Exploring the Industry Value Chain for Medium Rainfall Eucalyptus Sawlog Agro-Forestry in Western Australia

TitleExploring the Industry Value Chain for Medium Rainfall Eucalyptus Sawlog Agro-Forestry in Western Australia
Publication TypeReport
Year of Publication2002
Tertiary Authorsvan Heemst, N, Mazzarol, T, Burton, M
PublisherGraduate School of Management, University of Western Australia
TypeIndustry Research Report
Keywordsagroforestry, eucalyptus, sawlog industry
Abstract

In 2002 the CEMI consultants undertook a study for the Waters and Rivers Commission aimed at estimating the economic business case for an agroforestry industry located in the medium rainfall belts of WA. This project involved modelling the financial returns for investment into the sector and examining the attractiveness of the industry for both farmers and third party investors. With initial market side data from BIS Shrapnel to provide estimates of demand, a series of financial investment models were developed based around the data from the successful eucalypt sawlog pilot schemes run in 2001-2002. The impact on the farmers from the Kent, Collie and Warren River catchments were also examined along with investors from established tree farming schemes from the Great Southern. The models developed for this study encompassed variables relevant to the farmers. These included management costs, weed control, fertilisers and wildlife management, infill planting, culling, stumpage, carbon credits and anticipated harvest yield. A net present value (NPV) analysis was undertaken that had to take into consideration the high volatility associated with the industry and the real internal rate of return (IRR) expected by the investors. Sensitivity analysis, break-even estimates and a simulation of different scenarios were undertaken. Assumptions included considerations of lease annuity payments, taxation, discount rates and different length of crop rotation. The study found that despite the allocation of carbon credits it was not possible to generate a positive NPV or reach the desired IRR of third party investors. The break-even was reached by around the fifth to sixth year and government policy needed to factor this into any future business model. Farmers were satisfied with the business case for them as they were gaining benefits from the trees during their growth and also at harvest.

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