17 Jun2003

Overstory #122 - The Full Extent of Value-Adding: It Starts with Forest Management

Written by K.R. Matthews.

Introduction

The true extent of value-adding is a way of thinking...a process, not just processing.

Every aspect of private forest management should be seen as an opportunity to add value. Often it is suggested that additional returns may be possible through the use of portable sawmills and other processing technologies. For private forestry, adding value should take place long before post-harvest processing - it starts with forest management.

The timber industry has traditionally seen only post-harvest timber processing as constituting value-adding. The sawmilling industry's primary concern has been to access the best of the resource and concentrate on adding value to this raw product through sawing/processing. Instead of inheriting this limited definition of value-adding from the timber industry, private forestry needs to adapt the concept to its area of greatest potential returns and expertise, that is, growing quality timber.

After considering all constraints, there may indeed be an opportunity to increase profit or sales from processing in any forestry business. However, this is only a small part of the potential value-adding for private forestry. Essentially, maximising timber quality and saleability are the critical issues for production-driven private forestry. The long-term nature of forestry necessitates looking for the opportunities that exist in every aspect of forest planning, establishment, management, harvesting and processing. These opportunities will have the greatest impact upon future value and represent the full extent of value-adding.

What is "value-adding"?

As with any business, value-adding (increase in profitability) is achieved when any financial saving, increase in expenditure, or other management action, leads to an increased net profit. The increase in profit may also be derived through greater accessibility to the market as a consequence of improved volumes or timber quality.

There are many values that have been identified as a result of integrating the management of trees on private land. The benefits that can complement forestry include aesthetics, amelioration of land degradation, crop protection, enhancement and protection of biodiversity, etc. These values are vitally important for the sustainability of any project. Perhaps these values are more than sufficient for those who have ventured into private forestry as a "Life Style Choice" or for multiple benefit/outcomes.

For private foresters who have planned and established their forestry ventures for the purpose of financial gain, the term "value" needs to take on far greater significance. There are always opportunities for complementary benefits even from purely investment/production type forestry. However, if the farm forester is serious about forestry as a financially rewarding, environmentally sustainable venture then net profitability is the important measure of value.

A wood product may increase in sale price after processing, but this doesn't necessarily translate into a higher profit margin. An increase in sale price may in fact return a lower net profit if the input costs incurred in achieving the higher price are disproportionately increased. Sometimes access to the market may only be possible by going through the additional process, even though it seems that the profit margin is less due to the extra costs involved. In this case, the "value" comes from simply being able to access the market. For example, meeting a quality specification may be necessary in order to access the market. This should be regarded as value-adding (after taking into account costs) if the market is dictating a standard that unless is met, will render the timber unsaleable.

Seeing through the "value-adding" hype

Frequently, well-publicised financial opportunities associated with various types of forestry are promoted at unrealistic levels. Rather than focus on wood quality, there are terms used that apply to wood products. Some examples of potentially misleading terms include:

"Cabinet Species" or "Cabinet Wood Plantation"

A sawlog is a product of a forest and "Cabinet Wood" is a product of a sawlog (i.e. wood of a quality suitable for use in the fabrication of furniture). It is neither a species type nor a plantation type. Regardless of the species being grown, whether it is Eucalyptus, Pinus, Toona or any other, the end use of the tree can range from firewood through to kitchen cabinets. "Cabinet Species" gives the impression of some higher order in the series of plantation regimes and is more hype than an indication of future value or management style.

"Niche Markets"

A "niche market" is simply a market that is under-supplied or has a finite capacity, and so the price of the product reflects its limited availability. In most cases when the niche is filled the market becomes the same as any other. This is a simple example of how price is a function of both supply and demand.

"High Value Sawlog"

The "High Value Sawlog" is often used without definition. A sawlog's value is dependent upon variables such as:

- Species
- Durability
- Diameter
- Defect
- Colour
- Figure
- Potential recovery
- Market demand
- Processing costs
- Distance from the market, etc.

When private foresters state they are growing high value sawlogs, they are really aiming to grow quality trees with the intention of achieving as high a return as the market permits in 25-40 years time. The future value in fact may be quite low if the timber properties are not appropriate or production costs are excessive.

