Keith Woodford says as a nation we need to tread carefully and do a lot of thinking before allowing a tsunami of overseas funds to lead a landscape transformation in New Zealand

Keith Woodford says as a nation we need to tread carefully and do a lot of thinking before allowing a tsunami of overseas funds to lead a landscape transformation in New Zealand

Earlier this year I wrote two articles, archived here and here, about the likely impact and consequences of policies that encourage conversion of pastoral land to forestry. I was particularly concerned about the actions and power of foreign investors, and the associated transformation of better-quality land.

My concern was not because of any fundamental objection to foreign investment to deal with shortages of investment capital in our economy. My concern was because of the sheer scale and power of overseas investors under current policies to change irrevocably the New Zealand landscape.

The responses I received indicated that I had indeed struck on a chord of concern and unease as to what we were doing to ourselves.

I also had both oral and email conversations with one person who has influence in the Wellington corridors of power. This person is listened to very carefully by Government when it comes to issues of forestry, the environment, climate and natural resources. This person told me I was wrong.

This counter view, as I interpret it, has two elements.

The first element is that we must plant lots more trees to show the world we are doing our part in relation to the Paris Climate Agreement. The Billion Trees Program is just the start. There is, so the argument goes, no other way to meet these commitments with present technology. Supposedly, it has to happen, no ifs and buts.

The second element to the argument is that the amount of pastoral land being converted to forestry by overseas entities is not large. Associated with this perspective, the loss of pastoral export opportunities from converting pastoral land to forestry is simply the way things have to be.

In this article, I focus only on the second element. The reason for doing this is to lay out more of the current evolution and consequences of going down the forestry-conversion path.

If those consequences are sufficiently great, then perhaps we need to look again at other alternatives that might meet our self-imposed Paris commitments. Alternatively, the target of absolutely zero net emissions might indeed be a step too far.

However, those issues are consequential and are issues for another article. First, we need to identify the impacts of pastoral land conversion.

We have no real-time estimate of the total amount of pastoral land being converted to forestry. This is because New Zealand investors do not need to advise anyone of what they are doing.

In contrast, overseas forestry investors need approval from the Overseas Investment Office (OIO) but it is a truncated process designed specifically for forestry. The key requirement is the ability to demonstrate good character and capability. It is not necessary to demonstrate benefit to New Zealand.

In the short term, it is the overseas investors who have the potential to change the pastoral landscape with a forestry tsunami. They are the ones with the capital. Hence, for the immediate future, the focus needs to be on overseas investors as the sharp end of what threatens to be a broader landscape transformation. That broader transformation is planned to encompass some millions of hectares over the next thirty years.

Back in August 2019, the influencer that I referred to in earlier paragraphs pointed out to me that, since the new investment rules of October 2018, the OIO approvals for converting pastoral land to forestry were for only 3200 ha. I cannot argue with that. I am sure his figures would be correct.

However, relying on such figures is like driving by looking in the rear-vision mirror. I am much more interested in the current position and the path ahead.

If we had been able to look ahead at that time, just three months ago, we would have seen a rapidly changing situation. As a consequence, we can now see considerably more approvals showing up in the rear-vision mirror.

As of 31 October 2019, the 12-month approvals for conversion of farmland to forestry have increased to 14,300 hectares.

In addition, the Government announced on 24 October 2019 that overseas-owned Pan Pac had received pre-approval to make forestry-related purchases of up to 20,000 ha over the coming three years, including conversion of land from farming to forestry. Specific purchases only need to be notified after the event. A Pan Pac spokesman indicated that most of the purchases were likely to be in proximity to existing timber processing operations in Hawkes Bay and South Otago.

I have good reason to expect that other operators will now receive similar generic pre-approvals to purchase land and then notify the OIO of specifics after the event.

These operators have access to the necessary funds and will have no difficulty in meeting the good character test. Under current rules, they will thereby have a right to follow the path already forged by Pan Pac.

The fundamental issue is that in the emerging world of carbon trading, the underlying investment rules have changed. Carbon trading takes most of the risk out of forestry investments.

Investors are now rewarded during the first radiata-pine rotation of approximately 28 years for the perpetual carbon benefits of keeping that land in forestry, with subsequent rotations required to be either radiata pine or an alternative species of similar rotation length, but with no further carbon trading payments.

The expected cash flows from first-rotation carbon trading are currently focusing investor interest on land that would never previously have been considered for forestry. And there lies the nub.

The opportunity is extended by the potential bonus of a timber harvest and replanting, with harvesting returns now being the higher-uncertainty bonus to low-risk carbon trading. This leads investors to favour land within 70 km and preferably lesser distances from ports.  

