Area of forest ‘at risk’ from deforestation
Analysis Based on Net Income Comparisons
Another approach is to base analysis on estimated net incomes to land in various uses. In this third approach the ‘profit’ is derived from estimates of typical annual income for land in various uses. In December 2005 MAF officials produced the following estimates of typical net incomes by type of management.
Table 1: Typical Net Incomes (annual) by Farm Type and Management
| Management options | Net income ($/ha/annum) |
|---|---|
| S&B - Extensive | 253 |
| S&B - Medium | 441 |
| S&B - Intensive | 656 |
| Dairy - Standard | 896 |
| Dairy - Intensive | 1,781 |
Net ‘grower’ returns from forestry in the CNI is likely to be of the order of $27,300/ha based on current costs and log prices. This income occurs in year 30 and based on Manley (2005), assuming a ‘typical’ grower uses an 8% discount rate a $27,300/ha lump sum in year 30 equates to an annualised net income of some $241/ha/annum – or much the same as the net income expected from extensive sheep and beef farming according to Table 1.
On the basis of the figures of Table 1 and a current “typical” net income from forestry ($241/ha/annum), switching land from forestry to one of the agricultural options could be expected to produce the net increases to annual income outlined in Table 2.
Table 2: “Typical” Net Expected Income Gain from Switching Land Use
| Switch in Management | Net income/ha ($/ha/annum) | Increased net income $/ha/annum |
|---|---|---|
| Forestry to S&B - Extensive | 253 – 241 | 12 |
| Forestry to S&B - Medium | 441 – 241 | 200 |
| Forestry to S&B - Intensive | 656 – 241 | 415 |
| Forestry to Dairy - Standard | 896 – 241 | 655 |
| Forestry to Dairy - Intensive | 1,781 = 241 | 1,540 |
Assuming that the 8% discount rate used on the forestry numbers applies equally to farmers and the increases given in Table 2 are expected to apply in perpetuity, then the NPV of the various increases are as follows:
• From Forestry to S&B – extensive=12/0.08=$150/ha
• From Forestry to S&B – medium=200/0.08=$2,500/ha
• From Forestry to S&B – intensive=415/0.08=$5,200/ha
• From Forestry to Dairy – standard=655/0.08=$8,200/ha
• From Forestry to Dairy – intensive=1,540/.08=$19,200/ha
Translating these figures into what they mean in terms of actual conversions, it seems unlikely that there would be any conversion of forestry land to extensive sheep and beef farming. The difference in expected returns is so small that bearing in mind the risks and uncertainties associated with numbers it seems unlikely anyone would bother with such a conversion for the indicated gain. Moreover, based on numbers already outlined, the NPV of the expected gain would fail to cover the cost of even the cheapest conversion – so that type of conversion, with the assumptions outlined, does not appear rational. Consequently, little forested hill country would be expected to convert to farming. This
is consistent with the findings in the Manley report.
Even the gain from switching from forestry to medium or intensive sheep and beef – gains in the $2,500 to $5,200/ha range - with the costs involved in such a switch is, in most cases, probably not justified. Based on the figures for conversion costs, which vary from a low of $2,500/ha up to something like $10,000/ha, it would only be in ‘best’ cases – low conversion costs and switching to intensive sheep and beef – that there would in fact be a net gain from switching - in of the order of $2,500/ha.
Switching to dairying – with an apparent gross gain of between $8,200 and $19,300/ha - is likely to produce a net benefit sufficiently large to justify the costs of the switch. Again given that costs associated with the change likely to be at least $4,000 and possibly as much as $13,000 not every switch is necessarily ‘profitable’. However, the figures indicate that possible ‘profits’ could be expected to ‘top out’ at something like $10,000/ha.
How Much Land Might be ‘Profitable’ for Conversion
From the analysis above it is clear that switching land use out of forestry will not result in a profit in every case. Realistically only changes to dairying and sometimes intensive sheep and beef farming are likely to be profitable. The results are also dependant on a particular set of prices and price relativities for agricultural and forest products.