The above three terms focus on wood products rather than wood properties. The perception that value can only be achieved by venturing into processing trivializes the critical need for quality and cost-effective forest management. Wood properties that are inherent in commercial native forest timbers have to be managed for in plantations if the wood is to meet the required market specifications.

Planned forest management can influence the following attributes and qualities:

Density
Strength
Durability
Colour
Figure
Bole Length
Taper
Diameter
Stability/growth stress
Percentage of defect

Forestry would be extremely simple, if it only required planting a certain number of trees per hectare and then waiting 25 years to achieve these properties and attributes. This is not the case - forest management for timber production requires planned intervention and active management.

Some examples of the types of intervention that can be applied to add value include:

Selecting species and provenance for the required colour, durability, figure, strength and density.
Manipulation and achievement of bole length by form pruning and provenance selection.
Addressing timber stability, diameter and taper by applying appropriate thinning regimes.
Managing the incidence of defect by appropriate thinning, form pruning and stand protection during thinning and harvesting.

Increasing the value - the four essentials

Many private foresters are not fully realising the numerous opportunities that exist to increase the value of their standing trees. The most simple management tasks can have an increasing value-adding effect if appropriately applied. An obvious example is the value of business and operational planning. To maximise the positive impacts on profitability of each forest management task, it is essential to consider what elements have the greatest cost effective impact. Using a farm forestry financial planning spreadsheet or financial model to explore profit sensitivity to key management variables is a most worthwhile exercise.

In order to achieve more value from your forestry enterprise, each management task should be viewed as an opportunity to add value. If something is not going to add value, why would you bother? To assist in obtaining maximum value results from each TASK you undertake, pay careful attention to TOOLS you are using, the TIMING of the task and the TECHNIQUE that is being applied.

TASK: Define each activity in your management plan. Common forestry tasks include planning, design, species and provenance selection, planting, weed control, pruning, thinning, fire preparation and maintenance, etc.

TOOLS: What equipment will be required to undertake each activity. Depending on the task, these could include air photos, tractor, grubber, species information, pruning shears, chainsaw, chemicals, etc. You may consider the use of your own labour, contractors and consultants as 'Tools.' What are the costs of all these items?

TIMING: When are you going to do the task? Is the time of the year right? How long will the operation take? Have you enough time, money, and energy? Is the stand at its optimum time for the operation? Is the timing appropriate to the technique?

TECHNIQUE: Is the technique appropriate for the task, tools and timing? Do you have the appropriate skill to perform the task well or to ensure it is well performed by others? Do you need to purchase skills (training) or services you cannot provide your self?

Examples

TASK: Planning
TOOLS: Budgets, soil test, mapping, air photo, assessments, schedule of operations, etc
TIMING: Before, during and after all operational activities
TECHNIQUE: Taking into account efficiencies of scale, assessment of available resources, time, financial, labour input, development of a schedule of operations

Added value: Knowing what you are aiming to achieve and how you will get there. By planning at the scale that is appropriate to your circumstances and constraints, you are able to choose options that will yield the best outcomes.

TASK: Product identification
TOOLS: Diameter tape, clinometer, height sticks, specifications, etc
TIMING: At planning, before harvest, at harvest, after harvest, etc
TECHNIQUE: Height of tree, merchantable log length, allowable defect, allowable sweep, calculation of volume, minimum dimensions, understanding of specifications and hierarchy of values.

Added value: Being able to identify products is important in knowing what you are aiming to produce. As the stand matures it is possible to manage for a range of products by manipulating the stocking, pruning and timing of operations. Prior to harvesting, an assessment of products is needed to enable estimation of the merchantable volume within each product class. During harvest the ability to recognise products aids in ensuring optimal utilisation. The ability to identify timber products is crucial throughout the management of a plantation or native forest.

TASK: Thinning
TOOLS: Chemical, tree injector, axe, chainsaw, machinery, combinations, etc.
TIMING: When values of green crown ratio or basal area reach critical thresholds. Before a stand becomes locked up and growth increment has stalled, etc.
TECHNIQUE: removal of a specified number of stems, removal of suppressed and poor formed stems, protection of retained stems, etc

Often private foresters perceive they are loosing potential future product value by thinning.

