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29 Jan2005

Overstory #148 - Markets for farm forestry products and services

Written by Rowan Reid and Peter Stephen.

There are lots of products, but few markets

Primary school children learn from an early age of the wide range of products and services that trees and forests provide. The typical school poster shows a clean stream of water flowing out of a rich native forest that provides a habitat for native animals, clean air and healthy soils. People can be seen bushwalking or fishing and there are groups of school children learning about forest life. Beside the forest, there are rural communities and industries that draw on the forest for timber, honey and other products. There are also farms with animals sheltering from the wind and trees along waterways protecting the soil. Electricity lines from the hydro schemes and water pipes from the dams link the forests with the all-consuming cities.

All these products and services that forests provide are real and benefit individuals, private companies and communities. While conventional wood products continue to be traded in local and international markets, there is renewed interest in identifying alternative tree and forest products such as bush foods, oils and pharmaceuticals. In addition, government agencies and catchment boards are seriously considering, and even testing, market mechanisms for the purchase of conservation values from forest owners.

Forest owners may be able to capture and sell other services, such as opportunities for recreation and tourism. There are also farmers who have gained skills and experience through working their own forests that are now employed by industry, government and community groups to work on forestry and revegetation extension programs.

This article considers the potential for farmers to benefit personally from the "harvest" of products and services from their farm forests. The emphasis is on assisting farmers identify who may value the forest products and services they can provide, what specifications may affect the reward farmers may receive and what marketing mechanisms exist for the "sale".

Making money from trees

Like commercial farming, there are many factors other than simply the price paid for the product that affect the profit the forest grower makes. These include the cost of production, the ability to gain market access, harvesting and transport costs and the impact of harvesting on other values. Because farmers are often small producers of forest products they have traditionally had difficulty accessing markets or achieving similar prices to those received by industrial growers. To participate in the market, farmers need to have an eye to quality, cost reduction and multiple benefits.

There are many ways that farmers can receive financial benefit from their forests or improve their competitive advantage such as:

  • Ensuring the forest products and services neatly match the specifications of the purchaser.
  • Designing forests for multiple values, thereby sharing the costs between a number of potential products and services.
  • Value-adding or direct marketing forest products to avoid monopoly buyers and increase the number of potential purchasers.
  • Involving off-farm family members who can take advantage of the investment and taxation advantages of forestry.
  • Utilising otherwise idle farmland, labour or equipment in the production or value adding of forest products.
  • Enhancing the property value through the use of forests for beautification, shelter and wildlife.
  • Utilising forest products on farm as a means of reducing living (e.g. heating) or farming costs (e.g. fence posts).
  • Reducing the impact of generational transfer by building wealth in an investment that can be separated from the land.
  • Developing on-farm business activities that are supported by the farm forest such as farm-stays, nurseries, contracting or tours.
  • Using the forest to support professional activities in such fields as natural resource management, financial services, etc.
  • Diversifying the farm business to reduce exposure to fluctuating agricultural markets and climatic risks.
  • Using the environmental values provided by the forests as leverage in dealing with local government.

In any market it is the buyer who ultimately judges the quality of a forest product or service. Farmers must follow the market and accept that product preferences can change over time as a result of changes in the market or in harvesting and processing costs. Changes in government regulations and the introduction of product certification may also impose market anomalies.

In long term investments like forestry, it is the farmer who carries the market uncertainty through the rotation unless they are able to forward sell by entering into secure long term leases or by selling the property rights of their forest prior to maturity.

Being aware of the existing market opportunities, and considering how these may change over time, provides valuable information that can guide planting design and early management. Although governments and industry spend a great deal of time trying to predict future markets for forest products and services, past experience would suggest that these predictions be looked upon with caution. Farmers might do well to respect their own judgments as to how they see international trade negotiations, government policy, intergovernmental agreements on environmental issues, forest certification and consumer trends influencing the supply and demand of forest products and services in the future.

Defining a target tree or forest

Having a clear vision or target (structure, function, location, and scale) of the ideal forest and a feeling for its relationship with other activities on the farm, provides a basis on which to design a farm forestry project. From this a strategy for how a forest will be established, managed, harvested and marketed in order to meet market specifications and the farmer's other goals can be developed. In the process, the farmer will also identify what skills, knowledge, resources or contacts they require and the risks involved.

Market research is aimed at highlighting the tree, forest and site specifications required to maximise market value and improve market access while gaining an appreciation of the likely penalties associated with not meeting the specifications. Market research is about understanding the costs facing those who process the product and the needs of the end users.

