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
Area affected / at risk (ha)Area affected / at risk (ha)
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
Age classesAge classes
Methodology - Thinnings Methodology - Thinnings Determination of Cost of OperationsDetermination of Cost of Operations
Area affected / at risk (ha)Area affected / at risk (ha)
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
Age classesAge classes
Methodology - Inoculations Methodology - Inoculations Determination of Cost of OperationsDetermination of Cost of Operations
Area affected / at risk (ha)Area affected / at risk (ha)
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
Age classesAge classes
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
Sawlogs Pulpwood Poles/Other
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
Sawlogs Pulpwood Poles/Other
Potential ex Affected Area Potential ex Area at Risk
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
Sawlogs Pulpwood Poles/Other
Potential ex Affected Area Potential ex Area at Risk
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
Sawlogs Pulpwood Poles/Other
Potential ex Affected Area Potential ex Area at Risk
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
Current Affected Areas All Areas at Risk in RSA
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%
Current Affected Areas All Areas at Risk in RSA
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%
Current Affected Areas All Areas at Risk in RSA
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%
Current Affected Areas All Areas at Risk in RSA
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%
Current Affected Areas All Areas at Risk in RSA
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