The Contribution of Mid to Low Rainfall Forestry and Agroforestry to Greenhouse and Natural Resource Management Outcomes,
Australian Greenhouse Office and the Murray Darling Basin, 2001

The Contribution of Mid to Low Rainfall Forestry and Agroforestry to Greenhouse and Natural Resource Management Outcomes

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Executive Summary

Revegetation and land use change over large areas in the mid to low rainfall regions of southern Australia in the form of commercial forestry and agroforestry is vital to sustainable natural resource management. Carbon sequestration from these activities could potentially make a significant contribution to meeting Australia’s greenhouse goals. The amount of revegetation required to address natural resource degradation in individual catchments will vary. The National Land and Water Resources Audit concludes that about 40% of the land in mid to low rainfall (<700 mm) agricultural catchments requires strategic revegetation with woody perennial plants to have a significant impact on the rate of water and land salinisation. Increasing vegetation cover on this scale, using commercial tree crops, would also make a contribution to reducing our greenhouse gas emissions, stimulate regional development and provide employment in local processing and manufacturing industries. Biodiversity goals, soil erosion, and to some extent, soil acidification, can also be addressed using appropriate species and designs.
There are good opportunities to use tree crops to modify agricultural systems in the mid and low rainfall zone of southern Australia so as to benefit farm income and regional development while simultaneously improving natural resource management and contributing to greenhouse outcomes. To realise this vision, we will need to pioneer the development of a landscape mosaic of commercial tree crops driven by large-scale industrial markets, high-value annual crops, mixed perennial and annual cropping systems, and areas devoted to maintaining ecosystem services¹ that depend on native vegetation.
Revegetation at the required scale is unlikely to occur with either public or private investment alone. Most options currently available to farmers and communities are not commercially viable—the costs exceed the direct benefits. Many forestry industries are likely to become commercially viable in mid to low rainfall areas only if some value is attributed to the natural resource management (NRM) and greenhouse benefits they deliver by providing ecosystem services, and if mechanisms are set up to transfer this value to tree growers. Consequently, we need to identify tree crops and production systems that can provide the best opportunities for combined commercial and natural resource management benefits. To secure the commercial potential of tree crops planted to address land and water degradation, target products and markets must be selected so that appropriate species can be chosen and planted. Wherever possible, market signals should be used to guide investment in tree crops.
The value of greenhouse and other ecosystem services is unlikely to be sufficient to fully fund revegetation at the scale required. The likely value of greenhouse services is still unknown, but is unlikely to be sufficient on its own to lead to establishment of vegetation on its own. Except for isolated high value assets, the value of ecosystem services per hectare is likely to be very low, offering little immediate stimulus for revegetation. However, combined with a potentially commercial product, these additional potential sources of income may make tree crops more attractive to landholders and industry. The lower cost and greater areas of land available in the mid to low rainfall zone improve the potential for large-scale investment and significant greenhouse outcomes.
Wherever possible, market signals should be used to guide investment in tree crops. Potential target products and markets need to be investigated and the most promising identified so that priority can be given to selecting and planting species with the best chances of being fully commercial. Forestry and agroforestry industries with large markets present the most attractive opportunities for significant investment designed to economically produce viable products, appreciable natural resource management (NRM) benefits and worthwhile carbon storage.
Products work better in combination. Making two or three different products from components of a single feedstock increases the prospects for profitability. For example, the integrated oil mallee industry in Western Australia will produce three products: electricity, activated carbon and eucalyptus oil. It demonstrates the opportunity to develop new profitable tree-based agricultural industries that also contribute to Australia’s energy supplies.
Three conceptual models of mid to low rainfall agroforestry development are discussed in this report. They are:

Extending established industries. Existing forestry industries can be encouraged to extend beyond their conventional transport and rainfall limits, and as plantings expand, to extend industry infrastructure. These industries are usually based on long-rotation crops of tall trees grown for solid wood products or for pulp production.
Creating new industries by developing new species, production systems, products and industries suitable for mid to low rainfall environments. These industries could, for example, be based on new generation, short-rotation perennial tree or shrub crops grown for a wide range of industrial products. To be successful, these crops need to be incorporated into new agricultural systems, and operate at world-scale competitiveness.
Improving historic mid to low rainfall timber industries. Production of timber and other produce from native vegetation was once widespread in the mid to low rainfall zone. Several historic timber industries are still active, and invigorating such industries might encourage improved management of both plantations and remnant native vegetation for better biodiversity and natural resource outcomes.

