International & North American Perspective: Short-Rotation Woody Crop Potential and Markets - Industrial/Fiber Perspective

R. Bruce Arnold, International Forestry Consultant, Wayne, PA

Abstract

North America is well behind the Southern Hemisphere in development of short-rotation woody crops for commercial purposes. This has placed the Southern Hemisphere in a position of competitive advantage because of the low cost, reliability of supply, and uniformity of biological material represented in the short-rotation crops that have already been widely established. Because of thirty years of wide-scale development of these crops, the Southern Hemisphere has developed technological know-how that gives producers a measure of enduring advantage, likely to last for several decades.

Because of rapid expansion of North American forest products industries (pulp, paper, solid and engineered wood products) over the last half century, and because of dramatically increased pressures from the environmental community, the United States finds itself in a shortage of softwood timber in the Pacific Northwest. An emerging shortfall of commercial quantities of coniferous wood is also developing in the U.S. Southeast. On the other hand, it appears hardwood supplies are in sufficient supply in all regions to meet current volume requirements in North America.

An increasing measure of worldwide pressure on commercial wood resources is coming from another source. Many users of wood fiber-based products are requiring that their purchases contain fiber certified to have been attained from "sustainable" forest resources. There are several such initiatives in the U.S. and other countries. All are having some influence on availability of fiber supply.

These factors all increase the attractiveness of short-rotation woody crops as a potential commercial resource throughout North America. However, there are distinct biological and financial factors that limit the locations in which projects of fast-growing trees make commercial sense. Much the same as for agricultural food crops, there are geographies and climates that are suitable for development of these woody crops, and there are those that are not. Well designed trials of various species, provenances, and hybrids are necessary to determine the commercial viability of proposed tree-growing projects. With the proper biological information in hand, an effective time-valued financial analysis will define the commercial attractiveness of a proposed project.

This paper discusses the underlying market factors, the biological requirements, the basics of commercial fast-growing tree technology, and the financial implications that must be considered in evaluating potential short-rotation woody crop plantation programs for commercial application. This applies whether the project is for traditional uses of woody crops, or for potential energy related applications.

Market Factors

Long term, the single most important factor driving utilization of the forest resources of the earth is likely to be population growth. As more people arrive on the face of the earth, their requirements for fuelwood, building materials of wood, paper products and the other materials that utilize wood as a resource to bring comfort to humans will all increase significantly. As the economies of third world nations improve and move to a condition where a substantial middle-class emerges, the amount of disposable income available will exponentially drive demand for wood-fiber-based products. According to Colin McKenzie, the chief executive of Groome Poyry Ltd. of Auckland, New Zealand, and the keynote speaker at the International Woodfiber Conference held in Atlanta in May of this year, the world is already "moving forever away from an era of plentiful and inexpensive woodfiber toward stepped-up prices and competition"l

In terms of roundwood demand, more than half the current world requirement of 3.6 billion cum is for fuelwood purposes. Industrial demand stands at 1.6 billion cum, with sawnwood at 54% of that total, and woodpulp at 28% of the primary roundwood demand. However, when primary manufacturing residues are included in global fiber utilization, at present, the woodpulp industry is estimated to be the largest single end-user of wood fiber in the world, accounting for more than 40% of the total industrial roundwood used2. Only 26.5% of the industrial supply actually ends up as sawnwood.

According to Mr. Colin McKenzie, a range of emerging discontinuities in the supply of worldwide timber are projected to continue into the 21st century3. They include:

• Withdrawal or reduction of timber cutting rights.
• Past overcutting and alternative land use impacts.
• Lack of investment to increase productivity and reforestation.
• Lack of infrastructure to cost effectively harvest and transport timber.

Mr. McKenzie suggests that even though "the theoretical cutting potential for the world's forests exceeds the projected demand for timber, the noted limitations will continue to reduce the area of forest land that is economically available for harvesting and will constrain management of timber resources that are available"3.

