Collaboration for Agriculture & Rural Development:" Sustainable and profitable development of acacia plantations for sawlog production in Vietnam - Milestone 5 " ppt

Executive summary This report provides baseline data relating to the growing of acacia sawlogs in plantations in central and northern Vietnam, log harvesting and transport, and primary p

Ministry of Agriculture & Rural Development

Collaboration for Agriculture & Rural

Development

032/05VIE Sustainable and profitable development of acacia plantations for sawlog production in

Vietnam

Milestone 5: Baseline conditions established

C.E Harwood, C Beadle, Phi Hong Hai and Nguyen Duc Kien

May, 2007

Executive summary

This report provides baseline data relating to the growing of acacia sawlogs in

plantations in central and northern Vietnam, log harvesting and transport, and primary processing of sawn boards in sawmills

Growing acacia plantations for pulpwood appears to be a profitable business for smallholder farms, many of whom are prepared to borrow from banks to establish plantations Acacia hybrid clones are now the most favoured planting material A simple spreadsheet financial model for pulpwood growing was developed indicating that internal rate of return could be as high as 24% under baseline conditions

Sawing technology dictates minimum acceptable log size and some mills can saw

1.5-2 m long logs as small as 15 cm small end diameter under bark (Sedub) Under

pulpwood growing regimes, acacia plantations grown for pulpwood will produce a small proportion of small sawlogs, even without pruning and thinning

A 9-year-old acacia hybrid plantation in central Vietnam was sampled, and estimated

to have a mean annual volume increment of 18.9 cubic metres per hectare per year

Of the total stand volume in this stand, 36% was potentially marketable as small sawlogs down to 15 cm Sedub However, trial sawing of sample logs from this unpruned stand revealed many knot defects which substantially reduced saleable sawn product volume

The information collected provides a baseline against which the physical impact and financial benefits of technologies being demonstrated in the project (pruning, thinning and nutrition and vegetation management) can be evaluated

Glossary

Dbhob diameter at breast height over bark

IRR internal rate of return

MAI mean annual increment

NPV net present value

Sedob small end diameter (of log) over bark

Sedub small end diameter (of log) under bark

Growing Acacia species in plantations

This summary of baseline conditions refers to lowland sites (less than about 800 m elevation in southern and central Vietnam, and less than about 300 m in northern Vietnam) receiving mean annual rainfall of more than 1400 mm These regions were

identified in the Project review of acacia genetics (Harwood et al 2006) as being the

most suitable environments for profitable production of acacia sawlogs

The best acacia breeds for sawlog production are summarised in the genetics review

Tested best clones of the acacia hybrid (A mangium x A auriculiformis) are the most

productive acacia variety in plantations, followed by genetically improved and tested

planting material of A mangium and A auriculiformis Logs of these three varieties are all widely accepted by sawmills in Vietnam A crassicarpa is another promising

fast-growing species, but not yet proven for sawlog production in Vietnam

While, in principle, growers in almost all lowland provinces in Vietnam now have

access to the selected acacia hybrid clones of FSIV, and to good-quality seed of A

mangium and A auriculiformis from seed orchards or seed production areas, in

practice many recent plantations are still being established with genetically inferior planting stock For example, one plantation near Hue belonging to the Hue Province Forest Development Corporation established in 2005 used seed collected from acacia hybrid clones (ie F2 generation) This advanced-generation hybrid seed is highly variable and generally poor in performance, and MARD has passed a regulation that plantations should not be based on seed collected from hybrids, yet this is still

happening The corporation now has moved to using only clonal plants of MARD-approved hybrid clones, available cheaply from clonal nurseries in central Vietnam (price 2 US cents at the nursery)

Almost all the acacia plantations in Vietnam are established at initial spacings of 1300 – 1600 stems per hectare (common initial spacings are 3 m x 2.5 m, 3 m x 2 m, 3.5 x

2 m) Occasionally a spacing of 1000 stems per hectare (4 x 2.5 m) is used They are grown on rotations that are clear-felled to produce a single crop of pulpwood (see Figures 1, 2) Rotation age varies from as little as 5 years for productive sites in the south growing acacia hybrid clones, to 10-12 years for less productive sites in central and northern Vietnam

Indicative pulpwood mean annual increments (MAIs) for the three main acacia

varieties obtainable from smallholder farmer plantations are shown in Table 1 below The values shown are MAI under bark for a 7-year rotation down to small end

diameter under bark (Sedub) of 4 cm, assuming good quality germplasm, initial stocking of 1300 -1600 stems ha-1, application of a typical technology package (site clearing and manual cultivation of planting holes sized 30 x 30 x 30 cm, at least two rounds of thorough manual or chemical weed control, 50 grams NPK fertilizer per tree) Good-quality forest land is assumed, with moderate slope and an average soil depth exploitable by tree roots of at least 50 cm These indicative MAIs are based on figures obtained from demonstration pilot plantings on research stations reported by