This analysis concentrates on the first two categories of tree cropping listed in point 7 as they have the greatest potential in mid to low rainfall areas. Most historic native forest industries are profitable but are relatively small and would have limited Natural Resource Management benefits. For example, eucalyptus oil has a long tradition of being extracted from native forest, but is now being redeveloped as a ‘new’ short-rotation crop for farmland. Similarly, sandalwood is now being cultivated as a long-rotation crop, and native cypress pine has potential as a farm forestry species.
For mid to low rainfall areas, investment is needed in both extending established forestry industries and developing new industries based on short-rotation crops. For existing forestry industries, implementation can proceed immediately. However, the relatively small area suited to these industries and the potential slow rate of adoption in mid to low rainfall areas will limit the benefits that are produced. There is only a modest requirement for further research and development to extend existing industries, but a clear need to find faster, socially acceptable implementation pathways. The converse is true for new, short-rotation tree crops, which need substantial investment in their development. If the development effort is successful, their implementation is likely to be driven rapidly by the potential commercial returns and their compatibility with other agricultural enterprises. It would be prudent for Australia to increase investment in both of these promising pathways for tree crop expansion, to boost the perennials component in Australian agriculture, and set it on a more sustainable course.
Mid to low rainfall areas are suitable for producing many tree products with large markets. Conventional forestry extended into lower rainfall areas is suited to producing combinations of high-value solid wood products and a range of residue products, while products that can be made from small-dimension timber or bulk biomass could utilise low-cost feedstocks from new, short-rotation, perennial tree or shrub crops. Some products that may have potential in mid to low rainfall areas are listed below.

Solid wood products include appearance-grade timber, woodchips, structural timber, and firewood. However, the review recognises that all these products are likely be less profitable in mid to low rainfall areas than the same products in the higher rainfall areas because of slower growth rates, higher transport costs and current uncertainties about quality.
Pulp and paper manufacture requires large-scale operations. Several issues must be addressed before deciding whether to invest in this industry. They include, for example, the quantity and quality of feedstock, access to suitably priced electricity, adequate transport infrastructure, water availability, and disposal of wastes from the production process. The possible advantage is that resistance to the development of processing facilities may be lower than in the high rainfall zone.
Wood composites may have some potential, given the steady growth in demand in Australia and Asia, and the reasonably large scale of these industries. The composites industry has similar issues to the pulp and paper industry, including the quantity and quality of feedstock, access to suitably priced electricity, adequate transport infrastructure, water availability, and disposal of wastes from the production process. In addition, most wood composites are currently based on softwoods; a shift to alternative feedstocks would require a change in technology.
Electricity production from tree residues is an attractive industry option. This is partly because the technology required is already developed, and there are opportunities to receive a higher price for electricity delivered to remote areas of the grid, and partly because at least 9500 GWh of renewable electricity will be underwritten by government legislation. However, there will be competition from other biomass sources and other forms of renewable energy.
Liquid fuel production has less short-term appeal. The reasons include: uncertainties in the future price of liquid fuel and the excise tax exemption currently applicable, uncertainties about the effectiveness of scaled-up versions of new technologies to process lignocellulosic material, and lack of any government requirement for a target percentage of liquid fuels to be made from renewable fuels. However, the potential area of woody vegetation required for an ethanol production plant is very large, and the long-term prospects are bright, so this product deserves serious consideration.
Commodity and specialist chemicals can be made from lignocellulosic materials by thermal and microbial conversion, followed by chemical transformations. Like liquid fuels, the opportunity for these products to be sourced from biomass feedstocks will increase as petroleum products approach the end of their era. This product area deserves closer evaluation to identify opportunities for both the short and longer term.
Many smaller markets have potential for high value co-products, including charcoal and activated carbon, and essential oils such as eucalyptus oil. If production costs can be reduced enough, the oil mallee industry could realise its aspiration of penetrating markets for large industrial solvents.

