An inexact approach to valuing forests could mean the value of the Australian forest industry could fluctuate by up to $1 billion, according to Australian forestry consultant and a leading member of the Australian Institute of Foresters of Australia, Keith Lamb. Mr Lamb is also the newly appointed managing director for KIPT (see previous story). Source: Philip Hopkins for Timberbiz
He cited the estimate in a speech to the IFA conference, ‘Forest Valuations – Taking a Broader Perspective’ held in Hobart last week.
Mr Lamb, the chairman of the IFA evaluation sub-committee, said he had estimated at a 2016 valuation workshop that the likely total value of forest assets in Australia, valued per year, was probably about $10 billion.
“If we assume a swing factor of say 10%, the value at contention each year in the timberland investment community is possibly in the order of $1b,” he said.
“This is not a good look for a sector which is supposed to be characterised by low volatility and stability. And it’s not good for the beneficiaries of the ‘instos’, the superannuants and pensioners in Australia and overseas.”
Thus, Mr Lamb said, the sector and indeed the forestry profession needed to improve practices and procedures around forest valuations.
The AFI sub-committee, which included the Emeritus Professor of Forestry at Melbourne University, Ian Ferguson, had previously formed an Australian Forest Value Standard and an Associated Handbook (collectively the “AFVS”), Mr Lamb said.
This aimed to help those involved in, or reliant on forest valuations, to provide professional and sectoral interpretation for broader generic standards. “The AFVS, probably represents the most authoritative single reference document for appraising Australian planted and native forests,” Mr Lamb said.
“Together the Standard and the Handbook provide a comprehensive description of not just the more arcane points of how to appraise value, but a practical guide how to build valuation models from the ground up.”
Mr Lamb said crucially, the Standard was designed to be a living document, to evolve with public interest and incorporate new knowledge.
“But this doesn’t happen without promotion and recognition, and a level of sectoral support,” he said. “Having spent a large part of my career interpreting the financial entrails of forest models, and commissioning perhaps more than 120 independent valuations over the last 15 years, I had long observed that neither the procurers nor the practitioners, of forest valuations seemed to take more than taking a passing interest in the AFVS.”
At the same time, Mr Lamb said planted forest ownership had shifted towards institutions, which had led to an increasing trend in formal reporting.
“This in turn had increased demands on independent valuers, operating without formal licensing or compliance requirements. But the task of a forest valuer is not an easy one,” he said.
“The timberland investment market is characterised by a small number of large, privately owned assets, which transact infrequently and often offline. Market information, essential for benchmarking property valuations in other sectors, is relatively difficult to source in forestry.
“This suggests the value at risk for owners, who rely on valuations as a basis for reporting, could be quite substantial.”
The upshot was the IFA’s decision to form a subcommittee to support the AFVS. Its terms of reference were to promote and manage updates to the Australian Forest Valuation Standard; host meetings and workshops to review the AFVS under a works plan to be agreed by the committee; and seek to establish formal ties with the New Zealand Standard Valuation Working Group
Mr Lamb said the first formal workshop, held in March 2017 in Melbourne, was a modest but successful assemblage of practitioners and procurers.
“Notably and in contrast to today, the workshop was attended by a good number of land valuers but no investors,” he said.
At the Cairns workshop in August 2017, a proposal tabled by Jerry Leech to move the AFVS under the auspices of the AFS (now Responsible Wood), was given serious consideration, Mr Lamb said.
“However, the proposal was put on hold when an invitation was received from the NZ Forest Valuation Working Party to align on a joint ANZ standard. Interestingly, the invitation came at a time when the NZ working party was about to release an Exposure draft of its new and revised Standard,” he said.
“Given the charter of the IFA sub-committee had included a mandate to establish formal ties with our Kiwi cousins, the invitation was well received.”
Mr Lamb said the overwhelming logic in aligning the Australian and NZ standards was that the similarities between ANZ forestry were greater than the differences.
“From a timberland investors’ point of view, ANZ is more or less a common market, with increasingly common cross-ownership,” he said. “The single biggest question of course is, ‘Where would Australian native forests fit in an aligned standard’, given the Kiwis don’t have an equivalent industry.”
After some debate, Mr Lamb said it was decided to await the Exposure draft before making any sort of commitment.
Last week’s conference was told that the NZ Exposure draft would be available in about two weeks.