A further pressure on wood supply has come from the growing environmental sensitivity of the world community. Government initiatives and the actions of non-governmental groups calling for preservation of the tropical forests of the earth (which represent approximately 80% of the earth's biodiversity, while only representing 7% of the earth's land mass) have appropriately slowed the harvest of virgin wood from that resource. Preservation of old-growth virgin forests, protection of ecosystems, and species preservation have all been major issues in many areas of the world, and especially in Europe and in the Pacific Northwestern region of North America. This has led to litigation and new legislation that has taken much of public timberland out of production in the Pacific Northwest and has even restricted harvesting on large areas of privately held land. All of these factors have significantly reduced the forest cover available for commercial utilization.

International pressure from the consuming public has increased the level of recycling of paper products back into the primary paper production stream. During the next decade, recycling is projected to increase from the 20 to 30% range currently practiced to a practical maximum of about 50% of primary production. During that time, there will be short term dilution of demand for wood fiber from forest resources by the world's papermakers. Even so, at present, during the period while this increase in recycling is in full swing, the demand for industrial roundwood continues to grow at an average rate of 0.7% per year2. When recycling equilibrium is reached, the amount of fresh fiber that must be inserted into the product stream will once again increase to higher annual demand rates.

Finally, consumer pressure has increasingly strengthened the requirement that products containing wood fiber be shown by sound documentation to come from resources that can be certified to be operated in a fully sustainable manner. This means the humans associated with management and operation of these forest resources must be trained in and proven to be using sound forest sustainability practices. These requirements are being put into place in North America by agencies such as the American Forest & Paper Association (AF&PA), the Canadian Standards Association, and the Forest Stewardship Council (an international organization, headquartered in Mexico)4. Similar agencies are creating "sustainability" requirements on other continents.

With the exception of the current and short-term bulge in recycling, all of the pressures mentioned above are leading to the shift from plentiful wood fiber supply to local and regional shortfalls in an increasing number of locations. This sets the stage for increased demand for short rotation woody crops.

In the near term, there will not be major disruptions in supply and demand relationships for wood fiber. It is more likely to be a gradual change. As availability of supply shrinks, prices for roundwood and residuals will increase, drawing volumes of wood into the mix that were previously not supplied because of the low to nonexistent profit margins associated with their harvest and delivery into the demand stream. However, as timber available on the stump for harvest approaches the demand in given regions, the areas of shortfall will steadily increase.

In the Southern Hemisphere, development of both hardwood and softwood fast-growing tree crops has been in progress for more than thirty years. The result is a significant and continuing cost and supply advantage over producers in the Northern Hemisphere. The genera most widely exploited have been various species of Eucalyptus and the tropical pines. Acacia is a lesser genera being utilized in the tropics, most especially in Indonesia. The country with the largest plantation resource is Brazil, where hardwood plantations cover 2.5 million hectares of land and softwood plantations amount to 1.5 million hectares5. Indonesia is vigorously expanding their planted forest resource, with most of the development in Acacia mangium (also known as Racosperma mangium).

In the Northern Hemisphere, the plantation of pines in the U.S. South constitutes the area with the single largest intensively managed fast-growing tree crop in the world. Over 9 million hectares of plantation pine is currently under management in the U.S. South. However, when it comes to fast-growing hardwoods, the Northern Hemisphere has barely gotten started. Portugal and Spain have planted Eucalyptus for most of this century, but the land devoted to this resource is less than 1 million hectares6. In the USA, only nominal amounts of land have yet been devoted to fast-growing hardwood plantations. Less than 40,000 hectares have been planted to hybrid Populus, and only about 5,000 hectares has been successfully planted in Eucalyptus. There were extensive trials of Eucalyptus in the U.S. South in the 1970's, but they all failed due to severe temperature depressions which killed all growing stock. These periods of low temperature inevitably occur, even if only once in a decade, and will occur again, making large scale plantation of Eucalyptus in that region infeasible.

In North America, the opportunities for fast-growing tree projects will increase as shortages of timber from traditional resources increase. From research done over the past twenty years, it is clear that hybrid Populus species will be those of most interest to commercial growers. While small scale trials have pointed the way to other species possibilities, the greatest emphasis in research and in actual commercial scale plantation development has been with Populus. This wood will be attractive in both pulp manufacture for paper products and for composite products, such as oriented strand board (OSB).