Prices and price relativities though are not fixed. They can and do vary with, for example, SONZAF (2004) clearly showing real returns to forest growers have fallen considerably - by over 50% - since 1994. If current returns from forestry are equivalent to an income of approximately $241/ha/annum then the 1994 returns to forestry would (in current dollar terms) be closer to $500/ha/annum. At that level of forestry return and assuming the agricultural returns of Table 1, an analysis such as that above would conclude that converting significant areas of the pastoral estate into forestry would produce significant commercial gains. This is in fact what occurred during the mid-1990s.
From the analysis above, two key questions arise:
• How much forest land is potentially ‘at risk’ of conversion because the land under it is suitable for intensive sheep & beef farming and/or dairying? and;
• Geographically how is the ‘at risk’ estate distributed? Is there any relatively large contiguous blocks of ‘at risk’ forest or is the at risk estate scattered throughout the nation and does geographic distribution accord with the claim that deforestation is primarily an issue for Canterbury and the CNI?
To address these two questions MAF carried out a simplified GIS analysis. This attempted to identify areas of plantation forest estate potentially at risk based solely on current land cover and assessed land use capability (see Newsome et al., 2000). LUC classes 1 to 5 were taken as a proxy to represent land potentially suited to intensive sheep and beef grazing or dairying. Because the relevant data sets are still being developed no attempt was made to modify the outcome of the GIS analysis to reflect topography (slope), erosion susceptibility (land stability), water availability (a potential issue with some South Island east coast land and parts of the CNI) or likely restrictions on nutrient emissions not already captured by the LUC classification.
The issues mentioned could be regarded as ‘sustainability’ modifiers. Adding GIS layers reflecting these modifiers would tend to reduce rather than increase the area of ‘at risk’ forest.
The results of the first cut analysis are shown in Figure 1. This shows a national ‘at risk’ estate of some 445,950 hectares – of which two-thirds is in the North Island and one-third in the South. The national plantation estate is currently 1.8 million hectares, 70% of which is in the North Island.
Figure 1 also clearly indicates that in addition to a large number of smaller ‘at risk’ areas scattered throughout the country there are a few large contiguous areas and that for the North Island these are almost exclusively in the Waikato/Bay of Plenty. Most of these areas are likely to be non-Kyoto forest, though as yet we cannot separate Kyoto from non-Kyoto forest.
In the South Island the ‘large’ areas are significantly smaller than in the North Island but the largest areas are clearly in Canterbury.
The initial GIS was then modified to remove from the analysis areas of land that are currently in Government ownership (primarily Department of Corrections), where forestry operates under Crown Forest Licences (although this form of ownership/management doesn’t preclude a change of land use it was felt that a change was unlikely until such time as clear final ownership of the underlying land has been established) and some (but not all) of the forest within the Lake Taupo catchment – to reflect the land use impacts of the nutrient (nitrogen) discharge regime currently being proposed/implemented in this catchment. Figure 2 gives the results.
The area of ‘At Risk’ forest in Figure 2 is now reduced to just over 280,000 hectares of which 58% is in the North Island and 42% (117,410 ha) is in the South Island. As before the CNI clearly dominates as the region with the largest “at risk” estate (approximately one-third of the total – see Table 3). Most of the larger blocks are also within this area, and these areas are likely to overwhelmingly comprise non-Kyoto forests.
Table 3: “At Risk” Forest Area from Modified GIS
| North Island Regions | "At Risk" Hectares | South Island Regions | "At Risk" Hectares |
|---|---|---|---|
| Auckland | 5,307.12 | Canterbury | 40,051.26 |
| Bay of Plenty | 27,451.86 | Marlborough | 2,616.60 |
| Gisborne | 2,791.29 | Nelson | 98.17 |
| Hawke's Bay | 10,214.83 | Otago | 37,280.08 |
| Manawatu-Wanganui | 20,330.83 | Southland | 25.386.66 |
| Northland | 18,404.87 | Tasman | 5,289.13 |
| Taranaki | 5,487.49 | West Coast | 6,691.29 |
| Waikato | 67,023.38 | ||
| Wellington | 6,026.79 | ||
| Grand Total (NI) | 163,038.47 | Grand Total (SI) | 117,413.19 |
Contact for Enquiries
Sustainable Land Management and Climate Change
MAF
Pastoral House
25 The Terrace
PO Box 2526, Wellington
Tel: 0800 CLIMATE (254 628)
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