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388. Do forest cooperatives have a future in New Zealand?

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Coop Name: Western Farm Cooperative Forestry Co Ltd N° of Employees: 1
City: Wellington N° of Members: 40
Country: New Zealand Year of formation: 1995
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Currently the coop is only achieving limited scale economies through collaboration. However the aspiration is to pool harvesting and marketing rights to get the benefits of being able to guarantee continuity of supply over several years and spread income on an equitable basis also across time. As the article explains, the forestry cooperative concept is nascent in New Zealand. Currently there is only one, the WFCF, but it is known that there are 15000 forest owners who would potentially benefit from forming coops.

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Cooperation among small scale forest owners in New Zealand is in its infancy.

Surveys show that most woodlot owners lack understanding of good forest practice and they do not want to pass the control to a cooperative. They think that, since trees continue growing, one can wait until log prices are high before cutting. However, such dreams are almost never realized. Typically, owners are unable to get their wood to market at the time of a log price rise. Fig 1 and Fig 2 prove this.

In spite of the log price spike of 1993 no significant increase in the national harvest rate followed, because of infrastructural bottlenecks and the lack of machinery and skilled labour.

A better idea for the forest owners would have been to gain economies of scale by forming a forest cooperative. The economies include less risk, reduced operating costs, greater market leverage, and the ability to attract additional local timber processing. Just as importantly, cooperative members with young trees would be exposed to the range of technical information about planting and tending that could eventually increase their profit further.

The biggest impediment to forming co-operatives may be the Income Tax Act which requires the seller to declare the sale of standing timber as income when it occurs, but only allows the buyer to deduct the ‘cost of timber’ when that timber is actually harvested. Usually, the time value of holding money, and the loss of money value due to inflation associated with this, creates irreconcilable value differences between potential buyers and sellers, killing any interest in exchanging cutting rights for shares in a forest cooperative.

In the past there may not have been enough owners with sufficient areas of maturing stands in close enough proximity to make it worth while to cooperate. However that will soon not be the case. The total area of small scale forest in the country has risen from about 80,000 hectares in 1986 to about 500,000 ha today.

We are now less than a decade away from a major increase in the harvesting of these forests. What will happen to the upcoming ‘wall of wood’?

If free to do so, individual forest owners will tend to cut their stands at their respective rotations of maximum theoretical profitability, which is about 28 years for radiata pine, and the collective outcome will be the harvesting spike described in Fig 3. Practical constraints will cause this theoretical harvesting spike to flatten out somewhat, but, without intervention, several undesirable outcomes can be expected, including a blow-out in Government’s greenhouse gas budget, a loss of opportunity to attract investment in local timber processing, a loss of grower profit, public annoyance with over-congested ports and roads, and social disruption because of the boom and bust nature of the activity. However, the spike can still be converted into a sustainable yield, as in Fig 4, provided sufficiently high future new planting rates are achieved during the next decade and the ages of harvesting are regulated.

Before voluntary self regulation can happen some sort of legally-protected aggregation of cutting rights must take place so that participants can be sure that they will get a fair share of the collective net returns. This means that steps need to be taken to engage with forest owners and explain the net benefits of being part of a co-operative.

This story is an adaptation of the original article written by Hamish Levack, a director of the Western Farm Co-operative Forestry Co, for the New Zealand Cooperatives Association newsletter, Cooperatives News, August-October 2011 issue. http://nz.coop/newsletter-2/

Author of this story
Hamish Levack
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