Clearly, the most attractive softwood plantations continue to be the pines in the U.S. South. As shortages increase, large companies will have increased incentive to acquire additional land base for their plantations. They will utilize the full benefit of contemporary technology and management practices to develop productive stands. This will almost certainly be an outcome, as small producers tend not to manage their timberlands in as aggressive fashion as the large companies. In northern areas, there have been limited trials of hybrid Larch that suggest potential benefit to the aggressive producer. Hybrid larch has potential to reach pulpwood maturities within 20 to 25 years, and should be pursued with well planned trials by timber producers with need for short-rotation softwood supply in more northern climates of North America. Additionally, Rhinelander, WI-based Forgene has a patented white spruce hybrid, sold under the trademark "Forgene Elite". It is projected to be ready for first pulpwood harvest in 20 to 25 years versus 35 to 40 years for conventional white spruce. At least six companies are reported to be field testing these trees7.

Keys to Fast-Growing Tree Project Success

It is clear that fast-growing trees are not a panacea that will solve all the wood resource needs of humans in the future, but they can be a much more important resource than is currently the case. This is especially true in the Northern Hemisphere for projects such as the manufacture of kraft pulp, chemithermomechanical pulp (CTMP), and panelboard products, such as OSB.

I may be "lecturing to the choir,” but I feel it important to describe my view of the critical steps that must be taken to assure a successful fast-growing tree project. They are sufficiently important in my mind that I feel they bear repeating.

In order to determine what will constitute a successful project, a series of steps must be carefully taken. Most important of these is site selection. To be commercially successful, a project must be placed on a site that is properly suited to the growing potential of the species selected. Such considerations as rainfall, temperature ranges, soil conditions, land cost, and various environmental factors should be studied. Because of the rapid growth of the trees, plentiful rainfall, distributed over a substantial portion of the year is a key requirement. The species must be able to tolerate the greatest range of temperature that will occur over at least a one hundred year span. The failure of the Eucalyptus trials in the U.S. South is a tribute to that requirement. Soil fertility is necessary to feed the rapid creation of biomass. Even with good initial fertility, it is likely that fertilization of the land will be required in the first one to two years to properly launch the crop. Finally, the geography of the site and its proximity to the location at which the timber will be utilized is of considerable importance, as harvest and transportation costs can have significant bearing on the financial viability of the project.

At the same time that site selection is being considered, an interested grower should begin to think about development of scientifically designed trials to properly define the best growing stock and proper growing conditions. To manage such trials, best results are likely to be achieved by employing the services of one or two professional persons who have had experience in these developments elsewhere. For the most part, this means utilization of people who have experience in fast-growing tree projects in the Southern Hemisphere. Unfortunately, there are very few people in the Northern Hemisphere who yet fully understand the requirements of this technology.

In the trials, it will be important to examine the following:

• Various species and provenances of those species that are likely to be successful on the chosen site. This will include a range of hybrids as well as pure species. For these selections, it will be important to acquire the highest quality seed and/or seedlings available for planting.
• Soil preparation variants.
• Tree spacing trials.
• Evaluation of various fertilizer regimes.
• Evaluation of various weed control strategies. (Clean weeding may turn out to be the single most important factor in an effective project. The presence of phytotoxins in other plant material is likely to restrict the full growth potential of the chosen tree crop. Once the crown of the tree crop is closed, and photosynthesis of understory competition is eliminated, the need for additional weed control will be overcome.)

The amount of land devoted to these trials can be quite small. The important ingredient is that a full range of the above variants be incorporated in a statistically sound trial plan, and that excellent data collection be made during the years of the trials.

Closely following on the heels of any successful trial program, it is important to launch a well designed tree breeding program. It is very clear that some of the world's best fast-growing trees are hybrids that have been developed in breeding programs. Often, hybrids will perform at much better levels than the pure species from which they are derived.

For any program aimed at selecting the most desirable trees, it is important to give advance thought to the factors of greatest importance. It is appropriate to prioritize and to even give weight to these factors. They might include such things as:

• Straightness of the tree stem.
• Annual growth rate.
• Wood density.
• Disease resistance.
• Insect resistance.
• Tolerance to herbicides.
• Crown structure.
• Fiber morphology.
• Cellulose/lignin balance.
• Bark to solid wood under bark relationships.
• Ease of bark removal.
• Ease of conversion into the final end product.
• Effectiveness in optimization of the value stream associated with production of the end product.