Once carbon trading is removed from the equation, there is little financial incentive to plant radiata pine. That is the reason why so little radiata pine has been planted in New Zealand over the last fifteen years.

If future New Zealand generations could have a voice right now, they might say ‘how dare you’ constrain our future land-use in perpetuity in this way. We, the future generations will need the right to make future land-use decisions in that future, and not be locked in by your greedy decisions to gobble up all the financial benefits right now from locking-in future land uses.

As to what the best future land uses of the current pastoral land might be, we do not know. What we can be confident about is that New Zealand’s productive land is a scarce resource.

It might well be that pastoral beef and sheep meats are the luxury goods of the future. Current returns are the best for a generation and the outlook is outstanding, despite the gloom merchants of the popular press.

Within thirty years and shorter, there may also be other important land uses, including biofuels from short-rotation crops. Radiata pine has too long a rotation and other limitations to be ideal for biofuels.   

From a national economic perspective, when overseas entities buy pastoral land for forestry conversion linked to carbon trading, there is an immediate beneficial flow of overseas funds to New Zealand. This only occurs once.

The subsequent carbon credits will in all likelihood be sold to other New Zealanders, thereby allowing these other New Zealanders to minimise changes in their lifestyles. The cash will then be remitted overseas as an outflow.  

Alternatively, the carbon credits may be transferred overseas and sold directly in those countries, with the returns then staying with the overseas investors. Either way, there is no flow of funds back to New Zealand from carbon trading of overseas-owned forests.

The big message from all of this is that we need to tread carefully. We need to do a lot of thinking before allowing a tsunami of overseas funds to lead a landscape transformation.    

It is all about getting the right trees and the right land-use activities in the right place. It seems doubtful whether current policies are aligned with that goal.


*Keith Woodford is a retired academic who now holds an honorary position of Professor of AgriFood Systems at Lincoln University, NZ. He now consults through his own company AgriFood Systems Ltd. Articles written since 2010 are archived at https://keithwoodford.wordpress.com. He can be contacted at kbwoodford@gmail.com

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13
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Heh. The Carbon Credit Mining business is in full swing. And the other takeaway from all of this, is the bleedingly obvious:

Incentives Matter.

... incentivise the stupid , and you get ... stupid ... lots if it ....

And, as the old saw has it, ye cannae Fix Stupid....

Paris accords is just a global tax making scheme.
A good explanation of how the scheme works and China / India can double there emissions while the West is taxed into reducing
https://youtu.be/s1T0kPNJ-v4

Breathe in that air.... It's seems funny to be selling oxygen, but in my economics class 27 years ago my teacher failed my natural rescource idea of selling bottled spring water. Nobody sold it back then.. and she failed me.. there are faults that people pin on us, and we are not always allowed to point the finger back. Her natural resource product example was a painted rock with googley eyes stuck on it, how daft!! All the best.

https://www.indiatimes.com/trending/wtf/bar-in-delhi-offers-pure-oxygen-...
https://www.stuff.co.nz/business/world/87066936/fresh-nz-air-selling-che...

12
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Just tell em only 3% are foreign investors and there is no impact. Worked for their demi-god John Key for 9 years after all.

Not sure what your saying Rastus, this is a Labour policy and I'm sure "THEIR demi-god" is not John Key ?

..i'm saying .... JK did this to the housing market (only 3% foreign buyers remember) and denied it was a problem - and farmers didn't give a toss as jk was their demi god. Now it's farmers turn and they don't like it!

Did JK do it, or did he do nothing about it? You might have to think about harder about when house prices took off. Take a look from 2000 to 2007 and see what happened.

..he was in it up to his eyeballs for 9 years. He campaigned on what Clark had let happen re housing yet did zero about it. In fact denied and encouraged it.

"Prime Minister John Key says he doesn't want New Zealanders to become tenants in their own country as foreign companies seek to buy up farms, and the Government may look at law changes..."

memory block???
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10656731

If you think this is just a problem for farmers you had better take another look.

The mentor of the failing white gold rush, predicated on land banking, which demands an ever expanding quantity of credit to suspend the bubble. Unfortunately, bank shareholders called a halt to such nonsense. Witness one of the employees reciting their concerns.

Many think the USA withdrawal from Paris Climate Agreement has proven how ineffectual and off point the agreement is.

The first element is that we must plant lots more trees to show the world we are doing our part in relation to the Paris Climate Agreement. The Billion Trees Program is just the start. There is, so the argument goes, no other way to meet these commitments with present technology. Supposedly, it has to happen, no ifs and buts.