Target tree specifications may include:

  • Tree species or variety.
  • Tree dimensions, in terms of height, diameter and form.
  • Branch location, size and the need for pruning or shaping.
  • Tree age.
  • Defects and their allowable limits. Target stand specifications may include:
  • Tree spacing or distribution within the forest.
  • Mix of trees, shrubs and ground cover species.
  • Minimum areas required for mechanical harvesting or marketing.
  • Planting design - belts or blocks.
  • Need for uniformity of tree characteristics.
  • Minimum volume per hectare.

Target site specifications that may influence productivity and market value may include:

  • Climate, e.g., rainfall, frosts, humidity, etc.
  • Soil type, fertility, depth and parent material.
  • Slope, aspect and landscape position, e.g., recharge area.
  • Existing vegetation, e.g., native forest, weed species etc.
  • Relationship with other land uses.
  • Access to the site for harvesting equipment.
  • Distance to processing plant or point of sale.
  • Local government jurisdiction.

In some cases it will not be possible, or desirable, to design a forest such that it perfectly satisfies all market and site specifications. Multipurpose designs are rarely perfect for any one outcome. The important point is to identify which criteria are limiting and to judge how these may affect production costs, rewards or access to markets. The better the farmer is able to meet the market requirements, the stronger their ability to negotiate higher rewards. Bear in mind that product specifications are likely to vary over time so it is worth considering options should markets evaporate or new markets materialise. The common recommendation is to aim for a high quality forest that meets the criteria of a number of possible products and services. A perfect hardwood sawlog can always be used for firewood but a perfect firewood plantation is unlikely to produce a viable sawlog.

Lessons learnt

There are many marketing lessons to be learnt from past failures:

  • Do not produce a product for which there is only one likely buyer or processor unless you are able to negotiate an agreement prior to investment.
  • Do not assume that if you produce the same product as large growers you will receive the same access to the market or the same price.
  • Get agreement on all aspects of the sale, including payment arrangements, point of sale, method of measurement, and classification of product grades.
  • If there are concerns about being paid, ask for payments to be put into a trust account prior to harvesting.
  • Be cautious when adopting forestry regimes that are ultimately dependent on achieving a commercial thinning of dubious viability.
  • Document the history of forest management including the seed source, chemicals used, and tree management. In some cases this may require certification. At least keep a tree diary and record management as it is undertaken. Taking photographs and regularly recording tree growth in fixed measurement plots can be of great value.
  • Ensure that contractors complete the operation to your satisfaction before they are paid.

Selling the services of farm forestry

Can a farmer sell the view? Recognition that forests provide real economic, environmental, social and community values without the need to harvest any products has stimulated debate about the opportunities that may exist for farmers to make a profit from selling forest services. The list includes: tradable permits for pollution, salt and greenhouse gasses, fees on polluters, differential rating, land swaps and trading, stewardship payments, voluntary management agreements, levies and subsidies, grants and the auctioning of delivery rights.

The commercialisation of environmental values seems inevitable, despite the risks and uncertainties regarding the measurement and payment methods and liabilities. To access these markets, farmers may need to gain accreditation as providers or otherwise be able to demonstrate that they can provide the values the market is paying for.

Where farmers enter into long term contracts for the provision of environmental services, like carbon, they may need to be cautious about their obligations and the risks involved should fire, disease or other factors come into play. Where the sale of environmental services reduces management flexibility within the forest and on the remaining areas of the farm, there may be additional costs, production losses or even decline in property values associated with any contract.

Tourism, recreation and education

Where farmers are able to utilise the recreational or educational aspects of their farm forest for income, they are effectively selling these values. Some Australian farm foresters have been paid to provide tours of their farms for school groups, international visitors, other farmers and the general public. It is not a job that suits everyone, but those with good communication skills who enjoy public speaking can be well rewarded. There may also be some costs in terms of preparing the farm for visitors, taking out additional insurance and the impact on other farming activities.

Farmers should not underestimate the time required to plan, prepare and conduct tours. The most important thing is having something to show that is of interest to guests. Demonstrations, displays, handouts and the involvement of farm staff, neighbours and invited experts may add strength and interest to the tour.

Wildlife tourism and recreation is popular in the USA, although it is largely based on hunting. In Australia, farmers may be able to capitalise on the public's interest in wildlife watching, fishing, bushwalking and natural heritage by providing accommodation, meals or other services to complement their forest.

Providing land for forestry research, extension and development

Farmers are often asked to provide land for the establishment of farm forestry research trials or demonstration projects. In these cases the farmer can effectively "sell" a range of other benefits, in addition to the land, that the researchers or extension agents might value such as: free access to the site, a commitment to protect and possibly manage the trees or the promise of being available to participate in field days and tours. What farmers don't always consider is that they are also selling their support for these projects and their credibility within the farming community. In return the farmer may receive trees, labour and expertise required to establish and manage the forest. In most cases the tree products and services remain the property of the farmer. Where data is collected, the farmer may be able to use this to improve their management.

