Collaborative research projects

All right, thanks very much, this afternoon.

Earlier in the week I gave a presentation to a group where they got STEAM Trust Professional Development Programme, that was by Zoom.

It's pretty soulless, so it's really great to actually be here in a room with people, looking at reactions, seeing what people are actually thinking.

So, it's, yeah, my pleasure to be here this afternoon.

So, in terms of our project, the first one in the set of 5 projects, is looking at can we change rotation length for both softwoods, so you make it shorter, so you get return sooner? Or hardwoods, make it shorter or make it longer? So, we're trying to look at what else can we do, what kind of options do we have? I always like to include a conflict-of-interest statement given the work I do in the legal and financial space.

So, I have no pecuniary interest in the outcomes, just hope that people enjoy the presentation and take something away from it.

In terms of acknowledgements, I really think it's important to acknowledge this support that we've got for this project from PIRSA, but more importantly the fact that Liz and Amy got together, so Liz from the Hub and Amy from PIRSA, and worked out a coordinated approach to research.

You see too often in Australia at the moment that there's a lack of coordination between projects.

So, it's actually really good to see projects coordinated, part of Noble portfolio, and having natural linkages.

In terms of access to sites, ABP, Australian Bluegum Plantations, gave us access to one of their trials, which is really useful, as did Peter Feast.

And Peter's in the room here today, and he allowed us to make use of his wide-space pines.

In terms of the purpose of the project, as I said, what we're trying to do is look at can we change the rotation length to something shorter or longer, again, to try and meet the needs of farmers who are growing trees 'cause it's all about timing in terms of the farmers' needs.

So, in terms of today, we'll talk a bit about the journey.

Introduce the team that undertook this project.

Look at wood properties as a fundamental consideration.

Look at the question of defining value, harvesting costs, and then what are the alternatives.

So, in terms of the team, we pulled together a really good team of people, each focused on a specific part of the information base.

I won't go through all the names.

We have some of the illustrious characters here in the room today who are talking next.

But it was really useful to have people who knew exactly what they're talking about, talking about specific bits.

Then my job was to put all components together like a jigsaw puzzle into a financial model.

So, in terms of the financial model, effectively what we're trying to do is work out what is the outcome from a financial perspective.

There is physical benefits for trees on farms but we're talking about the financials, the dollars part of it.

So, we looked at the history of silviculture in the GT and it's really important to understand that GT has led the way in so many aspects of silviculture for Australia and overseas in terms of sustainability, good practise, and just good tree growing.

So, we took that history, we combined it with some stand information from the wide space pine that Peter had, as well as the Australian Blue Gum plantations Blue Gum trial, which was looking at different spacing techniques.

From that we got the cost profile for running a tree programme and David Geddes pulled that together.

So, the establishment cost, management costs.

We then looked at the question of how much does it cost to harvest and haul the trees, which was Lew's area of expertise.

We then considered what are the products and what are the prices that you get paid? It was often said that the actual returns from farm forestry can be a bit of a mystery because it's a not that widely publicised actual prices paid for logs.

So, we got that information, we pulled it together and then combine 'em with the wood properties.

And the wood properties is really important because that's what defines the utility of the tree, the utility of the log and making it useful for the actual processes.

So, the model output was then a financial outcome.

So, a discounted cashflow at 4% real as well as the physical product.

So how much wood is gonna be produced.

So, in terms of defining value, it's a really interesting one.

One of the things that the forestry space faces is that tree growers grow volume, processes want particular wood attributes so they can actually turn those logs into something useful.

There's not much of a connection between the 2 when you've got 2 separate groups.

But you're seeing companies now who are vertically integrating owning forests and trees, either directly or in a sort of a cousin type relationship and they're starting to work out the value is actually understanding the wood and making sure the best wood's going into their plants.

When we talk about the end products, that really from a software point of view we're talking about structural timber.

So, the wood that we build houses with, which is in short supply here in Australia and also export wood chips, which ultimately end up mostly as fine papers.

We don't produce any photocopy paper in Australia anymore as of a couple of weeks ago.

So, we've gotta import all that material from overseas.

If you think about what we're producing, we have to look at the markets today and how they are.

So, this is a mate's house being built in Gibson where I come from.

There's a whole range of products in there.

You've got the structural timbers holding up the roof, you've got all sorts of composite products, you've got panel board materials.

So, there's a whole range of things made out of a tree.

Will that be the same in 20 years' time? I doubt it.

We'll probably look at more engineered type products, but we need to start with what we can currently sell at the moment to help inform our process going forward.

So, this is a little bit of an aside given we have an agricultural audience.

So, I want to just show you that tree growing is not so different to agriculture.

If you take a 500-kilogram steer and you assume that kilograms is a hundred percent, when that steer goes through the first stage of the process and ends up as a hanging carcass, you end up with just under 6% as a hanging carcass.

You had the byproducts of that process.

If you then take the carcass and break it up into the different meat components, you get this breakdown of the different aspects of what that carcass from the live animal through to the products looks like.

So, you've got this quite nice profile which I pulled together with the help of an agricultural student.

That's the same profile done for a mature Radiata Pine tree.

Looks pretty much the same.

Two separate slides, put them side to side.

It's almost like Leonardo da Vinci's, you know, rules of nature.

The ratios are pretty much the same.

So, it's the same principle, Forestry, we need to have a mark of all our components of both the growing process as well as all the components of when we're actually processing our trees to make sure it's profitable.

So, when we talk about defining value and how do we compare different regimes, it's about how much would you grow, the quality of the wood, how much does it cost to grow that wood? Then what sort of price you get paid for it.

So, this is a pretty crude equation, but this is the kind of value proposition we're talking about for growers.

So, if you are trying to assess trees you can cut them down and do destructive sampling but you kind of like, you know, understand the tree too late.

What we've got as a new system, which Geoff Downes, is the I call it the grandfather of, is a system using a resi tool which actually bores through the tree and the degree of resistance of the wood.

So different wood properties change how easy or hard it is for that drill to go forward, and you can record the attributes inside a tree.

So, we can start to assess trees while they're standing to understand what's going on inside the tree.

From agriculture perspective's, the same thing as using an ultrasound over the back of an animal to try and work out its muscle score, its fat score.

So, we're looking inside the tree to try and work out what's going on and that's important to understand what's good and what's not so good in terms of growing trees.

When you look at wood properties this is a series of charts from the resi tool output showing 6 different tree profiles.

All the trees are the same size but not all trees the same in terms of wood property.

So, if you look at this chart, the first one here with the orange, that's all a timber that would come out of those trees, which is not structural, it's not strong enough to hold up a roof of the house.

So, it's less than what they call MGP 10.

So, it's a machine graded pine 10.

If you look at the other side, the purple one you've got super strong wood, it's really high quality, it can hold up that roof.

It's what the market wants.

So in between when we're trying to manage trees, we want trees like this with a very small core of that non-structural wood and then the rest of the outside is the really good stuff which you can hold up the roof with.

So, when we look at regimes, we want to try and develop something that can actually hold the roof up but give the best returns to the growers.

From a Tasmanian Blue Gum point of view, this one was done by destructive sampling.

So, we cut trees down, we took wedges out at different heights up the tree and we looked at the wood properties.

So how strong the wood was as a measure by using basic density and you can see that the variation up the tree.

So, there's a pretty standard sort of basic density up to about 10% of the tree height.

Then it starts to vary.

So, by understanding that variation we can understand the value of that tree, which is again quite useful from point of view processing.

Okay, so the real driver of returns to the grower is the harvesting costs.

So how much does it actually take to get that tree from your forest to a processor, is the harvesting cost plus the haulage.

The haulage costs are pretty fixed 'cause once you've got stuff on a truck is just weight, getting it from the stump to the road side on the truck is the really expensive part which can be made cheaper or more expensive depending on how you manage your trees.

What we did with this, we looked at the whole question that when you are harvesting, you're using a machine, that machine cuts off the tree, handles each tree individually as a stem.

So, if you've got a really big tree that fixed amount of steps is producing more wood per movement and if you've got a really small tree, you are producing a lot less wood per movement.

So, with bigger trees your costs go down, with little trees your costs go up.

That starts to look at what's important of how you grow your trees.

So, we look at the cost profiles for trees in Mount Gambia and this is some great work that Lew did.

Lew got a whole series of cost profiles at different kinds of operations at Radiata pine at different stages against the mean tree value across the bottom axis for how much it costs per tonne to move the wood.

