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 be finalised next month, transfers control of the largest forest estate in the country to a Boston fund manager which already owns forests here.
It is another step on a journey to a new industry structure, following the sale of the Fletcher Challenge forests and former state forests in the Central North Island to financial institutions.
Independent sawmillers who had a bitter history with Fletchers and Carters, suspecting them of sending good logs to their pulp mills and favouring their own mills, are welcoming the changes.
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 effect they will have on the industry.
At the very least it brings new people to the industry - not the least of them Graeme Hart, who had no history in forestry when he bought Carter Holt for $3.3 billion last year.
He is selling forests and is believed to be planning to build or buy a large sawmill in Northland.
The Carter Holt purchase, believed to be about 220,000ha, makes Hancock the largest forest owner, although the actual owners are its clients.
Harvard University's endowment fund was the second biggest owner, but last week's sale of a third of its forest estate to the New Zealand Super Fund 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 bought 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."
He believes the challenge in the new order will be getting a more fragmented industry working together to add value.
The organisations buying up forests mostly do not own mills and manage the forests for pension funds and rich individuals.
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.
There are concerns that such owners will be simply traders of forests. Hancock was a leading forest owner in Maine for only 11 years. It started selling before it completed purchasing in the region.
But the companies say that because they own only the trees, it is in their interests to look after them.
They say the actions of companies that own trees and mills are designed to benefit 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 sent there," one forest manager said.
"A pure forest owner would not send high-value logs to a pulp mill."
He said financial institutions now owned about three-quarters of the central North Island's plantation forests.
It is also argued that forest owners have an interest in fostering domestic processing, or demand for wood.
But communities in the US are wary about the constant ownership changes and would prefer stability in the industry that gives them work.
In Maine, the estate of Great Northern Paper now has 15 owners after 19 different transactions since 1980.
Ian Jolly, of forest-owner GMO Global Resource, said it was difficult to draw conclusions about trends in harvesting by new owners.
The harvest level had reduced, particularly in the central North Island, but some investors seem to be increasing their cut.
"It all depends how each investment is structured and what its objectives are."
The shift in forest ownership has been attributed to changes in American 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 was being overlooked.
- NZPA