Sound policy, well executed, great change management!

Planting a tree is not a hill to die on!
We have our own to consider and work for first!

Firms ignoring climate crisis will go bankrupt, says Mark Carney

Companies and industries that are not moving towards zero-carbon emissions will be punished by investors and go bankrupt, the governor of the Bank of England has warned.

A new racket to replace the old racket (debt for jobs), as China asserts itself on the global trading space, as a consequence of the later.

Let's do this!

They just took a few acres of pines out next-door to us... what a mess, the house-sized piles of rubbish are still burning/smoking after three weeks. The stumps and acidic soils would make it difficult to plant anything other than more pines. Three guys employed taking them out, but not much in it for NZ Inc if the logs go overseas.

Pine's are non-native tree's that create havoc with soil and the environment and leave an appalling landscape when logged. But hey, climate change man - how dare we steal millennial's future.

If you are downhill of them, be prepared for a lot more water to run off toward you without the pines.

The one thing that history teaches us is change is constant, but if done too quickly the negative side effects are greater than the positive side effects of change.

Roger Douglas was instrumental on change to this country, however he completely ignore the side effects that NZ inc had to pick up. We get that it was too politically challenging to lay off the staff of the inefficient businesses the taxpayer use to own. However, what he didnt get is the consequences of the private doing it. Mass unemployment of 50 year old people, who had little hope of retraining or gaining alternative employment. These consequences we still bare today, with generational unemployment (because they had no one to look up to) and the other social costs that go with that. Douglas, Prebble and crowd were so inapt, and/or hoodwinked by snake oil sales men it defies local. Like Lange, too caught up in there own super inflated egos.

Dairy farm expansion has been the same...

Lets hope elected governance dont lead us down the same flawed path.

Slow and steady change please. The world is going fast enough as it is.

You're articles are insightful and well written Keith.

I suspect there are going to be unintended consequences to the "virtuous" economies that pursue these policies. For a start, carbon credits are going to be arbitraged and production off-shored to India, China where possible. Ultimately, the cost of carbon credits has to be absorbed by someone and that is going to be the consumer. The economics in land conversion is interesting, it looks like you could 100% loan service (and ultimately own freehold) large tracts of Northland - albeit it covered in Pine trees in perpetuity.

An even better deal - take the country out and cover the whole damn lot in pines. Is this recent outcome much different?

"That broader transformation is planned to encompass some millions of hectares over the next thirty years"

So, for context, that's thirty years to cover off what is burning in Australia just this year (so far)? Obviously there will be regeneration of bush in Australia, and I'd hazard a guess that the biomass of what can be grown here on 1 hectare will be more than in Australia. But still.....

There have always been bush-fires in Australia. Apparently conditions are particularly hazardous today due to the large-scale reduction in hazard reduction (back-burning) in recent years. This means the fuel load on the ground is very high and exponentially increases the danger.

Hazard reduction was cut back due to pressure from environmentalists/green lobby.

Indeed. The soils are particularly receptive to lightening strike. What used to be the main ignition source before humans. And many plant species are reliant on fire to liberate the seed and germinate. I'd also heard (from Aussies over there, some 20 years ago) that the move away from controlled burn offs was because that practise was seen as increasing risk due to building up the big fuel source as only the undergrowth/grass/windfall was being burnt off periodically.
(edit) on a side thought, I wonder if all these new forest plantings in NZ are required to also provide water reservoirs? That can be easily and safely accessed by our helicopter crews. It's not like we don't get the odd big forestry fire here in NZ.

Apparently clear glass bottles start a lot of the fires through refraction. Also, councils will not let locals fell tree's near their property's (green lobby again), which are virtually lethal weapons in these conditions.

If forestry conversion goes ahead on a large scale there will be fewer volunteer firefighters available in the regions affected, yet the fire hazards will be multiplied many times over. Ditto for services such as helicopters. In my opinion any business establishing more than a specified area eg 200ha of forestry should be obliged to supply and maintain for at least six months of the year its own firefighting service with an assessed capability of dealing to any fire that might occur on its land. The more land in trees the more the firefighting capability should be. Otherwise the forestry conversions erode the community base that present firefighting capability depends on while increasing the risk. Can large forests be insured? Will insurance pay out if arson is suspected? A few good fires would be a good way of letting foreign investors know they weren't welcome.

Actually, if I have tree's in the ETS for which I have been paid the full carbon credits, what happens if they burn down? Am i liable to repay them in an act of arson or act of nature? If not, there is huge incentive to have them burn down.

I suspect you would just have to regrow them.

With our forest, we had insurance which covered the CC liability in case of fire.

