Understanding Stumpages/Royalty in Native Forest

This article was printed in the Southern Queensland Forestry News magazine in Autumn 2005

Report by Ken Matthews E.O. PFSQ

The purpose of this article is to provide a better understanding of how native forest sawlog stumpage/royalty value is calculated. Additional information is then provided to assist in the interpretation of stumpage/royalty to achieve the best result for your situation.
 

Often a landholder is approached by one miller; they are given a price for their timber per cubic metre and then simply accept that price in the belief that is all they can achieve. In many cases this may be correct simply due to the lack of options available when marketing and selling their resource.

 Compulsory Grade Sawlog

Over the last 5 years especially, the timber industry has found it increasingly difficult to find reliable resource supplies. As a consequence the average stumpage rate and haulage distance of native sawlog has risen. Many landholders have more market options in the veneer, pole, and compulsory and salvage grades than before simply due to the fact mills are prepared to haul longer distances.
 Sawn/graded timber has a market value that is determined by resource costs, processing costs, marketing and delivery costs and profit margin. The market price for sawn timber is influenced by competition, demand and trends. In other words, it is extremely difficult for timber wholesalers to raise the sale price, so in order to achieve a higher profit margin; sawmiller’s seek to find efficiencies and savings.
 The basics of stumpage/royalty (The two terms have become synonymous in the private sector) is that a standing tree has a value determined by a number of factors such as species, wood quality, dimensions, distance to sawmill, quantity of resource in comparison to the scale of the property, property access and terrain i.e. rocky, steepness that impact upon cut and snig costs.
 Once theses factors have been taken into account and cost of extraction calculated, the mill offers a price.
So the basic formula for stumpage is (Mill gate price i.e. what the mill can afford to pay for log delivered to the mill yard – extraction costs = stumpage). In other words, to a certain degree the stumpage/royalty applicable to a resource is “site specific”. It is not advisable to hear of a stumpage price achieved by one landholder and automatically assume that the same price will be applicable to your timber. The variables/constraints applicable to your property may result in either a higher price or lower price per cubic metre.