potential for koa improvement in hawaii · financial analysis of a koa plantation • started with...

Potential for Koa improvement in Hawaii

Nick Koch

Why is there little private investment in koa in Hawaii today ?

• Reasons for lack of investment

• Market forces in Hawaii wood supply

• Economic aspects of koa planting

• Example of koa planting cost

• Opportunities for koa forestry based on research

Lack of investment arises from:• UNCERTAINTY coupled with

– Long term crop 50-60? year rotation– Unknown merchantable productivity– High startup cost

• Lack of incentive to invest in forestry – Some tax incentives– Some cost share programs (with strings)

• Availability of existing material– Existing old koa wood is of high quality– Alternatives are attractive outside Hawai’i

• Strong demand within state– Demand is relatively inelastic – price independent

Current RETAIL prices

Koa: GreenDry

Select: 4/4 $13/bf $14/bfSelect 8/4 $15/bf $17/bfPremium selects 8/4 $18/bf $20/bf

Qtr Sawn add $2.00 $20/bf $22/bfShorts, narrows and commons 3’-5’ $9/bf $10/bf

Upper grade 8/4 3’-6’ 7’+ DryingSelect and better slabs (16” & Wider) $25/bf $35/bf $2/bfSelect and light curl 2A $25 $30 $1/bfMedium Curl 3A $30 $35 $1/bfPremium curl/instrument4A $41 $50 $1/bfPremium curl/instrument 5A $57 $70

$1/bfFor 4/4 deduct 20%

Koa log price comparison

Source: ITTO ANNUAL REVIEW AND ASSESSMENT OF THE WORLD TIMBER SITUATION 2009

• Koa vs. teak (FOB – harbor)– Koa = $ 4.5 / bf c. 1990’s & $ 5 in 2009

– Conversion: 200 bdft/m3

Koa

Big leaf mahogany & African mahogany vs. Koa

Source: ITTO ANNUAL REVIEW AND ASSESSMENT OF THE WORLD TIMBER SITUATION 2009

Koa

Koa

Cites App II listing Nov/03

Macro: North American wood balance 1990-2006

Source: FAO State of the World’s Forests 2009

• American consumption dependent on imports since 1992

• North America net importer since 2003

• American demand has outpaced supply for last 15+ years

• Continued dependence on imports in spite of economic downturn

• As emerging markets increase domestic use of raw materials, we will need to find local sources of wood to satisfy our needs

Spotted owl controversy

Uncertainty

Genetic variability of heartwood from 15 year old scarified koa stand

- There is still a long way to go in research!

Financial analysis of a koa plantation

• Started with a known cost of establishment– $ 2,300 / ac – everything included

• Added several productivity values– Calculated NPV of future harvest

– Focus on merchantable wood volume

– Used current koa stumpage values + 1% real price appreciation/annum

• Included cattle land values for comparison

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

40 50 60 70 80

NPV

(USD

)

Rotation (years)

NPV of planted koa forest in former pasture based on rotation length and productivity

Planting cost

MAI 2 m3/ac

MAI 3 m3/ac

MAI 4 m3/ac

MAI 5 m3/ac

cattle @ $15

cattle @ $ 20

Cattle @ $25

MAI = 5m3 /ac/yr1000 bdft/ac/yr

MAI = 4 m3 /ac/yr800 bdft/ac/yr


MAI = 2 m3 /ac/yr600 bdft/ac/yr <Establishment to yr 2 cost>

How can research help?

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

40 50 60 70 80

NPV

(USD

)

Rotation (years)


Planting cost

MAI 2 m3/ac

MAI 3 m3/ac

MAI 4 m3/ac

MAI 5 m3/ac

cattle @ $15

cattle @ $ 20

Cattle @ $25





Shorten rotation

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

40 50 60 70 80

NPV

(USD

)

Rotation (years)


Planting cost

MAI 2 m3/ac

MAI 3 m3/ac

MAI 4 m3/ac

MAI 5 m3/ac

cattle @ $15

cattle @ $ 20

Cattle @ $25





Incr

ease

pro

duct

ivit

y

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

40 50 60 70 80

NPV

(USD

)

Rotation (years)


Planting cost

MAI 2 m3/ac

MAI 3 m3/ac

MAI 4 m3/ac

MAI 5 m3/ac

cattle @ $15

cattle @ $ 20

Cattle @ $25





Decrease startup costs (or increase incentives)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

40 50 60 70 80

NPV

(USD

)

Rotation (years)


Planting cost

MAI 2 m3/ac

MAI 3 m3/ac

MAI 4 m3/ac

MAI 5 m3/ac

cattle @ $15

cattle @ $ 20

Cattle @ $25





Decrease startup costs (or increase incentives)

Eucalyptus grandis on sugar land

Wait where did that $ 2,300 come from?

