The $9,000 paid for the privilege of growing the trees, rated over 260,000 ha, is more than $2.3 billion that Gunns doesn’t need to spend.
With 260,000 hectares of plantation, Gunns will defend its monopsony position vigorously to retain control of the price paid.
What will it take to profit?
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If our plantation “investor” has put up $9,000 per hectare, they’d need to get 265 tonnes in 13 years to break even at the “floor price”. Since Gunns woodlot project comprises thousands of hectares of plantation, that would mean an average growth rate of nearly 22 tonnes per year - an unlikely outcome.
Yields over time are threatened by water shortages, insects, fires and poor soils while any profitable payouts to “investors” require Gunns to report honestly on actual yields.
Contractors
Logging contractors have been drawing the short straw for a long time. They are paid by tonnage, so their income has no direct relationship to their actual costs.
When fuel prices, maintenance, and so on, increase in price, it’s paid by the contractors. In other words the contractors pick up the risks associated with collection and transport of Gunns raw materials, and they also absorb many of the costs, e.g. fuel price increases and maintenance.
Most of the contractors are stuck with major debts incurred to buy their heavy forestry equipment. They have to work for forestry and take what they can get - or go broke trying. That’s why many of them report driving 16-hour days and not getting their trucks maintained.
Log truck drivers can spend over $150,000 per year on fuel alone, saving Gunns tens of millions across the whole contractor base.
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But there’s more risks for Gunns mill contractors …
The Pulp Mill Assessment Act Section 11 prevents any person from seeking common law redress in anything “arising out of or relating to any assessment or approval of the (pulp mill) project”.
The boundaries of this section are entirely unclear and legal opinions vary widely. Any person who falls into dispute with Gunns could find Section 11 used against them. If so, subsequent court cases could be both expensive and extensive, placing all those who deal with the project at unknowable risk … plus Gunns is infamous for its propensity to sue.
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