KEY POINTS:
The forestry industry is losing a lot of history with the sale of Carter Holt Harvey's forests to Hancock Timber Resources.
The sale, expected to finalise early next month, transfers control of the largest forest estate in the country to a Boston-based fund manager that already owns forests here.
It is another marker along a journey to a new industry structure, coming on the back of the sale of all the Fletcher Challenge forests and the former state forests in the Central North Island to financial institutions.
Independent saw millers who had a bitter history with both Fletchers and Carters, suspecting them of sending good logs to their pulp mills and favouring their own saw mills, are welcoming the break up of the vertically integrated corporate model.
But the jury is out on whether life will be any better with financial institutions dominating forest ownership.
Because every investment they make is different, it is difficult to make generalisations about what impact they will have on the industry.
At the very least there are new players. Not the least Graeme Hart, who had no history at in forestry when he bought Carter Holt for $3.3 billion last year.
He is selling forests and is rumoured to be planning to build or buy a large sawmill in Northland while negotiating to buy a paper mill servicing the packaging industry in the United States.
Hancock will be the largest forest owner with the Carter Holt purchase, believed to be about 220,000ha, though the actual owners are its clients.
Harvard University's endowment fund was the second biggest owner, but this week's sale of a third of its forest to estate to the New Zealand Superfund was likely to drop it to third, behind Rayonier Deutsche Asset Management.
"There was an enormous amount of baggage in this industry," said Phil Verry, who purchased of Rotorua's large Waipa sawmill, again with little knowledge of the industry.
"One of the advantages we have had is we came in without any baggage so we are able to deal with everybody."
Waipa now only gets 50 per cent of its wood from old sources. The mill that traditionally got logs via Fletchers has been dealing with Carter Holt and Havard, and will soon be talking to Hancock.
The challenge in the new order will be getting a more fragmented industry working together to add value, said Mr Verry.
The Timber Management Organisations (Timos) who are buying up forests mostly do not own mills and manage the forests on behalf of pension funds and rich individuals. The New Zealand Superfund is a client of Hancock.
The change in forest ownership is a global trend and analysts everywhere are assessing its implications. In Maine, on the eastern US seaboard, financial institutions own a third of the forests, up from 3 per cent in 1994.
"I think it is just a different set of drums and there are negatives and positives," said New Zealand Forest Owners Association chief executive David Rhodes.
There are concerns that Timos will be simply traders of forests. Hancock was a leading forest owner in Maine for just 11 years. It started selling before it completed purchasing in the region.
In the US, there are also concerns that large estates will be broken up, that biodiversity will reduce and that Timos will facilitate sale of forest land to lifestyle blocks.
The Timos argue that because they just own forests it is in their interests to look after them. They seek to maximise the value of the wood resource.
"The corporates were often forced to cut down trees and to make decisions which they wouldn't normally make," said business commentator Brian Gaynor.
Timos argue that the actions of integrated corporate foresters were designed to advantage the business of the final product.
"If you own a pulp mill your priority is to feed it and sometimes higher value logs can be send there. A pure forest owner would not send high-value logs to a pulp mill," one forest manager said.
He estimated financial institutions now owned about three quarters of the central North Island's plantation forests. That includes Havard, technically a client of a Timo, GMO Renewable Resources.
It is also argued that Timos have an interest fostering domestic processing, or demand for wood.
They have relationships around the world and may pave the way for new processors to enter this market.
"They are not going to flood export markets to keep the bottom line looking good."
Timos tend to run each investment separately in a relationship with the group of investors that made a particular forest investment. It is difficult to make generalisations about the way they operate.
Still, communities in the US are wary at the constant ownership changes and would prefer stability in the industry they work in.
In Maine, the estate of Great Northern Paper now resides with 15 owners, care of 19 different transactions since 1980.
The Timos argue that farms frequently change ownership, why shouldn't forests.
Ian Jolly from GMO Global Resource, said it is difficult to draw concludes about trends in harvesting by new owners.
The harvest level has reduced, particularly in the central North Island, since Timos arrived. But other Timo-type investors seem to be increasing their cut.
"It all depends how each investment is structured and what its objectives are."
The concerns about biodiversity aren't as large in New Zealand where "tree farming" of single species is an established model.
GMO and other Timos have sold "environmental easements" to groups wanting to protect wilderness areas from development in the US. The buyer essentially chooses not to develop.
The shift in forest ownership has been attributed to changes in US law. In 1974, the Federal Employee Retirement Income Security Act encouraged institutions holding pension plans to diversify.
The Tax Reform Act of 1986 increased the effective tax rate paid by corporate forest owners. Taxes were lower for individuals, investment partnerships and Real Estate Investment Trusts.
At the same time there was a feeling that the share market was under valuing forest investments and that the good performance of businesses within a diversified conglomerate were being overlooked.
Mr Hart is widely expected to return Carter Holt to the market one day but when he does it will be a different beast altogether.
- NZPA