You can see it's a pretty neat kind of pattern.

When we pulled it together onto the one chart it was surprising how neat that pattern was, which then allowed us to do a bit of wizardry of Excel and generate a one stop cost profile for all different sizes of tree.

So, in the model when we vary say how many trees you planted or how few, it would then generate what that harvesting cost profile is going to be as an in indication of returns from that tree growing enterprise.

The same thing for Tasmanian Blue Gum, little bit different those bottom set of lines when we put the cost profile in you can generate that, but the 2 ones above it where the arrow's pointing, therefore a very different operation, we're actually turning the trees into wood chips on site.

So, it's extra sets, extra costs.

So, with those 2 models we're able to build into our analysis to look at the different types of regimes, what the impacts were in terms of costs and therefore what were the returns for the different regimes.

We started off with a range of different options to testing hundreds of different regimes.

We narrowed it down a few thinking we want to go from a long rotation cycle to something a bit shorter, something much shorter and something super short as a variation.

And the same thing with our hardwoods.

So, we wanted to go from a standard hardwood regime 294 around about 10 to 12 years for clear fall for chip.

What happens if we grow up longer to make bigger trees for potentially other products or just bigger trees for chip? What happens if we make it a much shorter regime? What does that do? Remembering back the question that as you decrease your tree size, your harvesting costs go up.

We tested a range of regimes for both the hardwoods and the softwoods.

So, from the Radiata Pine point of view the green bar is business as usual.

So that's the sort of standard case.

The first 2 changes are clear falling a little bit earlier.

So, the second of those alternative shorter rotations is you don't do any third thinning.

So, you end up with more trees to harvest finally.

Then there's a couple of super short regimes, we're talking about 12 year clear for pines.

Then there's a series of wide space regimes and the last of wide space regimes included pruning with a price premium for your logs.

The current isn't, but what would happen if there was.

This is the one that's interesting thinking about trying to compact your non-structural wood to a smallest possible area.

If you plant more trees to start with, the individual trees when you do your first things are smaller, so the wood which is non-structural is on a smaller cross section.

Once you release the trees the wood that's grown is a better quality, more usable in a sawmill.

Okay, so to present the outcomes I developed this matrix, across the bottom is total yield, across the vertical axis is a value index, so net present value.

What we did was set number one so it's an index for the routine current, the 4 regime for radio pine then benchmark the other options around that regime.

If you look at the first 2 dots there that's about having a slightly shorter rotation than the current standard, but including with and without that third thinning.

Interesting when you exclude the third thinning you're not having cashflow earlier because those trees are growing on but you're also harvesting smaller trees, so your costs go up.

So, it's actually less attractive in this particular analysis to not do that third thinning.

You look at the next lot, which is our wide space trees, we're talking about 370 stems per hectare.

So quite wide spaced right from the start.

Where there isn't a price premium or you try and grow those trees for a shorter period of time, your returns are gonna be a lot less because you're not getting return on having those trees growing wider or the extra effort of growing and pruning those trees.

If you look at that top point, if there was a price premium for those logs, you'd end up having a much better position if you could sell those logs as pruned logs into a particular market.

The really smart strategy that Peter did with these trees was, he knew the area was too small to get the first thinning done.

So, coming in and removing those trees.

So, he planted basically final stocking.

So, a strategy to try and get around some practical issues.

The challenge now is to find a market that wants these kinda trees and just to show what, oh sorry, the last point is when we start talking about a super short type Radiata Pine regime, it's not that attractive 'cause the harvesting costs go up.

If we look at that top one this is where the theoretical thing is saying we'll make our wood much better by really confining the poorer quality wood to the centre and hopefully the wood on the outside is worth more.

So those logs are worth more.

That becomes a more attractive regime 'cause it's just producing better wood.

Whether it would work in practise and how it's going to play out is something that we'd really need to test.

So just to make sure pictures worth a thousand words, this is Peter's stand, it's magnificent.

You walk in there and you think that's a good stand but in terms of wood properties, the strength of the wood because it's been grown so well is lower and therefore it's not as attractive for structural timber.

But if we could get a premium for those pruned logs, it'll be a much better outcome.

Let's look at the Blue Gum regime options starting with the green column which is our starting case business as usual.

Then we have a second option next to it.

So, moving across, I can use the pointer thing.

That one there, that's when you do whole tree chipping.

So, you're taking the whole tree to the roadside, you're producing, in this case we're modelling for simple things the same amount of volume but it's a different system.

If you go to the next 2 options, super short we're going a lot less volume per hectare, making it you know, smaller trees, therefore more expensive.

Then we go to the last lot, we were looking at a combination of much longer rotations, so you end up with bigger trees.

So, in the scenarios there we've included the late clear fall.

So, we're talking, you know, 18 to 20 years and then one where you have saw logs, one where you don't.

One where you've done a thinning at an earlier age, others when you don't.

And looking at the question of the last one, which is a late clear fall with pruning to try and make those logs worth more.

Again, the same story, looking at the value looking at the yield, that's the starting point.

That's our business as usual.

So, everything that's above that and above to the right is a much better outcome in terms of your regime.

So, let's look at what they mean.

If you do that whole tree chipping you end up with a much better outcome because you're actually selling chips and although it costs more to produce those chips, the margin is better.

But infill chipping whole tree chipping is only available to large scale operations.

Like you need 40 hectares at a go to make it worthwhile.

You need good road access so it's more expensive not so available to smaller scale.

If we then look at some of these extra short rotations so instead of being 12, you bring it back to 8, 2 smaller trees so your harvesting costs go way up.

So, it makes it less attractive.

If we look at the regime where you've grown it for the trees a bit longer and you're including a thinning, you know, with bigger trees, less harvesting costs.

So, it becomes a more attractive option.

But just in itself, letting the trees go to that much longer rotation with the blue gums, you end up getting a better outcome because the trees are bigger, harvesting costs are less and you're producing better quality wood for the processor.

If you look at this particular case, the late clear fall with a T1, so first thinning and a pruning if you can get a price for a premium for those logs it becomes quite an attractive option.

We go back one.

And so that's one thing that people need to think about is that, you know, what are your options? Can you afford to wait extra time or do you wanna stick to your routine 12-year rotation? So in terms of key messages, if you're a private grower you know growing the right size tree is one of the key drivers of your profitability.

Making sure that you've done the best possible things to make the trees grow.

You're managing the stocking, you're getting the trees to the right size.

Then you think about doing thinning, you know, can you do a thinning operation? There's some thinning possible in some of the (indistinct) plantations.

There was some across in Victoria.

Dave Geddes was telling me about a stand he went to not so long ago that had been thinned and the trees were quite magnificent.

So if you look at how you can best improve the profitability, it's by having the right number of trees to grow big trees to make the overall harvesting cheaper.

So at the end for Radiata pine, it's quite attractive to grow that slightly shorter length rotation as long as you do your thinnings, maximise your trees and if you can have a larger stocking rate and are certain that you'll be able to get the thinning done on time, that could be quite an attractive regime again.

For the Blue Gums, it seems to be quite attractive to let the Blue Gums keep growing till they're much larger, potentially do a thinning and end up with a lower harvesting rate.

So that's sort of the insights from our first project.

Bit of a whirlwind tour.

There's a lot more information report we structured as a series of subtopics and each subtopic in itself has you know, got lots of gems and quite useful information.

So with that I'll happy to take any questions, comments or thoughts.

So, this is project 2, and this is all about trying to identify what are the barriers for smaller scale growers to get their trees harvested.

And we looked at this in terms of we wanna get a satisfactory return on investment for the smaller growers.

Lou and I have both worked with private growers for a long time now in this region and with private growers elsewhere in Australia as well.

So, we used our own experience largely in working through this particular project, but we also relied on a number of growers that live in the region including 2 of them, Michael Cornish and Peter Feast, who are both sitting in the middle of the auditorium, but a number of other small scale growers as well that were able to give us useful tips of things that have troubled them in getting their own plantations harvested.

From the early sixties right through to probably the early nineties a number of organisations have encouraged tree growing on farms in this region.

And we've been semi-successful, but probably not as successful as we would like.

And there have been a number of smaller scale growers in this region.

So, but really in the last decade there hasn't been a lot of support for the smaller scale grower.

And this is one of the reasons that this project's come about.

How can we provide information to support the growers? And we identified there were 8 key barriers for the smaller grower to get their trees harvested.

The first one was to do with the value of the plantation.