Le Dinh Kha (2001) and Le Dinh Kha et al (2003), but reduced by 20% to account

for generally lower levels of silvicultural inputs on small, farmer managed

plantations

Figure 1 Four-year-old pulpwood plantation of A mangium near Hue, central

Vietnam Despite absence of pruning, stem form is relatively good, although lack of singling has produced some multiple-stemmed trees

Figure 2 Two-year-old farmer-owned and managed plantation of clonal acacia

hybrid in Quang Binh province, central-northern Vietnam, age 2 years, mean tree height 6-7 m Note some trees with double leaders, absence of pruning

Table 1 Indicative volume production under bark from farmer acacia pulpwood

plantations (MAI to 4 cm Sedub, m3 ha-1 year-1)

Variety Northern Vietnam Central Vietnam Southern Vietnam

Acacia hybrid (best

tested clones)

10-15 12-20 15-25

A mangium

(improved seed from

seed orchards)

8-12 10-18 15-20

A auriculiformis

(best tested clones or

orchard seed)

6-8 8-12 12-18

Plantation productivity will be much lower on poor sites with very shallow and

degraded soils such as that shown in Figure 3 Soil water and nutrient storage

capacity, and soil volume for root system development, is insufficient to support good

growth Improvements in genetic quality of planting stock and additional silvicultural

inputs will not deliver high productivity to such poor sites They are not suitable for

investment in wood production plantations, and certainly not suitable for sawlog

production One of the important challenges for plantation forestry in Vietnam is to

better identify very poor sites and avoid investment in wood-producing plantations on

these sites

Figure 3 Poor 2-year-old plantation of acacia hybrid on skeletal, severely eroded site

just south of Hue Yellow colour indicates tree stress and nutrient deficiency

Pulpwood prices

There are over 20 woodchip mills located near ports in northern, central and southern Vietnam These mills export woodchips In addition, pulp mills within Vietnam at Bai Bang in the north and near Ho Chi Minh City purchase pulpwood

Mill gate prices paid at Da Nang chip mill in September 2006 were as follows

• Eucalyptus wood $US 46 per green tonne (bark removed)

• Acacia wood $US 41 per green tonne (bark removed)

At the chip mill at Haiphong, the price paid for acacia and eucalypt wood is the same (Mr S J Midgley, pers comm., 2007) Relative price of acacia and eucalypt varies from mill to mill

At the Bai Bang paper mill, in March 2005, 4 metre logs to 6 cm Sed at the mill gate received 500 000 dong per green tonne (approximately US$30 per green tonne or per cubic metre) (S.J Midgley, pers comm 2007)

The prices paid to growers are lower than the mill gate prices, because the cost of felling, transport to roadside, debarking, loading onto trucks and transport to the chip mill must be subtracted from the mill gate price Some forest farmers will undertake some of these activities, rather than pay contractors to do so

At Dong Ha station, acacia wood is purchased at the forest roadside by buyers for 400,000-500,000 dong per “double stere” (a stacked pile 2 x 1 x 1 m3, equivalent to 1.2 m3 solid volume) Logs down to 4 cm Sedub are accepted for pulpwood As the green weight is approximately 1 tonne per cubic metre, this equates to a roadside price, in the plantation, for pulpwood of approximately $US 20-25 per cubic metre or per green tonne Wood is transported in small trucks over the forest roads to the highway, then transferred to larger trucks for the highway journey of some 200 km to the Da Nang chip mill A transport cost from Dong Ha town to the Da Nang chipmill

of 100,000 dong per tonne was cited This information can be assembled to give an approximate price structure for pulpwood (Table 2)

Obviously, farmers located further from a woodchip mill will face higher transport costs and therefore will receive lower prices at the roadside for their acacia pulpwood Growers who are closer to chip mills will receive higher prices Recently, new

chipmills have commenced operations in north-central Vietnam at Da Tuong pass (near Chan May gulf of Thua Thien-Hue Province) and Vung Ang harbour (Ha Tinh province)

Table 2 Price structure for acacia pulpwood at Dong Ha

Stage Price or cost, $US

per green tonne

Notes

Standing wood prior to

harvest

15-20

Cost of felling, bucking to 2-4

m lengths, transport to

roadside and debarking

3-5

Harvested wood at roadside in

forest, debarked

20-25 Calculated from volume price

paid per stere Loading and transport 15 km

from plantation to Dong Ha

town in small trucks, load

onto large trucks in Dong Ha

9-10 Calculated by subtraction

This seems rather high – need

to check on next visit

Highway transport from Dong

Ha town to Da Nang Mill

6-7 Equivalent to $0.04 per tonne

per km – seems rather low, need to check on next visit Price at Da Nang chipmill

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Financial model for growing pulpwood

A simple financial model for pulpwood growing, produced using Microsoft Excel, is shown in Table 3 The model assumes our best estimates for a range of costs and returns, which will be further checked during meetings with growers and forest extension staff Using formulas for discounted cash flow, the model calculates net present value (NPV) assuming a real (i.e net of inflation) discount rate of 10%, and internal rate of return (IRR) All costs and returns are in 2007 US dollars; the model does not factor inflation into costs and benefits