• 6 years of planting koa in Volcano on behalf of Kamehameha Schools

• Approximately 350 acres of koa plantation to date

• Known problems– Acacia psyllid

– Stem form

Establishment costs – Koa to 1.5 yrActivity $/hour trees/hour $/tree $/acre $ / project

Spot cultivator $175 360 $ 0.49 $211.46 $ 21,145.83

Mech pp spray $115 870 $ 0.13 $57.50 $5,750.00Chem 0.6 42 $25.20 $2,520.00

$82.70 $8,270.00

Planting $35 60 $ 0.58 $253.75 $ 25,375.00 kilo/hr

Seed collection $35 0.25 $0.03 $ 12.18 $ 1,218.00 cost per kilo $ 140.00

Seedlings $1.20 $522.00 $ 52,200.00

$/oz oz/treeFertilizer 1 $35.00 133 $ 0.26 $114.47 $ 11,447.37

10-30-10 @ $ 21 $0.026 4 $ 0.11 $45.68 $ 4,567.50 $ 0.37 $160.15 $16,014.87

Fertilizer 2 $35.00 133 $ 0.26 $114.47 $ 11,447.37 11-52-00 @ 6 oz/tr $0.03 4 $ 0.13 $55.68 $ 5,568.00 $ 25.6/bag $ 0.39 $170.15 $17,015.37Fertilizer $ 0.76 $ 330.30 $ 33,030.24

Spray 1 $35 87 0.40 $175.00 $ 17,500.00 Chem $ 42.00 0.25 $ 0.02 $10.50 $1,050.00

$ 0.43 $185.50 $18,550.00Spray 2 $35 87 0.40 $175.00 $ 17,500.00

Chem $ 42.00 0.25 $ 0.02 $10.50 $1,050.00$ 0.43 $185.50 $18,550.00

Spray 3 $35 87 0.40 $175.00 $ 17,500.00 Chem $ 42.00 0.25 $ 0.02 $10.50 $1,050.00

$ 0.43 $185.50 $18,550.00Spray 4 $0 87 0.00 $0.00 $ -

Chem $ - 0.25 $ - $0.00 $0.00$ - $0.00 $0.00

Post Competition control $ 1.28 $ 556.50 $ 55,650.00

Singling 1 $35.00 109 $0.32 $139.68 $13,967.89Singling 2 $35.00 109 $0.32 $139.68 $13,967.89Singling 3 $35.00 109 $0.32 $139.68 $13,967.89Singling $0.96 $419.04 $41,903.67

Grand totals $5.30 $2,387.93 $238,792.74

Establishment costs – site & plants

Activity $/hour trees/hour $/tree $/acre $ / project

Spot cultivator $175 360 $ 0.49 $211.46 $ 21,145.83

Mech pp spray $115 870 $ 0.13 $57.50 $5,750.00

Chem 0.6 42 $0.06 $25.20 $2,520.00

$82.70 $8,270.00

Planting $35 60 $ 0.58 $253.75 $ 25,375.00

kilo/hr

Seed collection $35 0.25 $0.03 $ 12.18 $ 1,218.00

cost per kilo $ 140.00

Seedlings $1.20 $522.00 $ 52,200.00

$2.36 $1,024.59 $ 102,458.83

Establishment costs – fertilizer


$/oz oz/tree

Fertilizer 1 $35.00 133 $ 0.26 $114.47 $ 11,447.37

10-30-10 @ $ 21 $0.026 4 $ 0.11 $45.68 $ 4,567.50

$ 0.37 $160.15 $16,014.87

Fertilizer 2 $35.00 133 $ 0.26 $114.47 $ 11,447.37

11-52-00 @ 6 oz/tr $0.03 4 $ 0.13 $55.68 $ 5,568.00

$ 25.6/bag $ 0.39 $170.15 $17,015.37

Fertilizer $ 0.76 $ 330.30 $ 33,030.24

Establishment costs – weed control


Spray 1 $35 87 0.40 $175.00 $ 17,500.00

Chem $ 42.00 0.25 $ 0.02 $10.50 $1,050.00

$ 0.43 $185.50 $18,550.00

Spray 2 $35 87 0.40 $175.00 $ 17,500.00

Chem $ 42.00 0.25 $ 0.02 $10.50 $1,050.00

$ 0.43 $185.50 $18,550.00

Spray 3 $35 87 0.40 $175.00 $ 17,500.00

Chem $ 42.00 0.25 $ 0.02 $10.50 $1,050.00

$ 0.43 $185.50 $18,550.00

Spray 4 $0 87 0.00 $0.00 $ -

Chem $ - 0.25 $ - $0.00 $0.00

$ - $0.00 $0.00

Post Competition control $ 1.28 $ 556.50 $ 55,650.00

Establishment costs – stem form


Singling 1 $35.00 109 $0.32 $139.68 $13,967.89

Singling 2 $35.00 109 $0.32 $139.68 $13,967.89

Singling 3 $35.00 109 $0.32 $139.68 $13,967.89

Singling $0.96 $419.04 $41,903.67

Spot cultivator, $211.46 , 8.9%

Preplant spray, $82.70 , 3.5%

Planting, $253.75 , 10.6%

Seed collection, $12.18 , 0.5%

Seedlings, $522.00 , 21.9%

Fertilizer , $330.30 , 13.8%

Weed control, $556.50 , 23.3%

Singling, $419.04 , 17.5%

Koa planting cost distribution

Components of successful forest business development

• Known costs / risks / outcomes• Land availability• Favorable regulatory & political structure

– Taxes– Incentives– Ability to harvest wood

• Availability of tools to manage forest– Specialized machines– People capital – know how– Genetic material -available-

Specialized equipment: spot cultivator

Opportunity for koa improvement• Decrease UNCERTAINTY

– Known growth potential• How much merchantable wood will land produce?• How long will it take?• What are the SOPs for the development of a koa stand?

• Mitigate threats– Koa wilt– Acacia psyllid– Rust– Politics!

• Improve information availability– Manual for koa planting / development – much work done

• Pictures – demonstration plots• How to videos• Financial returns based on reality

Mahalo

potential for koa improvement in hawaii · financial analysis of a koa plantation • started with...

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