HIGH COST OF FORESTRY

Sun (Auckland), Volume I, Issue 254, 17 January 1928, Page 9

HIGH COST OF FORESTRY

SHOULD IT BE JJ7 PER ACRE? GOVERNMENT OUTLAY COMPARED 111. THE total nominal sales of bonds in N.Z.P.F. up to March * 26, 1927, as shown by the company’s “statement of estimated profit,” amounted to £2,170,925. It undertakes to afforest what one critic has called “an unknown and unseen a« rC eac k =£2s “bond.” That would mean a total of 86,830 acres for this immense sum of money, or plus the 5 per cent, allowance described as “forest reserve,” approximately 90,000 acres.

The statement quoted shows “cost Of land, development and plan ing, against bonds sold,” £840,414, which a ? P .t rently ls the company’s estimate on ™ total capital outlay upon those JO,OOO acres, or approximately £0 6s oa an acre. Prom the Directors’ Annual Report, dated September 5, 1927, it is learned that the net area planted at July 31 was 63,271 acres, representing approximately 68,000 acres gross. The statement of estimated profit for the period ended 26/3/27 shows “Cost of Land, Development and Planting against Bonds sold, £840,414 7s Sd, ’ and as the whole proceeds of bonds sold is taken credit for m this account it is reasonable to presume that the development of the area represented by the £2,170,925 of bonds will cost no more. Yet, turning to the balance-sheet dated 2/7/27, published alongside the same report we find “Land and Development. £918.343 14s 9d” and the bonds sold £I,OOO less than at March. Is it not then u fair assumption that maintenance and administration are included in the bal-ance-sheet item of Land and Development? In an undertaking such as this are not the shareholders and bondholders entitled to know what are the actual figures of each class of ex penditure? COST OF ADMINISTRATION Further, the balance-sheet shows no expenditure on maintenance and a close scrutiny discloses no head other than “Land and Development’ in which it could be included. But the statement of estimated profit also shows the further item “maintenance and administration on account of bonds sold,” which is the healthy amount of £923,616, or a further sum of approximately £lO 5s an acre.

This total amount was discussed fairly fully in THE SUN’S second article, but the most indulgent critic may be justified in asking why the cost of administration per acre should be a higher figure than the cost of land, development and planting. The Sun suggests that whatever the merits or demerits of the whole scheme, no reasonably sane person could have any confidence in it unless he knows what is being done with the gross capital outlay per acre, and to whom it, or a large portion of it, is being paid. At any rate, from the statement of estimated profit, we arrive at the gross figure of approximately £l9 lls &u an acre as the cost of these plantations. On the face of it, the promoters get £25 and promise to deliver a planted acre which costs about £2O. Looking at the company’s afforestation costs from another angle, the proceeds of each £25 bond are divided into two portions—£B 6s 8d to be invested as a guarantee against maintenance and £l6 13s 4d in immediate outlay. The interest on £8 6s 8d at 5 per cent, per annum amounts to £s 4d. If this investment and guarantee mean that the interest is intended to cover the annual cost of upkeep of the forests, then The Sun may assume that the company is spending £l6 13s 4d an acre in capital outlay plus 8s 4d an acre per annum for maintenance. PRICES FOR LAND But another face is put upoa these costs when reference is made to an article appearing in the Dunedin “Star” as long ago as February, 19: It seems to The Sun to be an authoritative article, and it contains the following surprising statement: “The total cost of establishing the 237,000 acres of State plantations during the period 1925-35 should be not more than £1,250,000.” This gives a cost per acre of approximately £5

THE SUN now inquires whether it is correct that Government forssts can be established at £5 5s an acre. It also inquires whether, if that is the case, there is any necessity to-spend £9 6s 8d an acre on similar plantations, plus a further £lO 5s an aero for administration. Truly Mr. Hunter has asked. “What does it matter to anybody what the

expenses are?” But The Sun now asks him and Smith, Wylie and Co. how many people would purchase “bonds” for £25 if they know that the capital outlay of £l6 13s 4d per bond or per acre corresponds to the Government capital outlay of £5 ss.

If it should be remarked that the company has to buy land, wher’as the Government properties are Crewn lands, The Sun quotes Professor Hugh Corbin, of the Auckland University, in a special report as follows. — “It (afforestation) is the most satis factory way of utilising, according to the present state of our knowledge, the utterly waste areas of the ‘pumice country’ of this Dominion.” The Sun would he interested to know whether N.Z.P.F. is utilising “utterly waste” areas, and if so, whether or not utterly waste prices are being paid for them. VIRTUE IN APATHY We have previously referred to a Smith, Wylie article, which says: “An apathetic Government was planting trees—that was all. But where was its policy—its objective?” It is permissible to say that if the apathetic Government has succeeded in planting 99,000 acres of State plantations at about one-third of the cost per acre of the N.Z.P.F., some virtue in apathy has at last bean detected. Yet not the least surprising feature in the report issued by Mr. Hugh Corbin, as Professor of Forestry, is this statement: “One great advantage to the operations of the N.Z.P.F. is the freedom from political interference, and the fact that efficiency in all departments appears to be the guiding principle.” The annual report of the State Forest Service, placed before Parliament recently, gave the following details regarding the Kaingaroa plantations commenced in 1913: No. of trees, 47,282,815; area planted, 52,735 acres; cost of establishment to date, excluding cost of land, £195,203 2s 9d. This is less than £4 per acre.

Then, according to these figures, -the initial cost per acre to the bondholders is more than four times the actual cost per acre of the Government plantations at Kaingaroa. It has been shown above that the figure for “maintenance and administration" works out at £lO 5s per bond or per acre. If £8 6s 8d a bond is to be invested as a guarantee against maintenance, The Sun inquires to what purpose the odd £1 18s 4d a bond is put. Is it for administration? If so, of what, and to whom is it paid? It was also shown above that the figure for land, development and planting works out at £9 6s 8d an acre. If the gross capital outlay is £l6 13s 4d per acre, the bondholders and the public are entitled to know to what purposes the difference of £7 6s 8d a bond is devoted. The Sun simply asks for evidence that there is efficiency and economy in all departments. (To be Continued.) [The first two articles of this series appeared in The Sun of January 14 and January 16.) DIRECTORS WILL REPLY In connection with these and subsequent articles of the series, which will appear this week, we have had a visit from Messrs. R. G. Menzies, of Melbourne, a member of the Board of Directors N.Z P.F., Ltd., and a representative of the Australian shareholders and bondholders; Mr. R. N. Henderson, of Sydney, a director of Smith, Wylie (Australia, Ltd.), and Mr. Norman Frazer, chairman of N.Z.P.F., Ltd. Mr. Menzies states that they are in New Zealand in connection with important changes in the management and administration of N.Z.P.F., Ltd. At our suggestion they propose to review these articles before leaving for Sydney by the Maunganui on Friday. The Sun has promised them ample space for their reply, and we suggest that our readers reserve judgment on the whole question till the directors’ reply is before them.—Ed., The Sun.