Roger Godsmark : Forestry South Africa June 2007

An Economic Analysis of the An Economic Analysis of the Impact of Sirex on the South Impact of Sirex on the South African Forestry and Forest African Forestry and Forest

Products IndustryProducts IndustrySummarySummary

Roger Godsmark : Forestry South AfricaRoger Godsmark : Forestry South AfricaJune 2007June 2007

Presentation OutlinePresentation Outline

BackgroundBackground Data UsedData Used MethodologyMethodology AssumptionsAssumptions ScenariosScenarios

Preliminary ResultsPreliminary Results Areas involvedAreas involved Potential impact on growersPotential impact on growers Potential impact on ProcessorsPotential impact on Processors

ConclusionConclusion

Section 1 Section 1 BackgroundBackground

Data Used Data Used

Data Used 1Data Used 1

Areas (based on Forestry Zones)Areas (based on Forestry Zones)

Roundwood Volume (based on Forestry Zones)Roundwood Volume (based on Forestry Zones)

Planted areas per product :FES 2005/06Age class distribution per product :FES 2005/06Sirex affected area :Sirex Co-ordinator

Roundwood Prices (based on Forestry Zones)Roundwood Prices (based on Forestry Zones)

Rotation ages per product :FES 2005/06MAI’s :FSA

Sawlogs (at roadside): LP Index, Crickmay – March 2007Pulpwood (delivered mill): NCT – June 2007Poles (at roadside): SAWPA - June 2007

Data Used 2Data Used 2

Volume of Processed Product (recovery rates)Volume of Processed Product (recovery rates)

Product Prices (current)Product Prices (current)

Sawlogs 47% : Crickmay & AssociatesCrickmay & AssociatesPulpwood Pulpwood 33%33% :: FSA, IndustryFSA, IndustryPoles Poles 95%95% :: SAWPASAWPA

Inoculation & Thinning Costs (current)Inoculation & Thinning Costs (current)

Sirex infection rates : Sirex Co-ordinator Inoculation costs Inoculation costs :: Sirex Co-ordinatorSirex Co-ordinatorThinning costs : FSA, Industry

Sawn timber : LPI,LPI, Crickmay & AssocsCrickmay & AssocsPulpPulp :: FSA, IndustryFSA, IndustryPolesPoles :: SAWPASAWPA

Methodology Used Methodology Used

Basic Premises Upon Which Analysis MadeBasic Premises Upon Which Analysis Made

The loss of any volume NOW through Sirex The loss of any volume NOW through Sirex damage or thinnings will result in a foregone damage or thinnings will result in a foregone loss in volume in the future.loss in volume in the future.

First Premise

This loss in volume will result in a foregone This loss in volume will result in a foregone loss in income in the future to both the loss in income in the future to both the Forestry Industry AND the Forest Products Forestry Industry AND the Forest Products IndustryIndustry

Second Premise

Methodology - Sirex Damage Methodology - Sirex Damage Determination of Foregone Volume and its ValueDetermination of Foregone Volume and its Value

Area affected / at risk (ha)Area affected / at risk (ha)

Infection level (%)Infection level (%)

Equivalent area lost (ha)Equivalent area lost (ha) x MAI x Rot Age = mx MAI x Rot Age = m33/ha/ha

Future volume lost (mFuture volume lost (m33)) x roundwood pricesx roundwood prices

Future income foregoneFuture income foregone

Future product Future product volume lost (mvolume lost (m33))

x recovery ratesx recovery rates

x processed product x processed product pricesprices

Age classesAge classes

Methodology - Thinnings Methodology - Thinnings Determination of Foregone Volume and its ValueDetermination of Foregone Volume and its Value


Thinning regime used Thinning regime used 5%, 10% & 15%5%, 10% & 15%

Equivalent area lost (ha)Equivalent area lost (ha) x MAI x Rot Age = mx MAI x Rot Age = m33/ha/ha

Future volume lost (mFuture volume lost (m33)) x roundwood pricesx roundwood prices

Future income foregoneFuture income foregone

Future product Future product volume lost (mvolume lost (m33))

x recovery ratesx recovery rates

x processed product x processed product pricesprices


Methodology - Thinnings Methodology - Thinnings Determination of Cost of OperationsDetermination of Cost of Operations


Thinning regime used Thinning regime used 5%, 10% & 15%5%, 10% & 15%

Area thinned (ha)Area thinned (ha) x cost per hectarex cost per hectare

Total operational costTotal operational cost


Methodology - Inoculations Methodology - Inoculations Determination of Cost of OperationsDetermination of Cost of Operations


