Within Fiji’s total forest resource there is a split between commercial softwoods (dominated by Pinus carribea) and commercial hardwoods, notably mahogany (Swietenia macrophylla). Through the past 40 years to the present time, the development of hardwood plantations in Fiji has been relatively successful. Today an established, predominantly mahogany resource of close to 50,000 hectares exists. This has been almost exclusively developed by the Forestry Department, rather than the private sector.
Mahogany was introduced to Fiji from Central America in 1911 as an ornamental species. It showed good growth which later lead to the establishment of small experimental plantations. As early as the 1930s there was recognition that Fiji could not continue to exploit its natural forest at the then rate. Initially the solution was thought to be the management of natural species, but experience soon showed that their growth rates were too slow to make them an economic option. In 1935 the then Department of Agriculture began establishing mahogany trials on a number of sites around the country. Other species were also tried but mahogany appeared to show the most promise in logged-over natural forest.
From the early 1950s, larger trials of mahogany were established, paving the way for an expanded programme of reforestation in the 1960s. The trees were established in lines cut through cutover natural forest. This expansion was confined almost exclusively to mahogany. To cater for the programme, further infrastructure development was undertaken resulting in a number of forest stations which have largely continued to the present day. These also had a significant social importance.
In 1972, as a result of the observed ambrosia beetle attack on mahogany and the establishment of the Pine Scheme (now Fiji Pine) which needed maximum possible staffing and finance, the planting of mahogany was suspended. The opportunity was then taken to review earlier experimental plantings of more than 100 introduced species plus the major indigenous species, with a view to introducing alternative plantation species.
Planting of both mahogany and a number of other hardwood species recommenced in 1974. Up to 1983 the annual hardwood planting programme achieved between 1,000 and 2,000 hectares/year. The relative success of mahogany against the other species led to the cessation of planting of species other than mahogany by 1991. The disruption that this period caused in future wood flows is discussed elsewhere in this paper.
In 1983, the Fiji Cabinet agreed to an annual planting target of 5,000 hectares (subsequently reviewed downward to 4,500 hectares as the higher target had not been achieved).
By 1996 the hardwood plantations consisted of the following species and areas:
|
Species |
Hectares |
% |
|
Mahogany (Swietenia macrophylla) |
37,310 |
73 |
|
Mixed hardwoods1 |
6,380 |
13 |
|
Cordia (Cordia alliodora) |
2,260 |
4 |
|
Cadamba (Anthocephalus chinensis) |
2,140 |
4 |
|
Maesopsis (Maesopsis eminii) |
830 |
2 |
|
Other Hardwoods |
190 |
0 |
|
Total |
49,110 |
100 |
1 Mixed hardwoods contain mixed stands of cadamba, cordia, maesopsis and mahogany generally in unknown proportions.
Appendix 2 contains a description of the area by age class of the mahogany plantations (and the associated minor hardwood species).
The majority of the land on which these plantations are established is cutover natural forest leased by the Government from the owners for periods ranging from 10 to 99 years. The agency responsible for the lease of customary (mataqali) land is the Native Lands Trust Board (NLTB).
It has been recognised for some time that Fiji will be the major source of plantation grown mahogany for many years to come. As the natural forest supply of mahogany diminishes the country will be important in the overall supply of the species. Annual harvest from Fiji’s mahogany plantations was 5,000m3 in 1987. It is predicted to rise to 100,000m3 by 2010 and further to 135,000m3 by 2015. This is based on the concept of achieving non-negative cash flows while simultaneously expanding the planted estate of mahogany to around 65,000ha.
The objectives of the hardwood plantation programme were to:
Thus the key benefits expected from the plantations were a combination of economic, social and environmental. This range of objectives and anticipated benefits was common to many government initiated forestry projects in the region. While it was understandable how this range of objectives was developed during the conception of a project, it could make the implementation of the project rather difficult, and the outcome become something of a compromise between conflicting objectives.
Government has played a key role in this to date. However in 1996 a study was commissioned to determine the feasibility of creating a hardwood plantation corporation (given the previous successful transition of the softwood plantations into Fiji Pine Ltd). The study concluded that the conceptual justification for corporatisation was strong, and this became their recommendation. In mid 1998 the Department of Public Enterprises was in the process of implementing the recommended corporatisation.