Selecting the appropriate tree crop rotation length will depend on the biogeographical region and the balance of commercial and environmental outcomes required. The economics of short-rotation tree crops are likely to be sensitive to scale of production, suggesting that these crops will be better suited to areas where economies of scale can be realised. The economics of long-rotation tree crops will be more sensitive to tree survival and productivity, which will guide them towards carefully selected segments of the landscape where site assessment indicates they will grow successfully to maturity. Short-rotation tree crops are likely to be more commercially attractive, particularly for private growers, and to have greater potential for managing salinity because of their likely faster adoption and much wider range of suitable sites. Longer rotation tree crops also have some attractions—they are needed for solid wood products, and they provide some unique natural resource management and greenhouse benefits.
Farmers are unlikely to invest in long-rotation forestry in mid to low rainfall areas at the scale required for natural resource management benefits, because of the long wait for returns from these crops. Adoption rates will, therefore, be slow unless supported by external payments, which could be in the form of ecosystem services or taxation concessions for investors. The potential for large-scale natural resource management benefits from long-rotation forestry is also modest because the proportion of the landscape suitable for this production system diminishes as rainfall decreases. Short-rotation crops are likely to be adopted far more quickly, if profitable, and provide larger natural resource management benefits, but none of these industries has yet been developed to full commercialisation.
The development of commercially competitive tree crops will make broad-scale planting by landholders more likely, but it does not necessarily follow that these crops will be planted in the right places to maximise salinity control. Planning at regional and farm scales is required to determine the best locations and designs for tree planting to achieve desired outcomes. New institutional arrangements may be required in some critical areas to ensure that tree crops are planted and managed in accordance with the relevant plans.
Long-rotation forestry requires rigorous site assessment and careful site and species selection to be successful. The long-term nature of the investment, and the potential for poorly sited trees to exhaust the resources of their site before they reach maturity make careful site selection essential. Short-rotation trees need only broad site assessment, as layout design will be driven by the efficiency needs of cropping machinery, tree crop failure is less likely, and the consequences of failure are less than for long-rotation trees. The long-term sustainability of short-rotation crops requires comprehensive investigation and analysis.
It is essential to develop integrated systems that incorporate tree crops into existing farming systems, to enhance their economic viability, and also to gain acceptance by the rural community. Integrated agroforestry designs that provide multiple benefits because they also enhance agricultural product yields will be more attractive to farmers. In some high rainfall areas, the recent spread of large plantations has led to structural adjustment, displacing low profitability grazing industries. This rapid adjustment has caused social concerns in some areas. In lower rainfall areas, new agroforestry industries are likely to play a different role, supporting agriculture rather than replacing it. New industries will be more likely to be based on short-rotation tree crops than on conventional forestry, with mostly integrated plantings and few block plantings. Most tree crops will be planted in dispersed layouts to maximise their commercial productivity and provision of ecosystem services, and to integrate them into profitable cropping enterprises. The cultural and socio-economic profiles of farming communities in mid to low rainfall areas suggests that they are likely to be supportive of new integrated industries. The type of agroforestry systems developed in different areas must take social, commercial and natural resource management factors into account.
Local employment in industries established on mid to low rainfall forestry and agroforestry products is an important social and economic benefit that will result from larger scale industries.
Australia has under-invested in R&D on commercial revegetation options in the past. With the exception of the oil mallee industry, we have not seriously attempted to develop new woody crops for inland areas, despite a clear imperative to develop commercially viable perennial woody industries. Integrated R&D is needed to support all elements of mid to low rainfall woody crop production systems—markets, processing, harvesting and transport, and design and growing. Currently, there is insufficient information on the product potential of many perennial woody species that will grow in mid to low rainfall zones. Investment in generating this information is essential.
While important research designed to provide commercial tree crops and products is part of programs such as the Joint Venture Agroforestry Program (JVAP), the small amount of investment makes progress slow. The Australian Low Rainfall Tree Improvement Group is breeding several mid to low rainfall tree crops. The quality and suitability of the wood from some of these species for use as composite panel boards, wood veneers and energy production is being assessed. Testing the suitability of new mid to low rainfall species for processing is expensive and resources are not available to do this at the scale required.
Increased R&D is needed to develop commercial production systems and to breed new species. It is clear that in mid to low rainfall areas, trees integrated with agriculture are likely to grow much faster than closely spaced blocks (as commonly practised in high rainfall areas). Research on the socio-economic impacts of farm forestry in higher rainfall areas also shows that integrating trees with agriculture has positive socio-economic effects. New processing facilities need to be developed in some cases and pilot plants built. Feasibility studies conducted to date point to harvesting, handling and transport as major constraints in cost competitiveness. Extensive, targeted R&D is needed to tackle these constraints.
Policy research and development is needed. Apart from some current work funded by JVAP, there has been little assessment of policy and institutional impediments to agroforestry in areas where providing environmental or ecosystem services—such as protecting important community values and assets from salinity, or providing a sink for greenhouse gas abatement—is seen as being at least as important as the potential commercial benefits.
Key business-related issues that emerge from this analysis are:

