Australia’s $25 Billion Forestry Sector Must Make Its Own Future
New Forests founder Dr David Brand says plantation land bought for $3,000 to $4,000 a hectare after Great Southern's collapse is now worth $15,000.
Dr David Brand, who founded New Forests in 2005, delivers his keynote at The Precinct's investor symposium at the Sofitel Melbourne on Collins. (Photo Credit: Supplied by The Precinct)
Long-term institutional investors now own 70 per cent of Australia’s plantations, but strategic investors and government will need to take on the early risk of an engineered wood hub at Portland in Victoria’s south-west. That is according to Dr David Brand, the founder of forest investment manager New Forests, who gave a keynote at The Precinct’s investor symposium in Melbourne yesterday.
“Whenever you’re trying to drive something new like this, you have to have government on board,” Brand said. Loan guarantees and concessionary equity from government lower the risk for private investors and bring them in faster, he said.
Strategic investors, including existing investors in the Green Triangle plantation region and international engineered wood companies looking for growth, are often willing to take on that risk because they know the industry, Brand said. Private equity prefers to buy and grow businesses rather than take development risk, he said, whilst institutional investors are more likely to come in once a project is built.
Delegates from the investment, government, forestry, manufacturing, and construction sectors at The Precinct’s investor symposium at the Sofitel Melbourne on Collins. (Photo Credit: Supplied by The Precinct)
Australia’s forestry sector could have been bought for $5 billion in 2010, Brand calculated, with those same assets now worth $25 billion. The supply chain is “the central driver of margin”, he said, and the industry has already shifted more of the landed price of export woodchips back to tree owners by driving efficiency.
Profitable precincts put “everything onto one site”, Brand said, because every haul between separate yards for drying and planing is “value destroying”. He urged a staged build, adding production lines one at a time, with a fallback of shipping dried veneer to China or Vietnam if higher-value markets take longer to develop.
Whilst the Green Triangle is an excellent operating base, Brand said, its biggest risk is that land there is now so valuable it is hard to justify growing trees on it. For investors, an asset processed and sold in Australian dollars “strips volatility out” of returns, he said.
Brand estimated the entire global forestry sector is worth US$1 trillion, compared with Apple’s $5 trillion market value. The UN Food and Agriculture Organization estimates it employs between 33 million and 50 million people, he said, so it “punches above its weight”.
Forestry has to “make the case that we’re strategic” to win government backing, Brand said, with trade shocks since the pandemic pushing Australia to rethink its reliance on free trade. He said the International Sustainable Forestry Coalition, which he helped set up, sees two pillars for the sector: forests as natural capital assets and a circular bioeconomy.
Mills in the US Pacific Northwest retooled for the timber they had left after old-growth harvesting was shut down in the early 1990s, Brand told a panel later that morning. The challenge, he said, is to “make our own future” by moving beyond “the volatile woodchip market”.
Professor Patrick Baker, director of the Australian Forest and Wood Innovations (AFWI) Centre for Climate-Smart Forestry at the University of Melbourne, said his centre is mapping how much of the region’s bluegum is suitable for glulam, laminated veneer lumber (LVL), or woodchips. He estimated that 9 million cubic metres of that bluegum are more than 15 years old, with the older and larger trees best placed for higher-value products.
(From left) Professor Patrick Baker, director of the AFWI Centre for Climate-Smart Forestry at the University of Melbourne, Russ Hughes, chair of The Precinct, and Dr David Brand on the From Forest to Factory panel, hosted by Jason Ross. (Photo Credit: Supplied by The Precinct)
Meanwhile, Russ Hughes, chair of The Precinct, said the region’s woodchips go to four or five companies in China, whilst Vietnam is giving growers “a big run for our money” with lower-quality chips. Many of the investors who own plantations are “interested in natural capital, not so much infrastructure”, he said, and it has taken time to bring them on board.
“It signals that we have the capability of doing more with resource, not just the commodity of wood chips,” Hughes said.
Disclosure: Wood Central publisher Jason Ross was MC of The Precinct Investor Symposium.
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