Notes to the Financial Statements

For the year ended 30 June 2006

Note 1: Management of Crown Forestry Assets

Management of the Crown's interest in 25 commercial forests spread throughout the North Island and 13 afforestation leases where Crown land has been leased to other parties for forestry purposes. The total planted area of these forests is over 39,200 hectares with harvesting activity producing an annual cut of about 1,196,000 cubic metres. Sixteen of the 25 commercial forests are planted on land leased from Māori landowners.

Day to day operational management of the forest estate is contracted to forest management companies. Expenditure includes pruning, thinning, fertilising, protection from fire and disease, harvesting of forest produce, replanting of harvested areas and stumpage payments. Revenue is earned from the sale of logs, standing forest and rent.

Note 2: Adverse Climatic Events

Support to the agricultural sector in the aftermath of adverse climatic events, such as flooding, drought, etc.

No expenditure was incurred during 2005/06.

Note 3: Bay of Plenty and Lower North Island Floods 2004

Grants to assist farmers, growers and foresters recover from flooding in the Bay of Plenty and Lower North Island. Assistance was provided through agricultural recovery programmes which provided grants to repair or replace essential infrastructure and re-establish crops.

Note 4: East Coast Afforestation Grants

The East Coast Forestry Project (ECFP) was introduced in 1991 to control present and potential erosion on target land in the Gisborne District. The project does this in various ways, including planting with radiata pine or other species, gully planting and actively managing the reversion of pastoral land to indigenous scrub/forest. The ECFP provides grants to landholders to enable them to carry out these kinds of activities on sites identified as target land. Rates of grants are not fixed. They are determined by applicants who bid for grants in a competitive tender process.

Note 5: SILNA Goodwill Payments

In 1999 the Government instigated a voluntary moratorium on logging of indigenous forests on land set aside under the South Island Landless Natives Act (SILNA) 1906. Under the moratorium individual SILNA owners agree not to log their forests. In return the Government makes a goodwill payment to participating owners. The goodwill payment is set at a rate of $34 (incl GST) per annum per hectare of indigenous forest.

Note 6: Subscriptions to International Organisations

Membership of various international organisations such as the Food and Agriculture Organisation of the United Nations, International Tropical Timber Organisation and the World Animal Health Organisation.

Note 7: Sustainable Farming Fund

The Sustainable Farming Fund (SFF) supports projects contributing to improvment of the financial and environmental performance of the land-based productive sectors. The SFF aims to help the land-based sectors solve problems and take opportunities to overcome barriers to economic, social and environmental viability. The fund provides grants for projects with programmes lasting from one to three years. Projects must seek to address a need identified by a community interest.

Note 8: Control of Tb Vectors

Crown's contribution to implementation of the Bovine Tuberculosis National Pest Management Strategy. The strategy objective is to reduce the number of bovine tuberculosis (Tb)-infected cattle and deer herds to 0.2 percent annual period prevalence by 2013. The strategy is funded both by the Crown and industry (under voluntary agreements and by way of regulatory levies).

The Animal Health Board (AHB) is appointed under the Biosecurity (Bovine Tuberculosis National Pest Management Strategy) Order 1998 as the pest management agency for the strategy. The two main strategy components are disease control, which is fully industry-funded, and vector control which is funded by the Crown (as an exacerbator), local government, some rural land occupiers and industry.

Specifically the Crown contributes to the purchase of services for the control of wild animal populations infected with Tb (called Tb vectors) of which possums and ferrets are the major source of infection for cattle and deer. The Crown funding is managed through a Vector Funding Agreement with the AHB. Vector control measures and monitoring are undertaken on the Crown estate and adjoining land for this purpose. The AHB contracts vector management services from regional councils and other pest control agencies.

Note 9: Biosecurity Act 1993 Fines

Infringement fines imposed on persons entering New Zealand at ports of entry with undeclared goods.

Note 10: Forestry Encouragement Loans

Loans to local authorities to encourage afforestation issued under the Forestry Encouragement Loan Regulations (1967). Loans become repayable when either 30 years has passed from the first loan advance or clear felling starts in the loan forest.

Note 11: Land

Land leased to other parties for forestry purposes and land associated with Crown-Owned irrigation schemes.

Note 12: Commercial Forest

The Crown's interest in forests established on both Crown-Owned and leased Māori land. The forests are valued annually at the present value of future cash flows after tax.

The valuation at 30 June 2006 was carried out by Allan Bell and Associates, registered forestry consultants.

Note 13: Major Budget Variances

The following significant movements between the initial Budget Day Estimates and the actual results for 2005/06 are explained below.

	Main Estimates June 2006 $(000)	Actual June 2006 $(000)	Variance 2006 $(000)
Expenditure
Management of Crown forestry assets	64,328	59,407	(4,921)
Adverse climatic events	356	-	(356)
East Coast afforestation grants	5,333	2,050	(3,283)
Lower North Island flood 2004	-	6,000	6,000
Sustainable Farming Fund	19,111	10,713	(8,398)
Assets
Cash	-	9,041	9,041
Commercial forest	215,906	183,354	(32,552)
Current liabilities
Payables and provisions	23,000	17,265	(5,735)

Management of Crown forestry assets expenditure was below the original budget due to changes to forest management plans and harvesting strategies during 2005/06.

Adverse climatic events is a contingency fund not required in 2005/06.

East Coast afforestation grant expenditure was considerably less than budget due to many new forestry planting programmes not being carried out by applicants following the low forestry planting trend nationally.

Lower North Island flood 2004 expenditure exceeded the original budget due to the cost of farm restoration grants being higher than originally forecast.

Sustainable Farming Fund grant expenditure decreased due to the original budget including carried forward unspent funds from earlier years. Funding has now been permanently added to MAF's baselines so the carried forward budget is no longer required.

Cash balance was higher than expected due to under spending on management of Crown forestry assets, East Coast afforestation grants and the Sustainable Farming Fund.

Commercial forest was $32.552 million below the original budget due to the annual revaluation of the forests. The Crown's policy is not to forecast revaluation movements.

Payables and provisions was lower than budgeted due to under spending on grants detailed above.

Contact for Enquiries

Strategy and Performance Group
Ministry of Agriculture and Forestry
Pastoral House
25 The Terrace
PO Box 2526, Wellington

Tel: +64 4 894 0100
Fax: +64 4 894 0738 Contact this person