Access to finance. At the individual level, the majority of wheat-sheep farmers have few financial reserves. At the regional level, wheat-sheep industries and dependent economies generally lack the necessary finance to invest in profound changes in land-use and processing. Consequently, extra finance will have to come from external sources.
Farm business characteristics. Widespread agroforestry using long-rotation trees may have limited appeal to the minority of wheat-sheep farmers who are viable, as it will be difficult for the trees to be price-competitive with high-quality wheat and wool. However, there is a real chance that new generation short-rotation tree and shrub crops can provide returns as good as the average returns from wheat and wool. While few farmers are likely to be able to finance large areas of long-rotation tree crops, many would be able to finance significant amounts of short-rotation tree and shrub crops—if they were available.
Efficient production. New farm enterprises, including agroforestry, will need to be cost-efficient. Increased specialist labour (equipment handling and repair, market agent/broker) and mechanisation are likely to feature.
Business clusters and local processing. Localised processing is important in building a comprehensive range of socio-economic benefits. If agroforestry industries are ultimately to be fully commercial, operations may best be located where business clusters are already emerging. Some new-generation tree and shrub crops will be so large they themselves will be the foundation for new ‘business clusters’ around which smaller scale industries can collect. Taxation and other incentives can be a powerful mechanism for attracting outside investment into a region.
Appropriate crop options. Socially acceptable and economically viable tree cropping systems will vary between regions, and between landholders. The diversity of individual and regional circumstances emphasises the need to develop a suite of options that allows a diversity of responses within the broad constraints imposed by the biophysical environments and markets.
Targeted investment. Investment in particular industries should be focused on ‘best bet’ combinations of regions and industries that have an acceptable chance of providing reasonable financial returns and attracting sufficient public investment for natural resources management benefits. Such choices suppose a need for a fully informed decision process, based on full environmental, economic and social appraisals, using contemporary participatory processes.

Successfully developing and establishing new forestry and agroforestry industry suited to the mid-low rainfall zone will require large-scale regional coordination and national focus because:

industries based on new tree products will need to be of sufficient size and competitiveness to establish themselves in national and global markets
establishing competitive industry entails sharing research and development costs and coordinating investment mechanisms capable of effectively and efficiently managing public and private benefits
attracting external investment will call for stable long-term investment mechanisms and larger scale industry development.

¹ Ecosystem services: ‘…the conditions and processes through which natural ecosystems, and the species that make them up, sustain and fulfil human life...’ Daily G

Prepared for the Australian Greenhouse Office and the Murray-Darling Basin Commission by a consortium from CSIRO Land and Water, CSIRO Forestry and Forest Products, Australian National University Department of Forestry, Rural Industries Research and Development Corporation, Olsen and Vickery (private consultants), Hester Gascoigne & Associates (private consultants).

October 2001

Published by the Australian Greenhouse Office, the lead Commonwealth agency on greenhouse matters, and the Murray-Darling Basin Commission, October 2001.
© Commonwealth of Australia 2001
© Murray-Darling Basin Commission 2001
ISBN: 1 876536 51 9

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Front cover images courtesy of the Oil Mallee Company of Australia Limited.