31.5.19 (Abridged). I am emailing as we were discussing the drivers of farm scale afforestation currently and I know some of the assumptions were that this was being driven by speculation. Following our meeting there was an ‘Understanding Carbon’ workshop down the road at the Wairoa Golf club and a number of presenters spoke on what the opportunities for landowners could be. These were very compelling and illustrated very well that the current market (rather than speculative behaviour) is fueling the majority of whole farm conversions.
Currently speculating on a carbon price increase simply exists as a happy bonus, the current environment is sufficient to make forestry purchasing power significantly greater than drystock farming purchasing power, particularly when drystock purchases are typically funded with debt and forestry purchases funded with equity capital.
I did a back of the envelope calculation on what the potential returns were for me if I planted 100ha of my farm. The result after 25 years was over $3 million in favour of forestry. I would benefit greatly to plant my whole farm. Our staff, and our local school and merchandisers, stock agents, processing plants etc would not.
If you were to ask me for a solution, I don’t have one that can still include the ETS as it functions currently, the market for credits is just far too large (all of industry) for farming to withstand this sort of pressure. But I can say with some confidence that every extra dollar the carbon price lifts, will exacerbate this trend.
Thank you for taking the time to engage with us. I know that blanket afforestation is not your intention, but we need minds like yours understanding the market we live in and the one being creating, intentionally or not.