The next one was silvicultural options, particularly, the softwood sector.

Next one is where the woodlot is located in relation to markets.

The next one where the woodlots are located on the farm in relation to where trucks can go.

And then there's the plantation scale.

A small-scale plantation versus a larger scale plantation.

The biggest barrier is the log sale process.

We'll talk a bit about that during this presentation, but that's where smaller scale growers really do need assistance from someone outside, because it is a very complex thing to work through the log sale process.

Barrier 7 was to do with contractor availability.

We've got a lot of logging contractors in this region, but they're mostly locked into the larger scale growers.

So, I'll talk a bit about that in a moment.

And then the pre-harvest considerations.

And again, I'll have a small amount to say about that.

So, the first barrier is plantation value.

One of the things that Lou and I have both found in working with small growers is invariably they don't know what the trees are worth.

And I guess the other thing too is that both the hardwood and the softwood plantations have grown for a long period of time.

So, the person that originally put in the plantation might've had some pretty firm ideas about what was gonna happen to those trees and what they were worth, but often by the time that Lou and I have got to talk to the grower it may not be the same person who put the trees in the ground, or it may be that they were put in the ground so long ago that the person who put 'em in can't remember exactly what it was that we were growing the trees for.

So, plantation value is a significant issue.

And as an example, you probably do know that in the last decade or so, there was a boom in log exports to China, pine log exports to China.

Massive volumes of wood were going out over the port and down here a lot of the smaller scale growers were knocked on the door.

Can we buy your wood off you? And these weren't buyers from this region they were buyers from outside the region who were coming in here to wanting to buy wood from these smaller scale growers.

There were 2 things that we saw from that.

First of all, did the grower know what those trees were worth to say, well, yes, you can take my trees out.

Invariably they didn't know.

But the other thing was a lot of these plantations weren't mature.

They were cut down at less than age 20, pine plantations.

With the grower not realising that there was a lot more money to be made if they could have thinned the plantations rather than clearfell them and grow them on to age 35 or whatever.

So, plantation value is an important thing.

Now, values depend.

They depend on how much harvest volume we're gonna have, what the annual costs we're gonna have, what are the harvesting costs, the once off harvesting and haulage costs, the costs to get a truck to that plantation, and the species and the log categories within those species.

They're all variables that make up plantation value.

I'm not gonna talk today about the ways you value plantations, but essentially, in Australia there are a number of ways we value plantations, but the 3 main ones are the cost-based method, which is what is the cost to get it to where it is now.

The lump sum method, which is you cut 'em down on the day that you value you assume you cut them down on the day you value them.

And that's the wood that goes into the market.

Or the present value system, which is using a discounted cash flow to look at the future costs and revenue and bring them back to today's dollars.

So, one thing that we did was developed a kind of a matrix about indicative values for plantations.

And so, we've got here hardwood values on the left and softwood values on the right.

And we split these into, these are in value per hectare, and we split them into age classes.

So, nought to 2, 3 to 5 years old, 6 to 10, 11 to 15 for the hardwoods.

And they go up right up to 31 to 35 years of age with the softwoods.

And we looked at a low value, a medium value, and a high value plantation.

So, you can see that high value plantations are obviously, worth a lot more.

And the difference between the low and the high value is the low value plantation was generally one that was a long way from the market.

So, it had high harvesting costs and poorer productivity.

So, harvesting costs were more, so harvesting and haulage costs were more.

And the high values were fast-growing plantations close to the market with a product that the customer wanted.

The next one, barrier number 2 is silviculture.

Now, silviculture is the science of growing trees for a set objective, because we are talking about existing plantations.

We're not in this particular presentation, we're not talking about the silviculture of growing the trees up to harvest age.

We're really talking about the silviculture of once they're semi-mature or mature and what do you do from there? With the hardwood plantations in this region, we are growing them to make a product for making paper.

So, it's wood chip is what we ultimately want.

And what gets harvested outta the trees is either pulp logs or wood chip, but ultimately, it was all turned into wood chip.

And the trees are grown over a relatively short rotation, which Braden talked about before, 12 to 15 years.

There's not a lot of silvicultural issues with that.

You just wanna make the most you can out of your Tasmanian blue gum plantation.

But with softwoods, because we are thinning the softwoods, there's a lot more things to take into account.

We need to take into account when to thin, what's the stocking to thin, when do you finally harvest? Also for this region, we looked at the ABARES work that takes into account all the productivity outta the whole region.

And ABARES do this work about every 5 years by consulting with all the major growers.

And in this region the mean annual increment, the growth rate of our hardwood plantations, is about 17 cubic metres per hectare per year or green metric tonnes per year.

They're roughly the same.

And with softwood it's about 22 green metric tonnes per hectare per year.

So, in terms of growth rates, growth rates are determined by the site, site rainfall, soil depth, soil fertility, impacts of pests and diseases.

All those things will impact the growth rate.

And so, the harvest yield depends on the growth rate and the age of harvest.

Now, for the softwood plantations, here we describe the plantations in terms of what we call site quality.

And for this region we've got 7 site quality classes where site quality one is the best class and site quality 7 is the worst.

We don't have very many plantations at all in the region now that are site quality 6 or 7.

Pretty well everything is site quality 5 or better? That certainly wasn't the case when I was a young forester.

We had a lot of site quality 6 and 7 back in those days, but we've improved a lot since then.

And the harvest age for softwoods, that depends again on the growth rate.

So, if you've got your first thinning, T1 stands for first thinning, T2 second thinning, and so on.

A fast grown softwood plantation you'll do the first thinning at about age 10.

A slower growing plantation, you might first thin it about age 15.

And then once you've done the first thinning about every 5 or 6 years, you'll do another thinning until you're ready to clearfell the trees.

And in this graph we've put together some indicative harvest yields for each of those thinnings by site quality.

So, for the first thinning, you'll see the site quality one and 2 plantations have a better yield per hectare than the site quality 5 plantations, but you'll also see that most of the volume that we get out of our harvest for softwood comes from the final harvest, the clearfell.

And that's where most of the value, most of the revenue comes as well.

So, barrier number 3 is plantation location.

Now, if you've already got a plantation in the ground and it's a long way from market, there's not a lot you can do about that except that you've gotta try and optimise the haulage cost, 'cause it's haulage that'll be your biggest cost, if you're a long way from the market.

And the way to do that is to make sure that you can use the largest capacity trucks that you can use over the roads near you.

I've got 2 photographs there.

The one on the left is a pine B double truck.

The one on the right is a blue gum A double truck.

And around here now you'd see that nearly all of the trucks now are B doubles.

We hardly ever have any of the triaxle semis anymore, but essentially, the cost per kilometre is less for an A double, which is less than a B double, which is less than a triaxle truck.

So, if you're a plantation that's a long way from market, really the only thing you can do is make sure that you can get the most efficient haulage system to reduce those sort of costs.

Barrier number 4 is where the plantation's located on the farm.

Now, the best place to locate the plantation on the farm is right next to the road.

But where is the plantation normally located on the farm? It's not usually right next to the road.

It's usually at the paddock that probably wasn't as a productive farm paddock as the rest of the farm.

So, that's a good place to grow the trees and that's all well and good from the growing perspective, but when it comes time to harvest, you've gotta somehow or other get those trees off that plantation to a truck that's gotta drive on a road.

And if you're gonna use a B double or an A double you're talking up to 90 tonnes of weight going over the road.

So you need a reasonable sized road to put those trucks.

We can move the wood from the stump when it's cut down by either a skidder or a forwarder a certain distance to the truck.

But really once you get much beyond about 400 metres of using a forwarder, it's just getting a bit too expensive to use a forwarder to move it to the truck.

So, you've gotta start then building a road to get your truck closer to the plantation.

And building roads on farms is not cheap.

You know, we're talking about building a road for an A double or a B double.

You're talking 18 to $25,000 per kilometre to build this road.

So, you do have to think when you're putting in new plantations, you need to think about that.

But when you've got an existing plantation, you also need to recognise you need to build a road to get there.

I've got a couple of examples I'm gonna use in this one in the next slide, and that is, if it's a middle of the road sort of farm plantation and the harvest yield you're gonna get off it is about 2,500 tonnes.

And you've gotta build a 250 metre length road to get to that plantation and to get your logs out.

If you're gonna harvest about 2,500 tonnes, it's gonna cost you about $2 a tonne in roading costs.

That's gonna come off your profit for your plantation.