In reality if the stems that require removing are retained, the value of the whole stand is compromised.

Thinning needs to be seen as an essential value-adding exercise for sawlog and pole production.

Added value: There is no such thing as a non-commercial thinning. All thinning has a commercial impact. The real value of removing stems is the perceived future value of the stems removed is transferred onto the stems retained. Increases in growth rates, improved timber quality, enhanced forest health and vigour, larger diameter logs - all translate into added value, economic viability and sustainability. Returns from sales of culled timber are a bonus.

Conclusion

"The simplest, and in the end, most effective value-adding is to ensure that the timber stand is in a healthy, vigorous state with optimum stocking and few defective trees." (Ryan 2001)

Every aspect of private forest management should be seen as an opportunity to add value. However, each opportunity needs careful evaluation to ensure that it will indeed be efficient and in time, profitable.

The emphasis for private forest growers should not be on processing, but on growing quality timber efficiently with a good understanding of market requirements. To achieve this end, a higher degree of cost/benefit analysis needs to be employed throughout our forest planning, establishment, management, harvesting and marketing. Forest owners need to ensure that, by good stand management, there is a range of future product options.

After achieving maximum value of a forest stand by managing for quality, the private forester can consider adding value through successive stations of timber processing - felling, log-making, debarking, sawing, docking, grading, seasoning, kiln drying, machining, etc. At each additional stage along the value line the levels of financial and physical risk are compounded. Additional knowledge, time and skills are required, and each investment of extra effort should be evaluated for profitability.

The true extent of value-adding is a way of thinking...a process, not just processing.

References

Clark, M., Neitzel, K., Borschmann, G. 2002. "Tropical hardwoods hold the key to the promised land". Australian Forest Grower, 25 (1): 25-26.

CSIRO, 2002. "New Leader for Value Added Wood". CSIRO, Media Release, April.

Ede, E. 2001. "New directions in secondary wood products research". CSIRO, OnWood, 33.

Hanson, I., Stewart, M. 1997. Processing Trees on farms. Rural Industries Research and Development Corporation, Research paper 97/20.

Picot, A. 2000. "The Need For Revisionist Destructionist Propaganda" Email communication.

Ryan, S. 2002. On Farm Value Adding of Mixed Hardwood Forest Products in S.E.Q. Mary Valley Sunshine Coast Farm Forestry Association and Queensland Forestry Research Institute, Case Study 3.

Stephen, P. 2001. Pete's Story. The Farmers Forest, 2001: 121-131.

Van Herk, P. 2001. The pursuit of profits along the value adding chain. Australian Forest Grower, 24 (2): 10-11.

Wilson, G. 1992. Farm sawmills: a new money maker. Australian Farm Journal, January: 54-56.

Original source

This article was adapted with the kind permission of the author from:

Matthews K.R (2002). The Full Extent of Value Adding. Proceedings of Australian Forest Growers 2002 National Conference, Albany, Australia. October 2002.

The author gratefully acknowledges the valued contributions of the following people:

Geoff Borchamann, Greening Australia Queensland Justin Black, Private Forestry Southern Queensland Laurie Capill, Private Forestry Southern Queensland Sean Ryan, Mary Valley Sunshine Coast Farm Forestry Project

About the author

Ken Matthews is the Executive Officer for Private Forestry Southern Queensland and is based in Gympie, Australia. The Queensland Department of Primary Industries and the Federal Department of Agriculture, Fisheries, Forestry, Australia (A.F.F.A) support Private Forestry Southern Queensland.

Ken has had a career in the timber industry in Queensland spanning 22 years. Ken has an Associate Diploma in Forestry. He has worked in the areas of sawmilling, native forest harvesting and marketing, research, resource assessment, timber sales, timber treatment and plantation establishment and management. Ken worked as a forestry extension officer with Greening Australia Queensland for 4 years. In 2003, Ken was employed by "Private Forestry Southern Queensland" as their Executive Officer.