Henry Melville
This is a Monopoly game where smaller investors are risking their savings based on a future growth and future markets. For a vertically integrated company like Gunns Ltd with a very substantial footprint in Tasmania, they need these MIS land acquisitions as their bargaining chips to gamble for additional lucrative publicly-funded subsidies, secret deals and concessions from local, State and Commonwealth government.
GUNNS Ltd have been involved in growing their plantation resource ever since the Tasmanian RFA was signed in 1996. The company has become a manager of investment funds through its various Managed Investment Schemes (MIS). Nearly all forestry plantations established in Tasmania in the past 5 years are funded by MIS.
With the coming of John Howard’s pro-business government in Canberra, MIS investments have allowed massive increases in the size of the national tree farm. The legislative framework underpinning the MIS investments provide very lucrative taxation advantages to investors and provide upfront capital for MIS forestry companies like Gunns to stump up investor money and competitively bid for rural properties and native forest estates on private land. At the state and national level, these schemes have led to a land grab based on an immediate tax concession carrot. It has led to the conversion of traditional horticulture and broad-acre agriculture to tree farms as well as allowing remnant woodland and forests on private lands to be clear-felled and planted to silviculture. In the last decade, this has been happening across Tasmania.
This new investor money has been the driving incentive — backed up by outrageously optimistic elegant prospectuses — for ordinary Australians to invest as a shareholder in a farming enterprise involving the growing of trees for profit. The investors don’t actually own any land; their up-front investment is like a shareholding in which they hope to realise a return on the final product — the commercial value of the timber grown. Of course implicit in this marketing promotion are the following incentives to investors:
1. 100% tax write off for any MIS investor funds in the year it is applied — this is particularly attractive to well-heeled investors who already have large taxable incomes; this incentive alone is highly beneficial to such investor; for the MIS company involved in woodlots/plantation establishment, it is stumped up Monopoly money.
2. The prospectuses describe the likely returns that investors will obtain over the life of their investment in the form of dividends paid (after a set date) and annualised payments based on the unit return for the final timber product (woodchips/pulp/sawn logs/dressed timber). Concerns are now being raised about the quality of many MIS plantations with predicted yields forecast by companies being grossly overestimated.
Without the MIS investor funds, companies like Great Southern, Forest Enterprises Australia and Gunns Ltd wouldn’t have been able to drive the broad-scale land conversion that has now accelerated across the rural regions with high fertility soils and reliable rainfall. The other requirement is that the plantations are in close proximity to ports and railheads in southern Australia (Albany, Eden, Triabunna and Portland). Think of the SW of Victoria & adjoining South Australia; SW coastal Western Australia; Southern NSW & East Gippsland and of course, Tasmania. Now several hundred thousand hectares of plantation trees are now established in these prime locations; it is seen as part of Australia’s national plan for wood product self-sufficiency — the 2020 Vision.
The claim that the Gunns Pulp Mill will ‘within 5 years’ be sourcing 80% of its timber from plantations is now being questioned. More MIS plantations are being called for and the land conversions continue as long as there is access to cheap money backed up by the tax breaks.
What isn’t explained in the MIS company prospectuses is the effect of the current drought in southern and south-eastern Australia and the long-term impact of Climate Change. For some investors their prime imperative to MIS invest is the immediate tax minimisation effect and hence the prudence of the MIS companies’ selection on the land purchase, the predicted timber growth over a plantation cycle and effects to surrounding land values or productivity are not considered.
For smaller investors — mums & dads investing through a financial advisor — their reasoning might be also related to the return on their savings in the form of a super annuity for an anticipated retirement.
Phase one has been successfully accomplished — ‘show me the money’ — has created the funds to plant trees for commerce. Phase two — the return of an investment on capital in MIS tree plantation — is still in the oven.
For some investors the MIS has been a way to stay rich now; for others it is a long term investment with some immediate incentives against tax but with the expectation of sustained dividends over several years.
And that’s were local MIS managers — like FEA and Gunns Ltd — need to have a range of end product markets available in which to sell those one-off clear fell cuts from woodlots. They need to realise an optimal value for the timber — depending on whether the trees went into a site where high-value saw logs can been realised (longer growth cycle) versus a site where low-value woodchips or pulp are sourced (shorter cycle, lower value).
If any of these schemes and companies want to keep their investments coming in, they need to keep their investor customers satisfied. And there is the rub !
Can they do it ? More to the point, can Gunns Ltd now become an internationally competitive pulp miller ?
Will the MIS investors in high-value woodlot schemes have to cross-subsidise those investors allocated a shareholding in a low-fertility and low-rainfall site where the plantation cycle is delayed or the productivity is less than 25% of the prospectus claims? This was always a speculative ‘smoke & mirrors’ gamble.
This is a Monopoly game where smaller investors are risking their savings based on a future growth and future markets. For a vertically integrated company like Gunns Ltd with a very substantial footprint in Tasmania, they need these MIS land acquisitions as their bargaining chips to gamble for additional lucrative publicly-funded subsidies, secret deals and concessions from local, State and Commonwealth government. Once the game’s on a roll the timber companies control most of the levers — the commercial, the social, the environmental and the political.
Large-scale pulp mills like the proposed Bell Bay scheme could place extreme pressure on the native forests if the mill begins 24hr a day-7 days a week continuous pulp production BEFORE plantations are available to feed it. This is a huge gamble — especially now with Climate Change — and the impact will be detrimental to Tasmania on all counts — social, economic and environmental.