If you are only harvesting half that amount, if you've got a smaller plantation, it's gonna cost you about $4 a tonne to get that wood out over a 250 metre road that you've gotta build for your plantation.

So, these are things for a smaller grower to think about.

Barrier number 5 is the plantation scale, the size of the plantation? Ideally, the bigger the plantation the less your...

Well, we have a whole lot of fixed costs that we have with any plantation.

These fixed costs include preparing harvesting plans, getting the environmental compliance for the plantation, and moving the harvesting equipment to the farm.

Those are all fixed costs.

If you've got a small plantation, small sized plantation, those fixed costs per tonne that you sell become a greater cost.

And for example, with the harvesting equipment, we're talking the harvester itself, a skidder or a forwarder, and maybe a loader.

To move that gear to a farm is probably gonna cost around $2,000.

Flight costs aren't cheap these days.

If you are harvesting a large area, the harvesting contract will just say, well, I'll just absorb that cost as part of my harvesting operations.

But if it's a small plantation to be harvested, the logging contractor is gonna want his costs covered for moving that gear there.

So, using our same example I had for the previous slide, if it's 2,500 tonnes of wood that you're gonna harvest off that plantation, it'll cost you about 77 cents, that's what the contractor will charge you to move that equipment to his farm, to your farm.

If it's half that amount, then it's gonna cost you about $1.50 for that contractor to move the equipment to the farm.

So, the plantation scale is important.

The larger the wood plot size, the more harvest volume there is to absorb those fixed costs.

Barrier 6 is the log sale process.

And this is the thing that is probably the most difficult thing for small scale growers.

And I guess we need to look at the context of this.

The processors in the region, they have their log supplies lined up quite some time ahead, 18 months to 2 years ahead.

They know where their wood's gonna be coming from.

So, they've got everything all scheduled.

They're gonna knock over this block of 141s plantation first and then they're gonna go to a timberlands one next to it and they know exactly where all that wood's coming from.

If you're a small grower, you've somehow gotta get into that schedule.

So, you can't expect to knock on the door of a sawmill and say, "Look, I wanna get my plantation harvested.

Can you do it in the next couple of months?" 'Cause that's just not gonna happen.

And I'm using the term broker here and I'll use that again for the next couple of slides as well.

It's really important to have a broker in the process that can help you, 'cause even the larger scale growers here and smaller growers, and I'm looking at Michael Cornish, in particular, in the middle of the room there who harvest trees every year on his property.

Even Michael who's got a large area of plantation would need a broker to help him sell those trees.

For a smaller scale grower, it's really important to have a broker to help you sell those trees.

And the broker will help you with preparing the harvesting plans, talking to councils about which roads that you need to use where the log trucks are gonna go.

And talk to the buyers of the wood and arrange a deal for you.

Also with pines, you've gotta work out when you're gonna thin them, what are the products that are gonna come out? And unless you are dealing with this thing every day, it's very hard to know that you're gonna get 500 tonnes of pulp wood and 650 tonnes of class one saw log and so on.

So, it's important to have somebody to help.

The other thing about the log sale process, Braden touched a bit on this in his presentation, but when we measure standing trees, we measure in volume in cubic metres, because when we measure trees in a plantation we measure the diameter and the height.

We calculate the volume of the tree and then we work out with our sample plots how many trees there are, and we can work out what the cubic metres per hectare are.

But when you cut a tree down, you can either have the measurement in cubic metres, that's when it's on a log truck and they get each end gets measured or whatever and you know, the length of the log.

But mostly these days the product gets weighed over a weighbridge.

Here in the region it's roughly about, for pines, it's roughly about one to one.

One cubic metre is one tonne of pine log.

It's not quite the same as that for blue gum, but it's not too far off it.

But so what it means is when you're measuring your standing trees to work out how much volume you've got there, you're talking cubic metres, but you've gotta remember that when you sell it it's more than likely going over a weighbridge.

And for the softwoods we need to take into account the different log sizes, the lengths, the small end diameters, the straightness.

So, then we come to the mill door price.

What is the price that we are gonna get for this wood? And this is another thing that's secret.

It's very hard to know this information, if you're a small grower.

So, in this project that Lou and I worked on, we've developed some indicative mill door prices for the types of logs that you can sell out of your softwood plantation.

And we turned and looked in terms of a low mill door price, a middle in mill door price, or a higher mill door price.

And that'll depend on the quality of the wood and those sort of things.

So, the mill door price is the price that the buyer will pay for the wood to be delivered to that mill.

There's also the cost then to harvest the wood and transport the wood and supervise the plantation operation.

Those costs need to be considered when it comes to what a grower will actually get.

So, you can see there I looked at, we looked at small saw log, large saw log, industrial log, which is break trees and smaller logs, pulp log and preservation log.

And you can see that the largest saw log gets the best price in this region.

Barrier number 7, contractor availability.

The critical thing here is there are no contractors in this region that operate only for small growers.

We've got lots of contractors in this region, really good logging contractors, but they all work on a contract basis to the larger growers and their contracts or anywhere between one year and 5 years in length.

So, they have their own wood harvesting programmes ahead of them.

So, there aren't any contractors that operate just for the small growers.

So, that's one of the reasons why you, another reason why you need a broker to help you get your foot in the door about which contractor that we can use to harvest our trees.

You can see the sort of equipment that we are talking about there.

There's forwarders, skidders, and harvesting machines.

And the last barrier was pre-harvest matters.

So, there are 3 main things to consider from a pre-harvest point of view.

What sort of volume that we're gonna harvest? So you need some sort of inventory.

Again, a broker can help you with that.

We need a formal harvesting plan.

And the requirements for harvesting plans are different in Victoria to South Australia, but they're not that different.

And if you're growing blue gums, we've need to consider native animals, in particular koalas.

And just a little thing about koalas here, some research that's been done in the last 5 or 6 years have shown that the blue gum plantations that are in that area between the state border and probably the other side of Portland, the number of koalas per hectare in there are about 4 times the number of koalas in ideal koala habitat in native forest.

4 times the number of koalas.

So, once you get into harvesting of blue gum plantations, if you are in a koala area, you've gotta have a koala management plan.

And again, a broker or someone can help you with these, 'cause these are actually quite complex things.

And with the larger blue gum companies, they'll have someone probably full-time working on koala matters.

So, that comes to the end of the barriers.

So, just to sum up.

The small-scale growers are only a small part of the region here.

It's the larger scale growers make up about 96% of the entire plantation estate here.

So, the small-scale growers don't have a lot of clout when it comes to these things.

And we've identified there's 8 barriers there that you need to consider when you are harvesting your small-scale plantations.

There are fixed costs.

So, if you've got a larger scale plantation and those fixed costs get spread over more tonnes that you harvest, but it is a complex, the log sale process is complex, and a broker is essential for a small-scale grower.

And that's the end of that presentation, thank you.

So, hi everyone.

My name is Amy and I work in the Forestry Team at PIRSA.

The principal researchers and authors for Projects 3 and 4 from Esk Spatial had pressing work commitments so unfortunately, they couldn't join us today.

I was really looking forward to Esk sharing their insights and knowledge on the mapping and carbon farming research that they undertook for PIRSA and GTFIH, trees and farms research collaboration.

So, in their absence, I will do my best to summarise the key results of the 2 projects.

So let me start with some more information on Jeremy Wilson and Anthony Hay from Esk.

They both worked on Project 3, which provides a spatial analysis of tree plantings and estimates potential carbon credits and wood volumes.

Jeremy is a leading Australian forest and natural resource strategist, and is recognised for his expertise in growth modelling, yield analysis, carbon forestry assessment and modelling and strategic harvest planning.

In 2010, Jeremy co-founded Esk Mapping NGIS, now known as Esk Spatial, and provides specialist advice in relation to the implementation and customization of GIS, and the analysis of forest resource data.

Jeremy has 30 years of GIS modelling and planning experience within large-scale forest management companies and consultancies in Australia and New Zealand.

Anthony is an experienced spatial analyst with deep forestry expertise.

Prior to joining the Esk Team, Anthony was an independent consultant, providing spatial analysis and modelling solutions to the forest and wood product sectors in Southwest Victoria and South Australia.

The objective of Project 3 was to determine the plantation and carbon productivity information for privately-owned agricultural areas within southeast South Australia and southwest Victoria to support plantation forest expansion.

The area of interest for the project is centred around the Green Triangle National Plantation region, but data also extends across other areas of South Australia and Victoria.

