Investing is all about risk. One of the widely quoted reasons for investing in forestry is its low risk factor (as opposed to the technology shares for instance). Your low risk 10ha forest investment finally reaches the point where you can cash in, but instead you fall into the trap of taking the high risk, cheap ‘eyeball’ method of forest valuation provided by the cheapest and least well known logging contractor in the area.
“He tells you he’ll give you $24 000 per hectare for it … sounds pretty good given you only got $1300 per hectare for the stock you raised for the year. You take the offer and walk away happy. But were you ripped off? ”
It is very easy for woodlot owners to loose significant value at harvest time to speculators when they don’t have the backing of reliable information on their forests value. In the situation described above you could have easily lost the value of a new BMW. But it didn’t have to happen. You could have spent $2000 on a valuation (and $1000 on consultant advise if your not up with the play on log markets and harvesting costs) and you would have known with an excellent degree of certainty what your woodlot was worth. It is highly likely that the logging contractor had one done after buying it from you.
The most widely practiced valuation technique used in New Zealand is called MARVL and stands for Method of Assessing Recoverable Volume by Logtype. It is standard practice that New Zealand forestry companies complete a MARVL inventory prior to logging their stands, and so should woodlot owners. The inventory allows them to know stocking, size and quality of the stems in their stand, and hence the logging costs. It also takes the stem quality information and predicts the volume and value of the various log types that can feasibly be sold to wood processors in the region of the woodlot.
The way it is done is by sampling your woodlot. From one to ten percent of the trees should be measured for diameter, height and species, and an assessment of stem quality taken. The quality features that are often recorded are branch size, sweep and stem damage, and the height that these feature zones occur. For instance a tree could be pruned for 5.5 meters, 10cm branches for 3 meters and then 7cm branches to the top with some sweep around 12 meters. This description is recorded in a form that the computer programme associated with MARVL can use.
Once the inventory is complete the data will be analysed statistically to produce a report showing the volume, quality and value of your woodlot. This report will give you the confidence to say to your potential purchaser that you will need an extra $7000 per hectare before you sell, eliminate much of the risk factor from the ‘timber beasts’ out there, and set you up for that new BMW.