As with any forestry venture there are a number of risks and constraints. The risks can be broadly divided into two types. Firstly there is the market risk of attempting to grow a resource which is designed to meet a perceived market demand some decades hence. The long time frames involved make this especially difficult, but it is as problem faced by all forest growers who aim at producing large diameter logs for sawing and veneer production.
The second group of risks are those associated with the particular project in mind. These include the climate and soils associated with the location, the political and infrastructural framework in the particular country, and land tenure and security of investment issues.
The first group of risks is faced by all long term forestry investors and has been well analysed by many commentators. The second group, however, is what often separates investment in the developed world from investment in the developing world. For example if an investor is able to invest for a given return in a developed country with known political framework and well established property rights etc., they are unlikely to invest in a region where some or all of these matters are less well known, unless there exists some perception of a significantly increased return on the investment to cover the increased risk involved. Put another way, the investor will usually use a higher discount rate when valuing the project if it is in the developing world as opposed to the developed world. This is the experience in the countries in this study.
The key risks and constraints identified in Fiji relate to the following:
Land is a central part of any plantation forest development and has two sets of attributes. The first are the physical attributes such as fertility, location, weed growth potential and so forth. The second group are the human dimension factors, in particular ownership and security of tenure.
Setting the first group of factors aside (on the assumption that the mahogany plantations are now well established and thus the physical attributes of the land are therefore suitable or any constraints that are imposed are acceptable), it is important for this study to consider the human dimension factors. Land and its ownership is an integral part of Fijian society, and therefore the management of this resource has implications for the development of hardwood plantations.
Land security does not come from a form of tenure. In reality it comes from a situation of national stability in which the government and other institutions can assure those who own, lease or rent land that the terms of their rights will be respected. In Fiji well established legal and government systems provide investors with a good degree of comfort. The political dramas of the late 1980s do not however enhance this reputation.
The mahogany plantations are all established on customary land leased to the Forestry Department by the NLTB on behalf of the customary owners. The effect of this is to place a third independent party between the investor and the landowner. This third party has a mandate to manage the lands and to be responsible for leasing and negotiating such leases. This creates an entity which has an institutional memory for what has been agreed to and which can outlive the individuals involved. It is also capable of ensuring that the rights of the lessees can be assured. This must however be supported by the law and the legal system of the country.
The NLTB has good records of owners and the land they represent. Equally the land is also well defined physically, reducing the opportunity for disputes to arise.
This is more akin to the features inherent in the western concept of freehold land than the more traditional concepts of customary owned land where in many cases neither the “owners” nor the location of the land are known with any degree of certainty. This structure in Fiji may be a carry over from the days before independence, but has been of considerable advantage when trying to establish long term projects such as plantations.
For investors, security of tenure (or more correctly security of use rights) and the certainty associated with it are one of the most common and difficult issues to resolve when considering long term investment in the developing world. In Fiji this is not a major issue.
Ironically, in most developed countries, security of tenure is not a major threat, but security of use can be. Most developed countries impose a wide range of planning, environmental, and social constraints on land users, but do not threaten ownership. In much of the developing world where customary land is a common phenomenon, tenure is often rather confusing to outsiders, but the right to use land in any way without government intervention is much more accepted.
Arguably the most important issue facing investors on customary land in any country is the security of their investment. One of the factors impacting on this is the term and conditions of any lease agreement for use of the land.
In Fiji, land owned by Mataqali (traditional communities) is leased through the NLTB for the mahogany plantations for a range of terms from 10 to 99 years, with around 50% being held in 50 year leases. With a rotation of mahogany being 30 to 35 years, many of the leases do not translate into complete rotations. This then either requires land to be left idle for part of the rotation or new leases to be negotiated in order to complete a crop cycle. Neither of these alternatives is conducive to ensuring a sound economic return from the project to the investor as they place the investor in a weak position.
In this case the investor is the government which has objectives, other than purely economic return to consider. To some extent these other objectives may mitigate the issue of lease term. Private investors however (including those who may wish to invest in the proposed hardwood corporation) are by definition in economic theory, rational in their investment strategy with a focus on return on their investment.