The outcome is an interactive web map, where existing and hopeful plantation growers can find relevant estimates of the likely amount of saleable wood and carbon credits for a given property, according to a mapped grid.

It should be noted however, that these models and layers do not consider current agricultural land use, accessibility, land values, or land use planning.

All of these and other factors would need to be considered as part of any standard due diligence, before deciding on a forestry or carbon project for a given property.

So, the project boundary was shown on the previous map.

The scale of modelling was set to a resolution of one kilometre to provide enough information to assist with decisions around entry into plantation forestry and the carbon market.

However, at this scale, results are not suitable for on-farm planting.

Existing plantation estates, national parks, and conservation reserves were excluded from the layers.

So APSIM is the Agricultural Production System sIMulator.

A computer software model originally developed in 1991 that simulates biophysical processes that drive plant biomass in agricultural systems.

Since 2020, models for forestry species were introduced in forestry inventory data, such as tree height and stem diameter, were put into the system, and these are calculated by analysing the statistical relationships with biomass.

APSIM was used in this project to model the likely forest wood harvest volumes generated at thinning, and final harvest for 2 Tasmanian bluegum and 2 radiata pine management regimes.

This was restricted to areas with long-term average annual rainfalls greater than 600 millimetres.

FullCAM is a full carbon accounting model.

For forests, it uses geographic location data and forest management information to estimate carbon stock change over time.

For the web map, FullCAM was used to provide the total Australian Carbon Credit Units, or ACCUs, that could be available under the Tasmanian bluegum and radiata pine regimes.

Again, this was limited to areas with long-term average annual rainfall greater than 600 millimetres.

FullCAM was also used to generate the total ACCUs that could be available under a permanent environmental planning, which could be a mixture of tree and shrub species that are native to the area.

The model was limited to areas down to 300 millimetres long-term average annual rainfall, and this modelling was included to provide carbon information for areas where commercial plantations may not be financially viable.

A spatial layer on cartage or road distance to wood markets was also generated from a GIS network analysis modelling and provides distances to key ports and processing hubs currently available across the Green Triangle.

Other reference layers included other specified regions for the Carbon Farming Initiative 'water rule' and the Lower Limestone Coast Prescribed Wells Area where commercial forests must have a water licence.

So, Table 1 from the Project 3 Report provides a summary of the 4 plantation management regimes modelled in APSIM and FullCAM.

The modelled plantation regimes are the same as those detailed in the Project 1 Report.

The APSIM models for the 4 plantation regimes were developed with assistance from Dr.

Phillip Smethurst, Soil, Water and Plant Nutrition Scientist at CSIRO.

The calibration process was undertaken which involved comparing infield measurements from permanent growth plots against predicted values generated by APSIM.

Various assumptions were made in APSIM on climatic, soil nutrient, soil water, tree modelling, and environmental variables.

During the tree modelling, APSIM also modelled water use by tree roots.

An average annual and maximum annual water use are provided in the web map.

These results are not validated and are provided for general interest only, but validation of such values can be undertaken by comparing with satellite-derived evapotranspiration models.

But this was beyond the scope of Project 3.

To ensure the calculations used in this project would be relevant for carbon projects going forward, the 2023 version of the FullCAM software was used over the current 2016 public version, currently in force under the ACCU scheme.

The results section of the report covers the calibration adjustment and final output of the absent models in detail and provides examples of the mapped outputs.

Table 11 in the report provides descriptions of the web map attributes.

The APSIM radiata pines standard rotation and FullCAM attributes are shown on the slide.

For example, when we see a figure for MAI cubic metres per hectare, per year, on the map, it is the estimated mean annual increment or average cubic metres per hectare, per year, at harvest, which indicates how productive a forest is.

Another example is when we see a FullCAM environmental planting ACCU figure, it is the total carbon credits estimated to be issued per hectare, over the 25-year crediting period, under the Reforestation by Environmental or Mallee Planting 2014 method.

Now onto the actual web map.

It was developed using Esri's ArcGIS online software and it can be accessed from the GTFIH website for free, and it's up there at the moment.

When you first go to the link, you'll see this screen which asks you to acknowledge that the modelling and outputs are indicative only, and that you should seek advice regarding the values presented.

This one shows the APSIM standard rotation bluegum, total harvest volume outputs.

The areas modelled include the Green Triangle, Mount Lofty Ranges, and Kangaroo Island.

In the legend to the right, the red to orange shows the lower harvest volumes, while the yellow to green shows a higher harvest volumes.

This slide shows the APSIM standard rotation pine, total harvest volume outputs.

Again, red to orange shows the lower harvest volumes, and yellow to green shows the higher harvest volumes.

It should also be noted that the absent models appear to predict total volume reasonably well for both pine and bluegum, when compared to the actual data.

So, the figures provided should be reasonable.

This slide shows the FullCAM outputs for mixed permanent plantings.

Notice how the layer extends to areas down to 300 millimetre average annual rainfall and includes the York Peninsula in Murraylands in South Australia, as well as other areas in Victoria.

This slide shows what it looks like when you zoom in on the map.

This is an area near Naracoorte, and at this scale, you can see the land parcels layer.

If you right click on the map, it will pick up a section of the mapped grid and display a box with further information.

Since the area is outside the 600 millimetre or more rainfall zone, you will get a message stating that only information on permanent environmental plantings is available.

This example is near Clay Wells, and if you right click on the map, all the FullCAM outputs, as well as the APSIM outputs are shown in the box.

So still on this Clay Wells example, if you scroll down in the box, you can see the other plantation regime data, as well as travel distances to processes and ports.

If you zoom in even further, then you'll be able to see land parcel numbers.

So, this is an example from the wood processing and export layer.

So, as you can see, there's quite a few wood processes in and around Mount Gambier.

So, this slide shows a layer on the lower limestone coast water allocation planned water management area.

So, this may assist you with identifying which water management area applies to a property, since forestry is required to have a plantation water licence.

So, in total, there are 14 layers that you can play around with, as well as base layers that includes satellite imagery.

In conclusion, the interactive web map allows landholders to get a feel for how their land may perform in terms of wood production and carbon credit generation, relative to other land.

The map presents a range of values stored in spatial layers, however appropriate background or experience is required to interpret them.

Some of the information in the other projects presented today may assist with this, particularly Projects 1 and 2.

There is also potential to enhance the user interface of the web map by reporting the outputs of each layer in a more descriptive manner and linking to relevant supporting information.

And we're also in the process of putting together a user guide for the web map, so that will help people have a play around with it.

So, project 4 provides a comparison 2 of the Australian Government's emissions reduction fund plantation forestry and farm forestry methods.

As mentioned earlier, Esk Spatial worked on this project and developed a report that details important factors to consider when deciding which forestry carbon farming method to pursue.

In this presentation I will summarize key information from that report.

Australia is one of about 70 countries who have now committed to achieving net zero carbon.

Australia's long-term emissions reduction plan was published in 2022.

Specifically, the plan has a target to cut emissions by, carbon emissions by 43% by 2030, and to net zero by 2050.

These targets have been accepted by the National Farmers Federation, the GrainGrowers, and Meat and Livestock Australia within their own climate change policies.

To meet these targets, various methodologies have been developed by the Australian government to generate carbon credits and the concepts of greenhouse gas accounting and achieving carbon neutral certification are becoming common across a range of industries within Australia, including the agricultural sector.

The Emission's Reduction plan identifies the potential to expand carbon forestry projects, but also recognizes that any offset approach carefully balances the competing needs, the competing demands on agriculture and land sectors.

The Emission's Reduction Fund, which is now known as the Australian Carbon Credit Unit, or ACCU Scheme, offers landholders the opportunity to run projects that remove and sequester carbon from the atmosphere.

The ACCU Scheme is enacted through the carbon Credits Carbon Farming Initiative and Rule.

The 2 methods compared in project 4 are the plantation forestry method, schedule one, which focuses on new plantation forest for commercial harvest.

And the farm forestry method, which incorporates both harvest plantation projects for saleable forest products and permanent plantings where harvesting for commercial gain is not allowed.

The project also covers the own-use in setting approach for greenhouse gas accounting using Climate Active's draft guidelines for carbon accounting for carbon sequestration from tree plantings.

The project 4 report has a... (coughs) Excuse me.

The project 4 report has a detailed methodologies comparison section where the 3 methods are reviewed in detail to compare the differences in requirements of eligibility, the registration process, and reporting and monitoring over a series of tables.