There may very well be other factors. This list is just intended as a thought provoker.

One of the highly desirable factors in making tree selections is their ability to be clonally reproduced. This includes both the ability to produce vigorous coppice regrowth from the stump after harvest, and the readiness with which cuttings from a clonal hedge can be stimulated to produce plantable seedlings

If it is clear that the site is right and that selections have been made that will deliver an attractive return to the grower, it is time to develop a high quality nursery. Getting the growing of seedlings right can make or break a program. Selection of the growing medium, seedling containers, physical makeup of the nursery structures and supporting equipment, and methods for propagation of the seedlings can have strong bearing on the level of success in the field. Generally, one should expect that 95% survival rate in the field will be assured by choices made in the trials, in the nursery, and in the techniques used in preparing the field, planting the seedlings, and managing the crop thereafter.

If the program turns out to be successful at the beginning, the next step is to continually upgrade the growing stock. This means development of hybrids that grow at faster rates, have better and more productive utilization in downstream operations, and have better fit with the whole value chain to bring improved profitability and value to both the producer and the end use customer. Beyond traditional tree breeding activities, it may be of value to genetically alter the growing stock with gene splicing techniques. Genetically altered Populus is now being experimentally grown. It has been generated so as to be sexually sterile to prevent unwanted propagation of material that might turn out to be undesirable.

When utilizing clonal material for a plantation, it is critical that a series of clones be developed that are substantively different than one another. This is to protect against an outbreak of disease or an insect attack that would wipe out the entire growing stock. Even with tightly managed plantations, genetic diversity is necessary to assure an enduring and sustainable fiber resource.

Environmental considerations are paramount in this day and age. First, there is substantial opposition to any sort of plantation of trees by various environmentally sensitive individuals and groups. My thoughts on this issue are that new plantations should be on land already cleared, and not in place of biodiverse forests that have been harvested to make way for the plantations. Probably the least sensitive sites from a political perspective are those that would make use of former agricultural land that is no longer in food production. To generate the most environmentally acceptable projects, it may even be desirable to plant blocks of biodiverse forest species commingled with the monoculture.

Issues such as the protection of watersheds, animal habitat, and provision for recreation possibilities for humans are other matters that fall into the broad environmental category. Those organizations that choose to follow the guidelines for planted forests as established by the Forest Stewardship Council will likely have little to no trouble from the environmental community, recognizing there will always be those who will object to planted forests of any kind.

Finally, in order for a project to be successful, a high quality financial analysis should be conducted. It should show that a return better than the cost of capital will be forthcoming from the investment. The analysis should incorporate time value methodology and incorporate conservative assumptions.

Factors that must be included in such an analysis include:

• Land cost: Capital or annual rental.
• Infrastructure capital: Nursery, roads, buildings, vehicles, etc.
• Planting costs: Seedlings, weed control, site preparation, fertilizer, outplanting.
• Silviculture costs: Weed control, fertilizer, insect control, disease control, fire prevention and suppression, etc.
• Harvest cost.
• Transportation cost.
• Expected growth rates and wood densities.
• Selling price projections over time.
• Timing of capital investments.
• Headcount expectations and labor costs.
• Maintenance expenses.
• General and administrative costs.
• Species trial and tree breeding program costs.
• Interest on borrowed funds.
• Depreciation expense.

These are the most significant elements of cost and revenue streams, but are not meant to be all inclusive. From analysis of these elements, a net present value for the investment can be calculated, as well as an internal rate of return and other financial indicators of project vitality and robustness. It must be realized that the up front investment required to create this resource is much greater than traditional forestry cost. Positive cash flow is not likely to occur within the first ten years, so the project must be able to withstand a negative flow during all of that time and still show positive net present value. It is because of these considerations, that siting successful projects is a somewhat challenging process.

Recommendations

With the emerging shortfall of harvestable timber to resource the needs of all timber using populations in the U.S. it is time for the establishment of significant new short-rotation plantations. The most obvious of these should be in Pinus and Populus species. For Populus, the rather outstanding hybrids that have already been developed should be employed.