For a purely rational investor lease term is very significant. The term is both the initial agreement and any subsequent rights of renewal. The leases for the mahogany forests do not contain rights of renewal. To an investor in a long term crop this must be of concern. The issue becomes more critical and can act as a serious disincentive to investment as the length of the original lease reduces, ie shorter leases (such as the 10 to 22 year ones) or those nearing the end of the term without the crop being mature.
A positive aspect of the leases in place is the establishment of landowner committees in some areas as a means to address any concerns either party may have without the need to resort to more formal mechanisms. New Zealand Ministry of External Relations and Trade (who oversee New Zealand’s aid programmes) report considerable success with these committees.
Customary land leased for forestry, regardless of the country or the lease, is generally seen as an impediment to investment. This is a result of a lack of understanding on the part of the investor as to the implications and history of customary land, and to some degree investors wanting (or for financial institutions, needing) a secure tenure that they are familiar with in their own country, such as freehold.
It should also be noted that the existing leases have enough unplanted land for the continued expansion of the estate for some years to come at current planting rates.
As with many plantations throughout the world, there is often a desire to restrict forest crops to land that is less suited to other activities for reasons of topography, soil fertility or location. Much of the mahogany is established on steeplands which are difficult (and more costly) to harvest, and which have a lower value.
To assist in obtaining adequate economic returns from long term plantations there is a need to ensure that trees are well sited. Well sited means on fertile soils with good access, and sites that are not too difficult or expensive to initially establish and to subsequently harvest.
It is therefore important to ensure plantations are not relegated to sites that are seen as having no other value (e.g. for agriculture), if there is a need to derive an economic return from a forest investment.
In Fiji there is a question as to the suitability of the current land resource when it comes to replanting following harvest. The existing crop was established in cutover natural forest. Following the harvest of the first mahogany crop, the site will be much more open than when the natural forest was harvested. These open conditions may be much less suitable for mahogany than the cutover natural forest. While this is a technical matter, it will still require resolution.
For long term investors, confidence in the future political situation is essential. Fiji, while being generally stable, remains affected by the political turmoil created by the outcome of the 1987 election and subsequent coups. Political instability in Fiji has been described as more of a perception than a reality; nonetheless perception can become reality. The perception that there can be political instability brings about uncertainty which in turn is a most difficult factor to overcome if trying to encourage investment.
As the mahogany plantations have been created by the Forestry Department, any immediate effect of political instability is likely to be felt through the mechanism of reduced Government spending on the project, and possibly (although now highly unlikely) economic sanctions imposed from outside. However, if the plantations had been created through private sector funds, then the implications of political instability are likely to be more rapid, more severe and potentially more long-term.
In Fiji it is difficult to show that the events of the late 1980s impacted significantly either directly or indirectly on the mahogany plantations. It would, however, be reasonable to suggest that the interests of growing long-term plantations were not well served by those events in either Fiji or any other developing country.
The next steps for the mahogany forests are corporatisation, harvesting and processing. Investors considering buying into the existing forests will be aware of the events of the late 1980s, and this could impact on either the price received for the resource or the desire to establish on-shore processing. As one of the original objectives was the expansion of the economy, this outcome is not desirable.
As the mahogany plantations have been created by the Forestry Department, there has been no requirement for direct incentives. They have in effect been created by the most effective form of incentive - by decision of government - with the government providing the resources and tapping into whatever aid was also available.
For private investors the situation is quite different. It is interesting to note that the private sector has not taken up the lead provided by government in establishing a parallel resource. In many countries, governments initiate an idea and get it started, by which time the private sector can understand the investment and its implications and they then follow the government’s lead.
For long term investment such as this, there are very few examples where plantations have been established without the benefit of subsidies, incentives or tax concessions in some form, unless the plantations have been created directly by the government. In some situations the plantations have been successfully weaned off incentives and subsidies following their establishment, but rarely if ever have they been initiated without some type of incentive.
The matters associated with land tenure are further compounded when the expectations of landowners are brought into the equation. In the development of the mahogany plantations, 14 new forest stations were created. These stations were required during the establishment phase which typically spanned a 10 to 15 year period until all the available leased land was planted. During this period the local rural community became reliant upon the plantation establishment as their main source of cash income, with the consequent rise in living standards usually associated with this.
