farm forestry is not just about pine trees. Last year when I spoke at the Farm Forestry Conference in Napier, I was mightily impressed with the farmer knowledge, based on their experience, about a number of alternative species. In contrast, in the last 25 years. there has been minimal research on alternative exotic species. I learned a lot from these farmers. It set me off on my own path of discovery.

The second pathway is what is called the LUC-6 land permit category, which is specifically for Class 6 land. This is for land-owners whose farms are predominantly Class 6, with this category being generally productive pastoral hill country, but who want to convert more than 25% of their farm to forestry.

There is a proposed limit of 15,000 ha of approvals each year under the Class 6 permit category. If applications exceed 15,000 ha, then approvals will be by ballot.  There is no restriction on the size or percentage of land for individual applications. 

The legislation states that this second pathway is quite separate from the LUC 1-6 proposal, and hence is not limited by the 25% rule.

I am very uncomfortable with this second pathway. A total of 15,000 ha in one year may not sound a lot, equating to 50 farms each of 300ha. But over 10 years 150,000 ha is indeed a lot of whole-farm conversions. It is equivalent to a strip of land 250 km long by 6 km wide.

One of the intriguing proposed rules for this second pathway is that approvals cannot be transferred to other persons or new land-owners. This means that forestry companies would need to buy the land without knowing their chances of being successful in the 15,000 ha ballots.

To understand the likely impacts of this legislation, it is necessary to understand quite a lot about the ‘LUC ‘system, with ‘LUC’ standing for ‘Land Use Class’. It is also necessary to understand something about the economics of forestry relative to sheep, beef and dairy on different classes of land.

In essence, Classes 1-4 are for land that can be cultivated. Most of this land is used for cropping, dairying or covered in urban sprawl.

Class 5 is easy hill country, predominantly used for sheep and beef, but sometimes used for dairy.

Class 6 is the main class of pastoral sheep and beef farming, with this land typically too steep to be cultivated.

Class 7 is the steepest and highly erodible pastoral land.

Class 8 is even steeper and typically not farmed, although wild goats, thar and deer may pick their way across it.

As for the economics, dairy, cropping and horticulture win out easily on Classes 1-4. In general, forest companies are not interested in this land because there are cheaper options that suit their purpose.

However, forestry has been increasingly coming into focus on Class 5 in recent years because of both its topography and location, often relatively close to ports.  

On Class 6, forestry has been competitive for many years, but carbon farming, either in association with lumber production or so-called ‘permanent forests’, is now easily the highest paying land use.

The appropriate land-use for Class 7 is contentious. The big forestry companies are no longer interested in this land-type because of the associated economic and environmental risks. Indeed, it is hard to find an appropriate land-use for this land-type.

If exotic forestry has a future on Class-7 land, then it has to be exclusively about carbon credits, perhaps linked to eventual conversion to native forests.

Given the above situation, my focus here is mainly on the LUC-6 land that comprises by far the majority of pastoral sheep and beef. This is also the focus of the legislation, which says nothing about Class 7.

But first I need to do some venting on the LUC land-class system. It is a shambles. Yet it is this system that underpins the legislation that the Government is putting forward.

The key problem is that the LUC system lacks the granularity that is needed. It only exists at a broad scale and does not capture the within-farm variation. It also lacks consistency. As a consequence, the new legislation is going to create a bureaucratic nightmare.

The Government knows that the LUC system is a mess but it fails to acknowledge this explicitly. If it were explicit, then it would have to acknowledge that the regulatory system it is proposing is also going to be a bureaucratic mess.

The proposed solution by Government is that farmers can, at their own cost, have an expert assessment undertaken to modify the categorisation of their land. This will become an industry in itself.

Sorting out the LUC system on sheep and beef land is going to be a nice money earner for a group of consultants.

At this point, readers from the sheep and beef industries might think that the legislation should simply be chucked aside. In many cases, they might well conclude that what they are reading here proves that their existing exclusive focus on sheep and beef is the best strategy. 

However, that conclusion would be a big mistake. The reality is that many and perhaps most sheep and beef farmers would indeed benefit from diversification into farm forestry, but the rules of the game need to be simple and efficient.

My experience is that farmers know very well the parts of their farm that are least productive. The irony is that these areas can grow very good forests. Also, the areas are typically non contiguous with equivalent areas on neighbouring farms. This minimises the risk of large-scale fires and also facilitates pest control.

The problem with the proposed legislation is not in relation to the first pathway which gives farmers the flexibility that they need to diversify. All that is needed with this pathway is for Government to take responsibility for sorting out the LUC system, with a particular focus on getting land appropriately classified in relation to whether it is Class 6 and 7.  This should be seen as a matter of public good.

The real problem is the second pathway, which is the ‘LUC-6 permit’ path whereby whole-farms can be converted to forestry at up to 15,000 ha per annum, and with approvals determined by ballot.  This needs to be separated out from the current legislation and subject to a lot more debate.

There is a lot more I could say about farm forestry, particularly about the fit alongside sheep and beef, and the role of carbon.  However, I think I have said enough for this article.  

I will therefore end with the simple comment that I have yet to meet a farm forester who regrets his or her chosen path.

*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd. You can contact him directly here.