Under the baseline assumptions, growing acacia pulpwood is a highly profitable business for farmers who borrow money to finance the operation A farmer borrows

or invests a total of $US 569 over 7 years, with most costs incurred in year 1, to achieve a stumpage value of $US 2100 at the end of year 7 This represents a net present value of $512 for the net return on the investment and an internal rate of return of 24%

Many farmers now recognise plantations as a profitable farm enterprise, and are prepared to borrow money from banks to establish plantations

Rotation length can be as short as 7-8 years on productive sites in central Vietnam, slightly longer in the north and as little as 5 years in the south The baseline internal rate of return of 24% assumes that a mean annual increment (MAI) of 15 m3 ha-1 under bark can be achieved for the pulpwood rotation (volume down to 4 cm sedub)

It is emphasised that site quality varies greatly With poor plantation management, or

a poor quality site, low volume production results An MAI of 7 m3 ha-1 gives an IRR

of 10%, and the investment becomes marginal

Table 3 Discounted cash flow for one-hectare pulpwood plantation – base case

Discounted cash flow model for one hectare of pulpwood plantation

Acacia hybrid all costs and returns in US dollars

Year cost

discounted cost return

discounted return

NPV of investment at interest rate IRR

1 $ (388) ($468) $ - $981 $512 ($388) 24%

2 $ (31) $ - ($31)

3 $ (25) $ - ($25)

4 $ (25) $ - ($25)

5 $ (25) $ - ($25)

6 $ (25) $ - ($25)

7 $ (25) $ - ($25)

8 $ (25) $ 2,100.00 $2,075 (569) $

Interest rate (real) percent interest /100 0.10 initial stocking (m x m) 3.5 2 1429 trees/ha Costs Year 1 site preparation $ 300

planting stock @ 4 cents/seedling $ 57 delivered to site planting out (days x labour cost/day) 3 $ 3 $ 9

NPK fertiliser (trees x amount x price) 0.1 $ 29 $ 0.20 cost of fertilizer per kg weeding 2 rounds (days x cost/day) 6 $ 3 $ 18

Year 2 Silviculture costs year 2 weeding 2 rounds (days x cost/day) 2 3 $ 6

Recurring Land cost (annual rent) per year $ 5

Annual maintenance cost years 2-7 $ 20

roading, fire control, as required

Returns

pulpwood volume, cu metres 105 pulpwood stumpage price, $/cu m 20

Sawlog size and quality requirements

Because of the strong demand that has developed for acacia sawn wood, larger, sound

logs from the pulpwood harvests are directed to local sawmills, where they fetch a

much higher unit price than pulpwood logs However, only a small proportion of the

total stand volume in unthinned, unpruned plantations is of sufficient size for sawing Sawing technology dictates the minimum acceptable log size Small mills typically

use a horizontal bandsaw with logs clamped onto a rail carriage (Figure 4) and with

this type of system sawlog Sedub should generally be 18-20 cm for profitable

operation Those mills that have vertical bandsaws where logs can be manually

guided past the blade are able to saw down to 15 cm Sedub (Figure 5)

Most of the sawn acacia wood is used for furniture components, so there is not a

strong demand for long straight logs Acceptable log lengths at some mills can be as

little as 1.2 m Dimensions of sawn products can be as small as 300 x 50 x 30 mm

(after drying)

Mill buyers typically visit harvesting operations and purchase all sound logs larger than their acceptable minimum size They avoid logs which are very crooked, and those with obvious surface defects Internal defects such as those caused by knots and rot pockets reduce recovery of saleable product and increase production cost as they have to be docked out during sawing

Figure 4 Horizontal bandsaw at small sawmill at Dong Ha, sawing acacia log of

diameter 22 cm

Figure 5 Vertical bandsaw at Hue, sawing acacia log of diameter 18 cm Log is

guided manually across log bench by two workers

Figure 6 Sawmiller Mr Nguyen Si of Dong Ha discussing defects in board sawn

from acacia hybrid sawlog

Sawlog prices

The price paid for sawlogs on a per cubic metre basis is usually highest for A

auriculiformis, followed by acacia hybrid and then A mangium Prices from

sawmills in central and southern Vietnam presented below are typical of the current

situation

Table 4 Prices paid for acacia sawlogs by Huong Giang sawmill

Log small end diameter

(cm)

Price paid for acacia hybrid logs $US m-3

green recovery of sawn boards (% of log volume)

Huong Giang sawmill is located on the Perfume River 10 km upstream from Hue

These are the prices paid for logs delivered to the mill Minimum log length is 1.5 to

2 m Log volume is calculated as a cylinder based on log length and small end

diameter For A mangium logs prices paid per cubic metre are 80-85% of those

above, while prices paid for A auriculiformis may be 10% higher This price table is

particularly useful, as it shows the increase in unit price paid as log diameter

increases

Mr Nguyen Si (Figure 6) operates a small sawmill at Dong Ha, which saws acacia

wood as part of its log mix He buys acacia sawlogs from local plantations at the time

of harvest operations and transports them to his mill in his own truck He pays $80