To assist with understanding which criteria could likely be managed with internal business resources versus those that would need external specialist or technical assistance, a difficulty rating was applied where relevant.

Low means something is likely to be undertaken without the need for external assistance.

Moderate means some external assistance is likely to be required at moderate cost.

High is likely to require considerable external assistance at high cost and so on.

Altogether, there's 22 eligibility criteria compared in the report.

Many of the requirements are similar for the plantation forestry method and farm forestry methods.

One key difference is the area restrictions.

The minimum planting area for both methods is 0.2 hectares.

However, under the farm forestry method, there is also a maximum planting area for harvest projects of no more than 100 hectares or 30% of a farm, whichever is smaller.

If rainfall is more than 400 millimeters per year.

For areas where rainfall is less than 400 millimeters, there is a restriction of no more than 300 hectares, or 30% of the farm, which ever is smaller.

The rainfall criteria are to be applied according to the long-term average annual rainfall shown on the carbon farming initiative rainfall map.

In terms of the difficulty rating for eligibility requirements, a few examples are shown on the slide.

An example of moderate difficulty is where specialist mapping software may be required.

Although not really an eligibility requirement, the difficulty of calculating, likely ACCUs, that would be issued, is considered high as it requires running the FullCAM model and calculating complex equations.

In terms of the likely external support costs for each of the eligibility criteria, a few examples are shown here.

The potential cost to get a specialist to run a one-off FullCAM analysis could be up to a thousand dollars.

Further tables on criteria difficulty and external support costs of the 3 carbon methods are provided in the project report.

15 criteria are covered on the registration process and 20 criteria are covered on the reporting and monitoring.

An example from the registration process table is permanence period and discounts for both the plantation forestry and farm forestry methods.

There is a need to provide an estimate of the total number of ACCUs likely to be generated.

So in calculating this, you also need to apply permanence and risk of reversal discounts.

And the total amount of ACCUs you can receive is discounted depending on the chosen permanence period.

For a new planting under the plantation forestry method, schedule one, a 20% discount is applied to a long rotation, which is a planting maintained for 20 years or longer.

And a 25% discount is applied to a short rotation, which is a planting that is maintained for less than 20 years.

A 100-year planting is considered permanent, so no discount is applied.

A 5% risk of reversal buffer discount is also applied to protect the ACCU Scheme against temporary losses of carbon and residual risks that cannot be managed by other permanence arrangements.

To provide examples of ACCUs generated under the plantation forestry method, 4 locations were modeled under a short rotation and long rotation management regime.

The locations, Furner, Edenhope, Heathmere, and Timboon are shown on this map.

Table 12 from the report shows the ACCUs generated per hectare for the 4 sites under the 2 regimes.

Risk of reversal and permanence discounts have been applied and notice that there doesn't seem to be a direct relationship between rainfall and ACCU generation.

This is because the FullCAM model takes into account a range of climatic, environmental, and soil related variables that affect growth.

To indicate likely returns over the 25-year crediting period, the May 2023 spot price of $37 was applied to the ACCUs.

Table 15 from the report shows the total value per hectare and a discounted present value per hectare.

The discounted present value considers the time value of money, transferring, translating future cash flows into today's dollars to allow projects to be compared.

After the detailed methodologies comparison, there is a section which deals with barriers to entry.

The degree to which there will be barriers to entry, partly relates to the level of expertise you have in-house and the method that you choose.

As many of the barriers relate to how they affect cost in terms of the need for third party support.

An example of a barrier is the carbon farming initiative water rule.

This is a set of water interception conditions applying to the plantation forestry and farm forestry carbon projects.

And requires projects in areas with an average annual rainfall above 600 millimeters to be in a specified region, or have a suitable water access entitlement, or other requirement.

This map shows the specified region relevant to the green triangle.

And like Nathan said, that rule has is being removed by the 1st of June, 2024.

The long-term nature of plantations requires a slightly different skill set to typical agricultural cropping enterprises though the underlying principles are the same.

Therefore, other barriers to entry include experience in plantation management and forest measurement and modeling.

The farm forestry method has a higher need for forest plant, for forest management understanding, giving the need to undertake carbon inventories including tree measurements, destructive sampling, and statistical analysis for both harvest and permanent plantings.

Even within the forest management industry, forest measurement and modeling is a specialist role.

With the farm forestry method, a minimum of 30 sampling plots, at least 0.02 hectares in size, required to be measured in areas of 30 hectares or less.

This equates to a total of at least 660 trees that need diameter or height measurements each reporting period.

The reporting period is flexible and fixed on registration, but you can choose reporting intervals between 6 months and 5 years.

In addition, up to 20 destructive sample trees need to be measured, cut down, and then separated into biomass components such as the trunk, branches, and leaves.

These must be weighed as soon as possible to get a wet weight, and then the samples must be up and dried to get a dry weight.

The plantation forestry method does not require any field based measurements as it completely relies on the FullCAM model to estimate carbon stock changes between each reporting period.

Interestingly, despite all the extra field measurements of the farm forestry for harvest method, the total amount of carbon credits that can possibly be issued is still capped by the FullCAM model.

It is noted, however, that for a farm forestry method permanent planting, the total ACCUs generated could exceed the total ACCUs under the plantation forestry method as there is no cap on credits.

Other barriers to entry are covered in the report and there is also a section on risk and risk management.

Now onto the key findings from project 4, Esk Spatial's review of the methods found that if a plantation is established for harvesting wood products, the plantation forestry method, is likely to be a better option.

The main reason being, for a farm forestry method harvest project, the total ACCUs will either match or be less than the amount generated under the plantation forestry method for an equivalent site and tree species.

It will never exceed the ACCUs generated under the plantation forestry method.

So despite the complex field measurements required of the farm forestry method, there is no actual advantage over the plantation forestry method in terms of the total amount of carbon credits that could be issued for a harvest project.

On the other hand, a farm forestry method permanent planting is likely to yield more credits than the plantation forestry method, schedule one, though you must balance this against the fact that it is not harvested, so you won't get a return from harvesting and you may face a higher, may face higher project costs if you don't have forestry experience.

So of course, you need to draw your own conclusions on which tree carbon method is best suited to your specific situation, and it will depend on the tree planting and carbon sequestration goals that you have.

The presentation today, we're talking about taxation treatment of trees.

And in terms of that, we've got to be very careful. I have no conflict of interest again.

I hope you enjoy and take something away from this information.

But it's really important to understand that this is not providing financial advice.

This is providing enough insights for you to talk to your own individual advisors about your own individual circumstance to work out what you need to do.

And that's really, really important because there's so many different machinations of how tax works that we need to make sure that everyone treats their own situation as an individual.

So in terms of the process today, again, acknowledgements in terms of people who've helped out with this project.

Obviously, again Liz and Amy for collaborating and getting something going in one parcel, but also fundamental thanks to Daniel and Renea at Galpins who helped out with some of the information, some of the clarifications.

I'll put a bit of a personal spin to it. I didn't do very well at school.

I was too busy trying to understand what they're telling me rather than playing the game of just regurgitating information.

That's the same thing here in this whole project.

Rather than just spitting out stuff, we tried to look at how it works, understand what the actual mechanisms are, and how they apply to different circumstances.

So it's about understanding the system, understanding how it works, and then with individuals going back and applying it to your own circumstance.

Okay, so we'll go through some fundamental concepts, talk about farmers and farming.

So some of the motivations.

Then look at taxation mechanisms and the history of trees.

There's a long history of tax and trees.

Look at primary production, a forest operation which is a specific thing under tax, and then plantation expenses and some case studies.

All right, so there's some fundamental concepts.

Everyone's heard the old adage of there's nothing more certain than taxes and death.

This is completely wrong.

Death's pretty certain, (audience member chuckles) but taxes are not.

There are so many different tricks and systems and different parts to tax that it just depends on your circumstance.

So there's nothing certain about it.

And you can, as a person, go from paying 45 cents to the dollar to zero tax with trees, and that's all legally.

It's not by some bottom of the harbour scheme, some Cayman Islands tax dodge.

The system is set up so you can actually, with the right structure, pay zero tax on trees on that income.

The next fundamental concept about tax is it's all about timing and time.

It was mentioned before about there's a whole range of grant systems coming out to assist people with growing trees.

Timing is critical.

You get the money before midnight on June 30, you spend it after midnight June 30, 1st of July, you'll get taxed on that money.

If you get it before June 30, spend it before June 30, you won't get taxed on that money.