You have ignored the upside Keith - if all goes to plan soon we will be basking in the climate not seen since the Little Ice Age. It will be so worth it. It is disgraceful that our children cannot ice skate on the Thames like our forefathers.

Does anyone think of alternative plantations? Chestnut hazelnut walnut all give two income streams. First the nut then the wood.
Or teak. Or other fast growing hardwood.

Eskyrider, Yes, I have a mate who s growing Paulownia in association with pasture. It won't grow everywhere but it is an example of some lateral thinking and it is giving fascinating and exciting results. I hope to write about that at some time.
KeithW

Take a look at Almond plantations in Australia, for context.

It would be nice if farming in NZ had an extra arrow in the quiver, I think forestry is the most likely winner. In California there is big money in the Walnut tree that get used for nuts and even some of the Almond trees. Some of those old Walnut trunks sell for up to 9k. It's just hammering home the long game in a country that always thinks short.
I have grown Robinia for posts and this year have harvested 300+ posts including strainers. They are heavy/dense and ram in well. I think on .5 of a hectare I must have over 3000 posts. Yet no one ever comes and looks at what i'm doing. I grew them for an organic option in my vineyard they also grow a lot of honey, I know Landcorp are milling Oak down the road for their organic farms, they never drop in to see my 14 year rotation, post operation.
When I was young MAF were doing some really interesting farm forestry stuff but it all ended up in pines due to the short rotation. In France my friend has a Beech plantation they run in conjunction with a Monastery down the road, it must be over 100 hectares, they have a 200 year rotation and it's highly profitable, its lived through a few wars being in Normandy, not far from Rouen. The wall of my bedroom was covered in bullets holes from a machine gun, they left them to remind visitors.
I think gums are an obvious tree for NZ but other trees have high values. I have a friend who paid for a farm he purchased, when 8-10 years later he milled the Douglas Fur the previous owner had planted.

Andrewj
Flick me an email as to where you are and I will plan to visit when I am in the region. Is it Hawkes Bay or do I have that wrong?
KeithW
kbwoodford@gmail.com

Thanks Keith, yes Im in HB, love to catch up, email on the way.

Andrew

NZ now imports posts from Oz - the local post price can't compete with export pulp log prices.
A frost resistant leucaena regime would go down well in dry country HB. 250k ha in Queensland - doubles beef LWG and double carrying capacity.

I tried Tagasaste , it's been a struggle.

Leucaena much hardier. Can mow it back hard periodically. Some famers make silage and pellets out if it. Lasts 40+ years.

The area likely to be converted to forestry is only a tiny fraction of that converted from plantation forest to pasture by the likes of LandCorp and Graham Hart. Exotic forest area is still less than it was prior to 2001.

Simon P, The current area of plantation forest in NZ is aboout 1.73 million ha. This is down from about 1.8 million ha early in this century. This decline was largely down to deforestation on the Central Plateau. The area of plantation forestry increased considerably in the 1990s but I do not have good data at hand. If forestry is to be the key means by which NZ moves to meet its Paris obligations then the area will need to increased by some millions of hectares. This scale is of a totally different order than the deforestation of earlier this century.
KeithW

The private sector did a billion tree program of planting in 1995, with 100k ha planted that year, but not been matched since. Even with government market interference.

However, turning forestry that has been planted for carbon credits back to farmland will require the credits to be repaid

The policy was badly conceived. We'll need Biodiversity as much as a cooler climate to help us survive in the centuries ahead. There ars a number of native species that would have made decent mixed plantation stock, and done our bit for global biodiversity. Wait til a species of ravenous radiata beetle evolves. Oh dear.

Monoculture's great disadvantage is lack of diversity, yet we still insist on one species agrisystems

Last time we've heard?.. the MO of overseas investment from the overlord mainland.. is to buy the share of the local co./major shareholder - imported most of the workers (from white to blue collars), as part of the investment strategy/reasons. Then after 3-5-7 yrs? put it into 'receivership'.. ehem.. what happened to all those imported workers? - back to mainland? or channeled to take care of properties eg.South East / North AKL, even their cleaners now can 'look after' - couple of Mill$ properties. Keen to dig it up Interest? - hints: F&P appliances, water bottling and myriad of other joint ventures initiatives.

Cut followed by a very long pause as monetary policy continues to have no affect. NZD continues lower. Fiscal stimulus needs to take the baton, as much of the world is telling us.

Another venal example maxim that NZ HAS TO accept money from whomever, in order to do profitable commerce. Since NZ is such a "poor" country and we have no choice. Lambs , literally, to the slaughter it seems