Unfortunately many farmers have accepted demonstrations and research trial on their properties without fully appreciating what they have given up. In some cases, especially when the trees are neglected, unmanaged, or disrupt other farming activities, farmers get frustrated about having to carry obvious failures. Other problems occur when farmers are expected to continually give up their time for field days and meetings without compensation or feel that research data or management control is being withheld.

Joint ventures and lease arrangements

Some governments and plantation developers offer joint ventures or land lease options to farmers for the development of commercial plantations. Joint venture arrangements often involve some form of profit share or annuity based on a certain percentage of the expected return. In most cases the partner will determine the species, planting pattern, management and products based on their own requirements. Farmers should be aware of the risks they are taking on when they enter into a long-term, commercial agreement. In joint ventures it may be assumed that the plantation will be managed to maximise returns, however where an industrial partner is managing a large number of different forest areas, it is feasible that they will choose to harvest the trees at a time that best suits the company rather than the farmer. For example, if they require more woodchips to complete a sale, or fill a boat, they may choose to harvest a particular plantation early, or even at a loss. Even where the farmer enters into a standard lease arrangement, there may be unforeseen risks. For example, if the plantation fails after only one or two years, or the company goes into receivership, the landowner may find they are left with a non-commercial plantation and the full cost of returning the land to agricultural production.

Agreements with government agencies may be even more unpredictable. The political motivations driving government forestry programs are often related to achieving regional environmental goals, placating special interest groups or attracting votes. Over a 20 or 30-year period the motivations behind the program, like the government itself, may change many times. In addition to understanding the legal aspects of any contracts, farmers should consider carefully what may happen if the government of the day chooses to withdraw their support, change their emphasis or even sell their ownership to a third party.

By being aware of the degree to which the design is financially, legally, or physically flexible, farmers may be able to negotiate a better result that meets their own needs and reduces their risk. Understanding the principles of silviculture and the needs of the industry partner will help in the negotiations.

Agricultural agristment (pasture rights)

A well treed farm that provides high quality shade and shelter for stock should be more attractive to other farmers seeking land for lease or agistment. Well designed shelterbelts and stock havens have been proven to increase lambing rates, enhance liveweight gain, increase milk yields and improve ram and ewe fertility. For tree growers without their own stock, being able to attract agistment while the trees are growing can provide valuable income and control the fire hazard.

Conclusion

Being able to capitalise on the sale of farm forestry products and services is dependent on having a product that is in demand, having access to those who are prepared to pay, being able to utilise effective trading mechanisms and the ability to negotiate sufficient rewards. Meeting the product specifications of the market and looking at ways to reduce harvesting and marketing costs are very important objectives. As small, independent producers, farmers may consider entering into cooperatives with other farmers or engaging brokers who can put together marketable parcels or search out buyers.

Original source

This edition of The Overstory was adapted with the kind permission of the authors from the original:

Reid, R. and P. Stephen. 2001. The Farmer's Forest -- Multipurpose Forestry for Australian Farmers. RIRCD Publication No. R01/33. Melbourne, Australia.

Copies of this publication can be purchased from:

Australian Master TreeGrower Program Department of Forestry The Institute of Land & Food Resources The University of Melbourne Victoria 3010, Australia Tel: 61 3 8344 5011; Fax: 61 3 9349 4172 E-mail: rfr@unimelb.edu.au.

About the authors

Rowan Reid (B. For. Sci., M. For. Sci.) is a Senior Lecturer in Agroforestry and Farm Forestry at the University of Melbourne and the developer of the Australian Master TreeGrower Program (MTG). More than 35 MTG programs have been conducted across Australia involving more than 750 farmers. In 2000 the program was awarded the $10000 Eureka Prize for excellence in environmental education. Rowan is also a tree grower himself and has recently made furniture out of ten year old eucalypt trees he planted and managed on his Otway Ranges farm. He can be reached at: Rowan Reid, Senior Lecturer, Agroforestry & Farm Forestry, School of Resource Management, Forestry and Amenity Horticulture, The Institute of Land & Food Resources, The University of Melbourne, Victoria 3010, Australia; Tel: 61 3 8344 5011; Fax: 61 3 9349 4172.

Peter Stephen was a Research Fellow with the School of Resource Management at the University of Melbourne, Australia at the time of writing. He has been involved with farm forestry extension throughout Australia for the past decade of which the last four years have seen a wonderful association with and coordination of the Australian Master TreeGrower Program. Peter has also worked overseas in a number of countries, but principally in India on farm forestry extension, community forestry and rural development and is presently involved in establishing a community forest management project in Australia. He is currently in Thailand working on community forestry projects with RECOFTC.

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