It's all about timing. The whole tax system works on timing.

Timing of what you do when you do it, timing of your own age.

If we look at the question now thinking about the farmer, it's really important to understand what is a farmer trying to achieve as an individual.

And we looked at the whole process of succession planning and retirement.

It was really important to understand how tax work.

I went through reading a few documents about succession planning and one of the authors talked about the 4 D words, including death, divorce, disagreement, and disability.

And when we were talking to the Galpins team, we sort of joked about, "Well, do you really say I do one day and go and plant your divorce trees?" It's probably not a good look, but you know, people are using trees for all sorts of mechanisms in their private circumstance.

And one of the situations we've seen in one of the quite prominent farm forest in Tassie, he'd used trees on his own private enterprise to provide funds for the children who are not going onto the farm.

So to take away the pressure on the kids that got the farm to having to pay out the rest of them.

So trees can be used for all sorts of mechanisms.

So we think about trees and timing.

Trees is, they're relatively predictable.

We've got 2 basic rotations: short rotation, eucalyps, long rotation, pine.

If you are thinking about your future and planning, you can sort of look and say, "Well how does this crop fit with my particular circumstance?" It's relatively predictable so you can start to use those to your own advantage.

If we think about the farming enterprise, farmers are growing trees for a range of reasons.

They could be part of, you know, the enterprise benefit, shade and shelter, stock protection.

They could be for carbon offsets.

Interestingly, when you talk to the agricultural sector they're actually advising agricultural participants, so farmers, not to sell their carbon credits.

To keep any carbon benefit on their own property, to offset their own emissions, to supply Coles and Woolworths of carbon neutral beef.

128 So, it's gotta be a really careful step.

Do you sell your carbon credits? Do you keep 'em for yourself? So it's a really fundamental choice.

There's environmental benefit.

So you're actually protecting the environment, you're improving your landscape.

There's also amenity and aesthetics.

One of the farmers we visited during this process said that they're finding it easier to keep employees on properties where there's lots of trees 'cause it's a better environment to work in.

And then in some cases, people just like trees.

So they're planting them for a whole range of reasons.

If you look at the enterprise structure, and this is starting to get into the nitty gritties of how tax works.

You can be an individual, like have no kind of business arrangement.

It's not a business as such, but you're still growing trees.

You can be a sole trader or partnership.

So there's actually a business operation in play.

You can be a company or you can have a trust structure, and a lot of farmers have their trust, their family farm set up in a trusting system.

And a part of a subset, we can start thinking about self-managed super funds as a way of managing your retirement and that retirement income.

If you look at how taxation works, it's administered by the ATO.

There's a pay as you-go principle where, if you're an employee you're sort of, you have tax taken outta your pay each month.

You get your surplus paid to you.

And at the end of the year there's a self-assessment process where you work out how much you earned from all sorts of sources.

What sort of expenses you had was allowable deductions, how much tax you've already paid, and there's a recalculation.

People talk about having tax deductions, that's actually wrong.

What you get is a reduction in your taxable income base by expenses.

Your tax is recalculate is a bit of a reckoning and if you've earned more, you pay more tax.

If you've earned less because of these allowable deductions, you pay, get a tax refund.

For a company it works in that they earn more, they pay more tax.

If there's a loss, that loss is carried forward to the next period when they actually earn income is a surplus to offset that future surplus.

So in terms of providing the story about tax and trees, you've gotta really understand the framework in which the tax system is working for those trees.

Trees have a long history with tax and we'll get this one off the table right from the start.

We're not talking here about managed investment schemes.

Managed investment schemes were a tax was a financial product.

The underlying asset in which the money 192 was invested were trees, but the financial, the managed investment scheme was a product.

It's not really what we're talking about here as direct investment in trees.

So when you look at non-MIS planting history in Australia, and I've looked at Australia, New Zealand, Uruguay, and US, and Europe, you can see tax treatment favourable, trees get planted.

Tax treatment changes, trees stop being planted.

And there's this, you can actually map the planting history with the changes in tax treatment.

So tax is a very powerful driver of tree development or stopping it dead depending on the circumstance.

So in terms of the processes actually doing those changes, it's about how the expense of establishing the trees is treated.

Do you have to carry that expense forward to make an income, or can you offset other income against the cost that you've put into the trees? So those 2 different treatments are really what drives the taxation stimulus or stopping dead tree planting.

So in terms of primary production, what are we talking about? It's a system which basically is agriculture.

The tax office recognises your income's not guaranteed and they're likely to be lumpy.

So they had this favourable set of treatments that take account of this practical reality of how the business is working.

When you look at it, they have a number of activities that are class in primary production.

So in this list we've got plant and animal cultivation, fishing or pearling, tree farming or felling.

And that primary production can be taken on as a individual, and that's sort of a sole trader, partnership, trust, or a company.

So you've got these sort of broad categories of things that are classed as primary production,  but taxation's a whole series of tests.

It just depends, and going back to what I said about seeking to understand it, in pulling this information together I couldn't go to a manual that told me how it works.

I had to sort through all the different bits of the ATO website finding different components to the jigsaw puzzle, pulling together.

Then with help from a number of people, distilling into an actual workable story.

So in terms of forestry, sorry, the benefits of primary production, recognising the issues with the cash flows that come from this kind of activity, there's a number of mechanisms.

The first one they have farm management deposit.

So, the money goes into a separate sort of account treated, if you're a sole trader or a partnership.

You can have income averaging, and I won't go into the details of things.

So they recognise you can try and smooth out the income over time.

And the last one is there's a thing called the non-commercial losses treatment.

So what a non-commercial losses treatment say is that you can't offset your other income sources from your expenses involved with activity which could be potentially non-commercial.

But there are series of exemptions to that treatment, which means you can offset the expenses in things like trees against your other income.

There's some automatic rules.

So if you are an artist earning less than 40,000 a year or a primary producer earning less than 40,000 a year, you can automatically get this.

If you're not, you can try for some of the exemptions to that rule and the test is, if you earn less than 250,000 a year, there's 4 other tests, you can then claim that.

So that means that me as an individual could then offset my core income with expenses in trees and claim that is a deduction to my tax base.

So that is a really important part of the stimulus of going from having to take account of my establishment costs at harvest to taking account of establishment costs in the year they occur against my other income.

When we talk about trees, there's really 2 types of trees and Amy articulated it very well.

You've got basically permanent trees.

So you're planting trees with the view of not cutting them down.

So there's a range of purposes for that.

So it could be for amenity, environmental benefit, shade and shelter, carbon.

So the idea is those trees are not gonna be taken off the stump.

Then you have the other type of trees, which they're trees for harvest.

So they're trees you intend to grow as a crop, cut down and you do something with.

Then there's 2 other bits in between those where the trees are being grown for wood for your own use or the trees have been grown for amenity.

So, neither of those things have any relationship to earning an income.

Those are excluded from the ATO treatment.

The rest are captured by different definitions and different tests.

You can change your mind.

You can change your mind from thinking, "Well, these trees are permanent." You might say, "No they're not, I'm gonna cut them down." Or, in cases of some of the larger clients I've dealt with, they had blue gum plantings in really good strips.

They were worth a lot of money as blue gums.

They said these trees are worth more to me on this site, providing shade in the shelter for my sheep off the shears.

So they changed their mind for the initial intent of harvest to one of keeping them for permanent.

So you can change your mind.

So a specific thing on a primary production is a forest operation.

So this is when you take the test of how you classify yourself as a primary producer growing trees.

You're actually developing a forest operation and there's 5 components.

You have to carrying on a business.

You have to have the intent to harvest.

Think about that one.

You've gotta be planning to cut those trees down.

Not only cut them down, but they have to be sold for a profit to someone else.

So not for your own use.

And they have to be done in a big business-like manner.

So organising the usual bits and pieces for a business.

And there has to be active management to improve the tree growth and performance.

So you're thinking about the checklist, you go through all those, you can class yourself as a forest operation, get yourself treated for tax appropriately.

339 So I was thinking about what's the evidence of this kind of intent? 'Cause you can say whatever you like as an intent, but you know, what do you really gonna do? But if you wanna try and prove that your intent is to be a forest operation, I started thinking what would I look for if I was doing an audit? I'd say I wanted to see the business-like manner, and the ATO have very specific tests of carrying on a business what you need to do.

And that's things like keeping records and accounts.