The most likely locations for new hardwood plantations are in river bottoms along the Pacific Coast, in the areas of best rainfall between the Cascade and Rocky Mountain ranges, where terrain is suitable, throughout the Northeast and North Central states, and in areas of more arid land where possibilities exist for carefully metered irrigation. In the U.S. South, cottonwoods can be propagated effectively in sandbank locations along river systems, where the trees can have their root structures under water during the spring floods, but these locations are highly limited. For hardwood species in the South, it is more likely that Sycamore, Willow, or other fast-growing indigenous species will prove effective.

Increased ownership of timberlands by large commercial organizations is likely to be needed to significantly increase the acreage of well managed pine plantations in the U.S. South. Only about one-quarter of the land in the hands of private owners is replanted and properly cared for after harvest at current levels of practice.

The other fast-growing softwood resource worth consideration is hybrid Larch. I have given my thoughts on that potential resource earlier in this paper.

With regard to the development of short-rotation woody crops for energy production, I offer the following thoughts.

1. Pulp mills with biomass boiler capabilities are likely to increase the utilization of biomass from various sources. It may well be that densely spaced short-rotation tree crops will be shown to be commercially attractive as feed sources for these operations. If so, it is likely that public utility companies will be able to justify development of such crops. A great deal will depend on what happens to the cost and availability of fossil fuels.
2. The single most available alternative energy resource for the U.S. is biomass. Because of our growing dependence on foreign sources for our fossil fuel needs, national policy should be established to create significant biomass resource in the form of short-rotation woody crops and appropriate annual grass crops. How to bring proper attention to that cause should be the subject of other studies.
3. There is a significant environmental issue in shifting the country to more biomass resource for its fuel (either solid or liquid) and other hydrocarbon product needs. The acquisition of these resources from renewable crops will cause shift to a carbon cycle that is more in equilibrium. The carbon dioxide given off by combustion of the biomass will be the Q building block for the growing stock on the stump or in the field. In this way, less of the anciently stored carbon of fossil fuels will find its way into our atmosphere and the likelihood of problems from global warming will be attenuated.

The most likely areas for new projects are in pulp manufacturing (especially for potential new mills of CTMP), and for panel board production in products such as OSB. Bleached hardwood CTMP is proving to be an attractive low cost replacement for hardwood kraft pulps. The capital cost of a proper scale OSB plant is approximately $80 MM. The cost for a new greenfield kraft pulp mill is upwards of $1 billion.

For those who have the courage and determination to launch new fast-growing tree projects, I say start soon. Also, it is appropriate to start small, with well planned trials to prove the assumptions made in the preliminary analysis. Before starting, make sure you have a person well experienced in managing the technology leading the trial program, and a business leader with drive and entrepreneurial spirit heading the project. Once the best growing species stick their heads above the other trees, and appropriate strategies have been selected for successful future propagation, it will be possible to get a much clearer fix on the returns possible from the project. If it then is clear that attractive returns are possible, it is time to move ahead. Those who locate the sites, do the homework to create outstanding projects, and put the resource into the ground have the potential to become the low cost producers on the American scene.

Bibliography

1. International Woodfiber Report, Miller Freeman Inc., Vol. 2, No. 6, June, 1996
2. Wood Resource Quarterly, Wood Resources International Ltd., Vol. 9, No. 1, April, 1996
3. PaperTree Letter, Miller Freeman Inc., August, 1996
4. Sustainable Forestry, American Forest & Paper Association, April, 1995; Sustainable Forest Management Standard, Canadian Standards Association, 1996; Forest Stewardship Council Principles, 1996
5. South American Pulp and Paper Development, Claes Hall, The 2nd Paper/Forest Products Global Outlook Conference, New York, NY, November, 1994
6. Fast Growing Plantations, Jaakko Poyry, Helsinki, Finland, 1987
7. Biotech Company Looks to Develop Fast-Growing Trees, International Papermaker, p. 13, November, 1995

R. B. Arnold is President of R. B. Arnold Associates, Inc., an international forest products consulting organization located in Wayne, PA.

File posted on March 17, 1998; Date Modified: February 21, 1999