Infection level (%) Infection level (%)

1-3% (33% inoculated)1-3% (33% inoculated)

3%+ (20% inoculated) 3%+ (20% inoculated) Area inoculated (ha)Area inoculated (ha) x cost per hectarex cost per hectare

Total inoculation costTotal inoculation cost


Assumptions Made Assumptions Made

Assumptions Made in Analysis 1Assumptions Made in Analysis 1

Areas at RiskAreas at Risk

Areas AffectedAreas Affected

Sawlog stands : 15 yrs and olderPulpwood stands : 10 yrs and olderOther stands : 13 yrs and older

Infection RatesInfection Rates

W & S Cape (all crops) : 0.1%E Cape, S KZN & KZN Mid (sawlogs) : 0.5%E Cape, S KZN & KZN Mid (pulpwood) : 5.0%

W, S & E Cape (sawlogs/poles) : 50% of area at riskW, S & E Cape (pulpwood) : 100% of area at riskS KZN & KZN Midlands (all crops) : 100% of area at risk

Assumptions Made in Analysis 2Assumptions Made in Analysis 2

ThinningsThinnings

Recovery RatesRecovery Rates

Only pulpwood stands thinned (5%, 10% & 15% volume)Eventual loss in volume 80% (i.e. 4%, 8% & 12% loss)Thinnings occur between 4 & 7 years – all to wasteCost based on R30 per m3

InoculationsInoculationsCost per hectare (from Mondi Shanduka & Sappi) R1 100 Infection levels of 1-3% - 33% of area inoculatedInfections levels of over 3% - 20% of area inoculated

Sawlogs to sawn timber : 47%Pulpwood to pulp : 33%Poles to treated poles : 95%

Scenarios Used Scenarios Used

Area Demarcation & Characteristics 1Area Demarcation & Characteristics 1

Western & Southern CapeWestern & Southern Cape

Eastern Cape, Southern KZN and KZN MidlandsEastern Cape, Southern KZN and KZN Midlands

Winter rainfall area91% sawlogs – balance polesStable & low levels of infestation

Balance of KZN, Mpumalanga & LimpopoBalance of KZN, Mpumalanga & Limpopo

Summer rainfall area60% sawlogs – balance pulpwoodLow to medium levels of infestation & increasing

Summer rainfall area69% sawlogs – balance pulpwoodCurrently Sirex free

1. Forestry Areas Divided into 3 Zones1. Forestry Areas Divided into 3 Zones

ZONE 1ZONE 1

ZONE 2ZONE 2

ZONE 3ZONE 3

Area Demarcation & Characteristics 2Area Demarcation & Characteristics 2

2. Zones Divided into 2 Regions2. Zones Divided into 2 Regions

ZONE 1ZONE 1

ZONE 2ZONE 2

ZONE 3ZONE 3

Currently Currently AffectedAffected

Currently Currently UnaffectedUnaffected

Total Total Currently Currently

Affected & Affected & UnaffectedUnaffected

ScenariosScenarios

1. Based on Currently Affected Areas1. Based on Currently Affected Areas

2. Based on Currently Unaffected Areas2. Based on Currently Unaffected Areas

Current cost / losses on areas affectedPlus cost of thinnings (5%, 10% & 15%) & inoculations

Potential cost / losses if all “area at risk” affectedPlus cost of thinnings (5%, 10% & 15%) & inoculations

3. Basic scenarios developed3. Basic scenarios developed

ZONES 1 & 2ZONES 1 & 2

ZONE 3ZONE 3

Cost / losses if same infection levels as affected areasPlus cost of thinnings (5%, 10% & 15%) & inoculations

Potential cost / losses if all “area at risk” affectedPlus cost of thinnings (5%, 10% & 15%) & inoculations

3. Consolidated3. Consolidated ZONES 1, 2 & 3ZONES 1, 2 & 3

Section 2 Section 2 Summary of Preliminary ResultsSummary of Preliminary Results

Areas Involved – Current SituationAreas Involved – Current Situation

216,802

386,429

80,148

159,150

21,081

69,840

0

85,082

40,435

0

100,000

200,000

300,000

400,000

500,000

Zone 1 Zone 2 Zone 3

Planted Area Area at Risk Affected Area

Hec

tare

s

Total = 688 313 ha: At risk = 279 732 ha : Total = 688 313 ha: At risk = 279 732 ha : Affected = 90 921 haAffected = 90 921 ha