You need to develop a business plan for that particular plantation that spill clearly says, "I have the intent to harvest and generate a cashflow from these trees." Then you need to have a tree management plan that says, "I'm gonna actually manage these trees in the right way to maximise the tree growth." So you're going through that checklist of the 5 points.

And the last one is you plant a commercial species.

I won't say mention any names, but recently I went to a seminar and they were promoting growing redwoods.

You know, if you're thinking about 6 generations in the future, maybe a possibility.

But if you are thinking about a commercial species for harvest in your own lifetime, tell 'em they're dreaming.

So if you're planting commercial species, so in the GT, rated a pine or blue gum, you can start saying this is the evidence that I have an intent to grow these trees, harvest them, sell 'em, and make a profits 'cause they're commercial business.

So once you've satisfied these requirements, you then sort of in the area where you can start dealing with the taxation.

A key one though, a forest operation, this is under the tax requirements, you are selling logs.

It specifically says you cannot transform those logs into other things and then sell those other things and still be class as a forest operation.

So the primary producer status is very specific about that.

So if you want to buy some of a portable sawmill and transform those trees into boards, then that forest operation status is no longer there in terms of that because you're not intending to sell those trees as the primary product.

(participant speaking indistinctly) It does.

Specifically, yeah, which blew me away when I read that.

I'm not sure how you get around or how it works, but that's what the actual requirements say.

Okay, so we think about the whole story of expenses, and tax really is about treating your expenses and how you work with those.

Typical blue gum regime, pretty simple.

12-year-rotation, upfront establishment costs about $2,000 a hectare.

You wait your 12 years, you get your cash flow in.

You've got a little bit of maintenance costs along the way, but if you can't expense that operations against your other income, you have to carry that $2,for that 12-year period.

So you can see why tax on, tax off, trees in, trees out.

If you can expense, it makes it much more attractive because you can offset other incomes.

You see that with the gentleman farmer type set who have another income.

The farm is an interest, running commercially, but they can put surplus money from their other income into that farm and grow trees.

Okay, in terms of plantation expenses, how are they treated? If you can't get that exemption to non-commercial business loss, you then have to expense it, sorry, save those losses carrying forward to the time of harvest.

If you can get the exemption, you can claim that upfront.

So ideally, you wanna try and get that exemption.

Go through those tests and then get the exemption through that.

With company trusts and trusts, the expenses can be offset against other revenues within that trust within that financial year, but you can't claim those losses as a deduction.

If you've got an overall loss, you have to carry it forward to actually generate an income.

If we think about some case studies now trying to put some numbers around it.

If we look at an individual.

So the person's growing trees in their own right.

They've been able to go through and seek the exemptions.

They're acting as a sole trader or partnership, so you know, pretty routine standard sort of arrangement.

They can then use their other income to develop trees, reduce their taxable income, get a tax benefit from that process.

They then, when the trees are harvested, they then pay income on those tree, income tax on the trees.

Depending on their own circumstance could be from zero to 45% on those trees.

The next one, if you've got trees in a trust.

So you're got a farming business, a discretionary trust.

Discretionary trust basically says all the activities happen within inside the trust earns its income at the end of the year, financial year that is, there has to be a distribution of the earnings of that trust out to the different beneficiaries who are named in the trust, but it's not set.

This year I might give Dave a dollar or might give someone else $2.

Next year it could be reversed.

So the discretion of the trustee is to allocate the money from the trust at that weight rates at the different rates.

If they don't and keep the money within the trust, then the tax of the highest marginal tax rates.

So it's trying to keep the money thrown through the trusts.

If we then look at a self-managed super fund, and this is a really interesting beast in that thinking about how you can actually maximise the benefits.

There's 2 basic phases in superannuation.

One is the accumulation phase when you're putting money into the super fund, both by, you know, pay-as-you-go, super guarantee type thing.

Plus you could be doing salary sacrifice, which is still regarded as part of the concessional treatment.

That goes into the fund, that's taxed at 15%.

The fund is taxed on the net income.

So you could be actually using that income in the trust to be developing trees and reduce the amount of tax of the tree that the super fund pays.

Once you reach the pension phase, and so there's no more contributions coming in and there's only earnings within the actual super fund, that's tax free.

And the pension you draw from that super fund, as long as there's no other money coming into it and it's a 100% pension phase, is tax free.

So using a super fund can be a really good mechanism to grow trees.

There's all sorts of other costs and things associated with a super fund, but like I said at the start these are kind of things that take to your accountant and say, "What about this, what about that? What does it mean for me? Will there be be a benefit? Will I be better off in this sort of structure?" So when we think about it, we come back to the clock.

Before midnight on June 30, if you got income from your trees and you were still in the accumulation phase, you'd be paying tax at 15 cents on the dollar of those trees.

After midnight, if your harvest occurs, you're in the full pension phase, that income is tax free.

Your pension you draw is tax free, and you've got this big lump sum coming into it.

There's rules about how much has to be drawn each time, but you don't have to take all that money in one hit.

You can actually start to spread out that income over time.

So it's a really useful mechanism to think about.

Like I said, I'm not providing any common advice, I'm just sewing its ideas, concepts that people need to follow.

In a very simple term here, and again, there's all sort of other details around it, but just for a simple terms, I'm assuming that you've planted 5 hectares a year of Tasmanian blue gums for 12 years, so you're planting up a mini estate.

If you're doing it inside a trust structure, even though your harvesting starts at year 13, you've had to carry those losses forward so you don't get any distributions from the trust.

Until you've used up all those losses then you start getting that.

The money coming out of the trust going to the different people in the beneficiaries is their tax rates that they're applicable, so it adds to their income.

If we're now thinking about the other structures, and these are the ones where it gets really interesting.

If you look at it from a point of view, get that thing that going.

You're an individual sole trader and you've got that non-commercial losses exempted, so you're offsetting your other income, you can get your payment in trees with a tax run refund coming back.

'Cause you've lowered your taxable income, 550 so you've paid more tax than you need to so you get some money back.

Then when it comes time to harvest, you've got these trees being harvested.

But because you're still, you know, you're earning income from these trees, you then tax your tax rates that you'll be paying.

If you've got them inside a super fund, you make your super fund with a salary sacrifice.

So you're reducing your taxable income, you're getting a tax return.

When it comes time to harvest and you've in that full pension phase, that income coming into super fund and your distributions that you're taking off are tax free.

But you have to have the trees in the super fund right from the start.

If you try and develop 'em outside and transfer them in, there's a whole lot of pain that goes with that in terms of how much it'll cost you.

So the smartest thing then is to have 'em inside of the super fund.

It's not gonna suit everyone and everyone's circumstance, but these are some of the strategies you can do with trees.

Remembering those primary tests, that you have to have the intent to harvest.

You have to have the intent to sell.

You have to have the intent to sell for a profit.

You have to make sure that the trees are growing well.

Like you can't just sort of set, forget, and walk away.

And you have to make sure that you're growing something that's commercial, someone wants.

So there's a number of ways you can use trees to really seem financial benefit.

Thinking back to the principle of, "I'm planning for my retirement.

How do I actually make trees work for me?" I won't say I'm planning for a divorce 'cause you don't usually do that, but you know, you can make trees work for you in all sorts of different ways.

So with that, some takeaway messages.

Gotta get this thing to work.

Okay, so you need to understand your own personal objectives for the reason you're planting trees.

And when I say your own, it could be your own, the families, the farm.

You need to then think about who's the right advisor to get help.

You work through what the smartest way of structuring yourself.

And there's some incredibly good advisors in all sort of, you know, tax and legal type areas.

There's also also some very lazy ones, so you gotta find the right person.

I've been dealing with the same accounting company since 1988.

They know me, I know them, I trust them, and I know they're doing a good job.

So you gotta get the right advice to make sure you go forward.

You need to consider your total circumstances.

Not just your little bit about trees, but your complete circumstance.

All the income you might be getting from all sorts of sources, and you need to understand how those things work and contribute as a package deal.

The last point is you need to think very carefully about how capital gains works.

Capital gains are a complete topic that we spend days talking about.

Basic capital gains is not a separate tax.

It just adds to your taxation base.

So it's another area to think about.

So the key message is, ask the right questions, get the right advice, and make sure you are looking after your own and how this thing works when you're talking to your advisor to make sure they're giving you straight answers that you need.

Again, I'll stress very vigorously, this is not financial advice, this is some of the options to think about.

This is something that will inform you in these sort of discussions with your advisor.

So, thanks very much and I hope that was useful.