Following completion of the establishment period, there is inevitably a 10 to 20 year period where there is little work in the forest and hence the cash income falls. The expectation associated with cash dependence and income aspirations remains however. This period can as a result be very unsettling for these communities.
A converse situation also occurs with the establishment of plantations in new areas. The investor often does not understand or factor in the need of local people to be away from work for either social responsibilities (e.g. funerals) or to tend their gardens at certain times etc. This is turn can lead to disruption and dissatisfaction for both parties.
Once harvesting begins there is an expectation that the local community will again receive the employment opportunities offered and will once again prosper. Unfortunately this is often not the case, as the job of harvesting is a specialised one requiring skilled workers and often capital intensive plant.
In the mahogany plantations the topography and soil conditions will necessitate the use of some cable extraction systems, which are even more demanding of specialised equipment and workers. It has been estimated that one cable hauler unit will be sufficient for all the steeper areas of the mahogany plantations. This will also mean that people not associated with a particular piece of land will be employed in the harvesting of that land. This may give rise to some inter-community issues.
Many plantations in tropical regions have problems with pests and diseases which can reduce the value of the trees produced, reduce the volume produced, or in extreme cases may prevent any wood being produced from the forest. The mahogany plantations of Fiji are not exempt from these issues. Ironically it was the absence of the shoot borer (Hypsipyla robusta) which initially encouraged the establishment of the mahogany plantations. This pest has prevented the widespread success of mahogany in many other parts of the world.
However, the risks of hardwood plantations were exposed when Fiji’s plantations were attacked by ambrosia beetles in the early 1970s. The beetles were unable to breed but were able to damage the wood and hence lower its value. This led to a major reduction in the planting rate for mahogany and consideration were given to other hardwood species. The final decision was, however, to continue with mahogany as the best species for the sites. The result in the long term will be a significant supply shortfall early in the new century, when the 1970s trees should be available for harvest.
This highlights another issue for investors in processing, that of being able to guarantee a stable supply of a consistent quality of wood. The investment in processing is essential to make the plantations a success, but there must be a high degree of confidence that the wood supply is secure. The 100,000 plus m3/year suggested above is based upon trying to ensure a constant supply to a processor. The annual harvest in the near term could have been significantly higher had there been no disruption to planting rates in the 1970s.
In the past 5 years termite attacks on mahogany have also become apparent. These termites appear to attack mature trees and can kill the tree within several years. The incidence of termite attack in older stands based on recent studies has averaged 6%. While not seen as a terminal threat at this stage, this attack has led to a reduction in the predicted annual harvest of mahogany.
There is a role for government in situations like Fiji whether the government or the private sector is the investor in a plantation. These plantations are of introduced species which are successful in part because they do not have their natural pests and diseases with them. The challenge for governments in situations of geographically isolated countries is to ensure the serious pests and diseases of these economically important introduced species are not allowed into the country.
One of the key advantages of plantations is the ability of management to manipulate the type of logs and wood produced through a range of silvicultural activities. The simplest manipulation is usually related to piece size, but with genetic improvement such issues as disease resistance and wood density can also be adjusted. In addition, the volume of wood available from a plantation is more accurately known, as are the characteristics of the wood prior to harvest.
Increasingly the requirement for processing industries is a more uniform type of raw material input and this is more readily supplied by plantations. Typically there is the usual conundrum of processing not being willing to establish until sufficient raw material is proven, and forest growers being reluctant to commit to planting until they are convinced there will be a market for their logs.
As processing becomes more global and sophisticated there is increased pressure on forest growers to provide predictable volumes of logs of defined grades. While this imposes additional constraints on the growers, it also provides opportunities to maximise the recovery of high grade material particularly where a steep value to size gradient exists.
In the mahogany forests there is a significant volume of small piece-size material which will impact on the final value of the forest. This is one quality that can be relatively easily controlled through management. These forests have also benefited from the extent and quality of research work and stand record systems giving the managers a more accurate picture of what the forest will produce over time and the most appropriate way to harvest, market and process the resource.