Areas Involved – RSAAreas Involved – RSA

209,393

7,158

98,383

6,026

98,050 98,365

3,017

471,762

175,323

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Sawlogs Pulpwood Poles/Other

Planted Area Area at Risk Potential Affected Area

Hec

tare

s

Total = 688 313 ha: At risk = 279 732 ha : Total = 688 313 ha: At risk = 279 732 ha : Potential Affected = 199 432 haPotential Affected = 199 432 ha

Estimated Volume Losses – RSA Estimated Volume Losses – RSA (ex Sirex Damage - Growers)(ex Sirex Damage - Growers)

507 1,014

1,178,717

135,381236,847

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000


Potential ex Affected Area Potential ex Area at Risk

M3

Ex affected = 1 315 000 mEx affected = 1 315 000 m33 : Ex at risk = 1 417 000 m : Ex at risk = 1 417 000 m33

Estimated Volume Losses Estimated Volume Losses (ex Sirex Damage)(ex Sirex Damage)

198,440

501,259578,089

1,416,578

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Growers Processors

Current Affected Areas All Areas at Risk in RSA

M3

Estimated Volume Losses – RSA Estimated Volume Losses – RSA (ex Sirex Damage - Processors)(ex Sirex Damage - Processors)

482 963

388,976

63,629

111,320

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000



M3

Ex affected = 453 000 mEx affected = 453 000 m33 : Ex at risk = 501 000 m : Ex at risk = 501 000 m33

Estimated Foregone Income - RSAEstimated Foregone Income - RSA(ex (ex Sirex Damage - Growers)Sirex Damage - Growers)

299

0

299

0

47

84

0

50

100

150

200

250

300

350



Mil

lio

n R

and

Ex affected = R346 million : Ex at risk = R383 million Ex affected = R346 million : Ex at risk = R383 million

Estimated Foregone Income - RSAEstimated Foregone Income - RSA(ex (ex Sirex Damage - Processors)Sirex Damage - Processors)

1 1127

1,303

223

0

200

400

600

800

1,000

1,200

1,400

1,600



Mil

lio

n R

and

Ex affected = R1 431 million : Ex at risk = R1 527 million Ex affected = R1 431 million : Ex at risk = R1 527 million

Estimated Foregone IncomeEstimated Foregone Income(ex (ex Sirex Damage)Sirex Damage)

630

1,527

153

383

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Growers Processors


Mil

lio

n R

and

Estimated Volume Losses Estimated Volume Losses (ex Thinnings - Growers)(ex Thinnings - Growers)

857,614

1,286,419

1,903,563

2,855,344

428,807

951,782

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

5% 10% 15%


M3

Estimated Volume Losses Estimated Volume Losses (ex Thinnings - Processors)(ex Thinnings - Processors)

283,013

424,519

628,176

942,263

141,528

314,088

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

5% 10% 15%


M3

Estimated Foregone IncomeEstimated Foregone Income(ex Thinnings - Growers(ex Thinnings - Growers))

225

337

483

724

112

241

0

100

200

300

400

500

600

700

800

900

5% 10% 15%


Mil

lio

n R

and

Estimated Foregone IncomeEstimated Foregone Income(ex Thinnings - Processors(ex Thinnings - Processors))

948

1,422

2,104

3,156

474

1,052

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

5% 10% 15%


Mil

lio

n R

and

Estimated Inoculation CostsEstimated Inoculation Costs

20

0

24

50

0 00

10

20

30

40

50

60

Zone 1 Zone 2 Zone 3

Current Affected Areas Area at Risk

Mil

lio

n R

and

No inoculations undertaken

Current Affected AreaCurrent Affected Area = R20 m: Area at Risk = R74 m = R20 m: Area at Risk = R74 m

Conclusion 1 Conclusion 1

Sirex is already causing massive losses in terms Sirex is already causing massive losses in terms of volume and foregone income for the Industry.of volume and foregone income for the Industry.

Should it spread into those areas where it Should it spread into those areas where it currently is not present, these losses will increase currently is not present, these losses will increase dramatically.dramatically.

Sirex will require a large amount of resources to Sirex will require a large amount of resources to be used to control it.be used to control it.

Conclusion 2 Conclusion 2

The best results can be achieved by The best results can be achieved by taking action as soon as new taking action as soon as new infestations are discoveredinfestations are discovered

It is thus critical that an efficient and It is thus critical that an efficient and effective monitoring programme be effective monitoring programme be developed and put in place ASAPdeveloped and put in place ASAP

Roger Godsmark : Forestry South Africa June 2007

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