It is important to recognise that most timber processors are reluctant to get involved in forest establishment and management, preferring to purchase the raw material needs of their plants. The exception tends to occur when they are able to purchase mature or near mature forests that they can begin harvesting in a relatively short period of time. The mahogany stands are now at that stage. In these circumstances, the processor is able to derive an immediate return on capital invested. In this situation the processor is much more likely to become involved in the long term development of the forest resource.
An important consideration for any investment into plantation forests is the match between the wood (or log) quality produced and the processing and market requirements in terms of size and specific qualities. In most cases the processing capacity has developed on a resource of natural old growth forest, which generally produces a wood quality quite different to that which is produced by a plantation. These old growth resources are usually very large logs, of good form and reasonably slow growth. Plantation logs are generally smaller in size, younger and often more variable in form. Some of the variability stems from the more selective process of harvesting old growth forest where only the very best trees are removed for reasons of economics etc. In plantations, on the other hand, there is an imperative to remove all trees as there has been considerable investment in growing them so there is an expectation that there will be some return generated from them.
A sawing study carried out on plantation grown Fijian mahogany demonstrated the strong relationship between log size and grade recovery of sawn timber, with large logs giving the best recovery. In plantations there is always the need to trade off the optimum economic rotation length with the optimum biological and processing rotation period. This usually results in trees being harvested before they reach their maximum proportions and hence results in a reduced grade recovery.
This same sawing study also highlighted the high level of hidden defect found inside the logs. Overall 67% of the logs sawn had defects that were not visible from the outside. (Defects that were visible had already been removed). These defects included decay and insect damage resulting in holes and staining of the wood. Many of the defects were believed to be caused as a result of various management practices in the past, causing physical damage to the trees allowing decay fungi to enter. Several studies have been able to show a relationship between poor work in the forest and incidence of decay in mahogany in Fiji.
Defects of this nature can lead to a very significant drop in the value recovered from the plantation. This in turn tends to discourage investment as the returns from the forest are reduced. A positive result from the study was that the quality of the sawn out turn compared very favourably with timber from natural stands, indicating that with correct management high value products can be produced.
A common failing of plantation projects in developing countries is the lack of attention to the needs of the local market, and hence a mis-match between local demand and the forest out turn. Local demand in many cases is small scale and often very traditional. Plantations are often developed using aid funds and expertise from developed countries which may have a much more industrial approach to plantation management. In order to be able to expect and receive local support, local needs must be filled first. This can often be achieved on a much smaller scale or in a more low key way than industrial type plantations. Examples include agroforestry approaches and intercropping with trees.
In Fiji, the demand for high value timber such as mahogany is relatively limited. Thus the majority of the out turn from the forest has to be targeted at the export market. From a local investment viewpoint this may serve to depress interest, as there is less control over factors affecting the international market than factors affecting the local market. Conversely, an international investor may see this as a strength.
The opportunity to manipulate crops is a key attraction of growing large areas of a single or small number of species. This occurs in both agriculture and forestry. The results of various tree breeding programmes around the world have been very impressive in terms of increased volume growth, better form, increased disease resistance, and improved opportunities to manage the silvicultural requirements of the stand.
Mahogany, while grown in many parts of the tropical world, has not been as intensively “managed” in a tree breeding sense as many other species. The reasons for this have not been widely canvassed, but may include such factors as the primary focus of plantation development in the tropical world to be planted area rather than genetic improvement, and hence increased per hectare output. Put another way the focus has been on quantity (of hectares) rather than the quality of those hectares. This may in part be due to the aid syndrome focussed on numbers of trees in the ground rather than the quality and end use of those trees.
The form of the current Fijian mahogany plantations is not particularly good, and there is a belief that a tree improvement programme would generate significant gains. Seed for nursery use is presently collected from the forest floor under existing plantations thus perpetuating the present poor form. There has not been attempt even to select seed from elite trees.
The prolific seeding of the existing stands is seen by some as a low cost means of re-establishing the forest by natural regeneration. This conflicts in two ways with any attempt to improve the stands through genetics. Firstly there is the cost of the tree breeding programme followed by the cost of planting the new, genetically improved trees, (as opposed to the ‘free’ re-establishment achieved through natural regeneration) Secondly there is the cost of removing the unimproved natural regeneration which competes with the planted stock.
These types of issues face many plantation managers. Decisions which trade off current costs against long term gains are always difficult to resolve. The problem is compounded when the funding is from government or aid, where there are competing demands for funds and economic outcome is rarely the only deciding factor.
One outcome of several decades of hardwood plantation development in Fiji, has been the trial of a wide range of species, including a number of indigenous species. The result of this has been the decision to concentrate almost entirely on mahogany due to its superior growth rates and health attributes, combined with market value of the wood.
Due to the wide range of sites that mahogany is established on there is wide variation in growth rates. A range of site indices with broad productivity are recognised as follows:
|
|
Site Index |
Productivity |
|
Very good |
>22 |
11 |
|
Good |
17-22 |
7-9 |
|
Moderate |
12-17 |
4-6 |
|
Poor |
7-12 |
3-4 |
|
Replant |
<7 |
<3 |
Adapted from Fiji Department of Forestry Data
The average MAI (mean annual increment) has been variously assessed for the combined Fijian mahogany stands as between 4 and 5m3/ha/yr. As the majority of the plantations have been planted in line cut natural forest, the stocking overall tends to be low and this will impact on the annual increment when compared to a fully stocked single species plantation.
There is however the question about how productive the second rotation of mahogany will be given it will lack much of the original natural forest which has been progressively poisoned or damaged during harvesting.
Plantations, regardless of their ownership, are often faced with the issue of funding uncertainties. If privately owned, the owners will often cut spending on tending and new establishment in periods when cashflow is squeezed (cashflow which is often funded by other activities such as processing), and then significantly increase activity when funds become available. Governments tend to do the same. This can lead to periods when there is little or no management of the forest, producing wood that will be of lower overall quality, and other periods when there may be increased planting leading to excess wood available at certain times in the future.
This is evident in the mahogany plantations, with the best example being the redirection of funds from mahogany to pine in the early 1970s. At the time this occurs there is dislocation to staff and employees, but further out there is disruption to the sustainable yield from the forest and hence the ability to develop processing and to supply markets.
There is a need in the planning and implementation of a plantation project to ensure to the greatest degree possible that funding needs are understood and provided for.
Throughout the tropical regions, a major threat to the success of plantations is the quality of the ongoing forest management, and in particular the attention paid to weeding and the control of invasive and climbing plants, and the control of fire. These factors have the ability to effectively destroy plantations from time of planting until well into the life of the forest. The control of fire, used by many indigenous people for a range of purposes, remains a difficult challenge for forest managers in many places. In the mahogany stands however it is less of an issue as most of the forests are in the wet zone. Weeding is a major job, and as shown in Appendix 3 is one of the largest costs incurred in the management of hardwood forest in Fiji.
As discussed elsewhere in this paper, a sawing study of plantation grown Fiji mahogany showed a very high incidence of internal defect within the logs. This defect was not visible until the logs were sawn, and significantly reduced the value of the sawn out turn. The study suggested that the cause of the defect was generally a result of poor management in the early part of the stand’s life, causing physical damage to the trees and encouraging the entry of decay fungi. This demonstrates the need for careful management during the stand’s life, and a greater awareness of the long term implications of various management practices. In particular, track marking and silvicultural operations are carried out in such a way that the risk of stem damage is minimised, as this invariably leads to stem rot. Also highlighted is the need for research into the effects of various management techniques in order to ensure that they are fully understood.
Appendix 4 shows the log grades and prices which apply to mahogany.
As with most tropical countries, climatic extremes have a significant impact on the development of forests. Cyclones are the generally the greatest threat to forests, often causing widespread destruction.
In general with forests, the risk and severity of damage from wind increases with the increasing age of the forest. Thus young trees may escape significant damage, while older stands are severely damaged in the same storm. As most hardwood plantations are grown on short rotations, the wind risk is mitigated to some extent. However with plantations grown for long rotation products, the risks can be magnified, creating even greater reluctance to invest.
The periodicity of cyclones appears to be about 20 years, which is just slightly over half the rotation age for mahogany. This indicates a reasonably high risk that most stands will suffer from wind damage during their life. The evidence to date however suggests that mahogany is more wind firm than most other hardwood species and is often the only one to survive a storm.
