1. An Economic Analysis of the Impact of Sirex on the South African Forestry and Forest Products Industry Summary Roger Godsmark : Forestry South Africa June 2007

2. Presentation Outline Background  Data Used  Methodology  Assumptions  Scenarios Preliminary Results  Areas involved  Potential impact on growers  Potential impact on Processors Conclusion

3. Section 1 Background

4. Data Used

5. Data Used 1 Areas (based on Forestry Zones) Roundwood Volume (based on Forestry Zones)  Planted areas per product :FES 2005/06  Age class distribution per product :FES 2005/06  Sirex affected area:Sirex Co-ordinator Roundwood Prices (based on Forestry Zones)  Rotation ages per product:FES 2005/06  MAI’s :FSA  Sawlogs (at roadside): LP Index, Crickmay – March 2007  Pulpwood (delivered mill): NCT – June 2007  Poles (at roadside): SAWPA - June 2007

6. Data Used 2 Volume of Processed Product (recovery rates) Product Prices (current) Crickmay & Associates  Sawlogs 47%: Crickmay & Associates  Pulpwood 33%: FSA, Industry  Poles 95%: SAWPA Inoculation & Thinning Costs (current)  Sirex infection rates:Sirex Co-ordinator  Inoculation costs :Sirex Co-ordinator  Thinning costs: FSA, Industry LPI, Crickmay & Assocs  Sawn timber: LPI, Crickmay & Assocs  Pulp: FSA, Industry  Poles: SAWPA

7. Methodology Used

8. Basic Premises Upon Which Analysis Made The loss of any volume NOW through Sirex damage or thinnings will result in a foregone loss in volume in the future. First Premise This loss in volume will result in a foregone loss in income in the future to both the Forestry Industry AND the Forest Products Industry Second Premise

9. Methodology - Sirex Damage Determination of Foregone Volume and its Value Area affected / at risk (ha) Infection level (%) Equivalent area lost (ha) x MAI x Rot Age = m 3 /ha Future volume lost (m 3 ) x roundwood prices Future income foregone Future product volume lost (m 3 ) x recovery rates x processed product prices Age classes

10. Methodology - Thinnings Determination of Foregone Volume and its Value Area affected / at risk (ha) Thinning regime used 5%, 10% & 15% Equivalent area lost (ha) x MAI x Rot Age = m 3 /ha Future volume lost (m 3 ) x roundwood prices Future income foregone Future product volume lost (m 3 ) x recovery rates x processed product prices Age classes

11. Methodology - Thinnings Determination of Cost of Operations Area affected / at risk (ha) Thinning regime used 5%, 10% & 15% Area thinned (ha) x cost per hectare Total operational cost Age classes

12. Methodology - Inoculations Determination of Cost of Operations Area affected / at risk (ha) Infection level (%) 1-3% (33% inoculated) 3%+ (20% inoculated) Area inoculated (ha) x cost per hectare Total inoculation cost Age classes

13. Assumptions Made

14. Assumptions Made in Analysis 1 Areas at Risk Areas Affected  Sawlog stands: 15 yrs and older  Pulpwood stands: 10 yrs and older  Other stands: 13 yrs and older Infection Rates  W & S Cape (all crops): 0.1%  E Cape, S KZN & KZN Mid (sawlogs): 0.5%  E Cape, S KZN & KZN Mid (pulpwood): 5.0%  W, S & E Cape (sawlogs/poles): 50% of area at risk  W, S & E Cape (pulpwood): 100% of area at risk  S KZN & KZN Midlands (all crops): 100% of area at risk

15. Assumptions Made in Analysis 2 Thinnings Recovery Rates  Only pulpwood stands thinned (5%, 10% & 15% volume)  Eventual loss in volume 80% (i.e. 4%, 8% & 12% loss)  Thinnings occur between 4 & 7 years – all to waste  Cost based on R30 per m3 Inoculations  Cost per hectare (from Mondi Shanduka & Sappi) R1 100  Infection levels of 1-3% - 33% of area inoculated  Infections levels of over 3% - 20% of area inoculated  Sawlogs to sawn timber: 47%  Pulpwood to pulp: 33%  Poles to treated poles: 95%

16. Scenarios Used

17. Area Demarcation & Characteristics 1 Western & Southern Cape Eastern Cape, Southern KZN and KZN Midlands  Winter rainfall area  91% sawlogs – balance poles  Stable & low levels of infestation Balance of KZN, Mpumalanga & Limpopo  Summer rainfall area  60% sawlogs – balance pulpwood  Low to medium levels of infestation & increasing  Summer rainfall area  69% sawlogs – balance pulpwood  Currently Sirex free 1. Forestry Areas Divided into 3 Zones ZONE 1 ZONE 2 ZONE 3

18. Area Demarcation & Characteristics 2 2. Zones Divided into 2 Regions ZONE 1 ZONE 2 ZONE 3 Currently Affected Currently Unaffected Total Currently Affected & Unaffected

19. Scenarios 1. Based on Currently Affected Areas 2. Based on Currently Unaffected Areas  Current cost / losses on areas affected  Plus cost of thinnings (5%, 10% & 15%) & inoculations  Potential cost / losses if all “area at risk” affected  Plus cost of thinnings (5%, 10% & 15%) & inoculations 3. Basic scenarios developed ZONES 1 & 2 ZONE 3  Cost / losses if same infection levels as affected areas  Plus cost of thinnings (5%, 10% & 15%) & inoculations  Potential cost / losses if all “area at risk” affected  Plus cost of thinnings (5%, 10% & 15%) & inoculations 3. Consolidated ZONES 1, 2 & 3

20. Section 2 Summary of Preliminary Results

21. Areas Involved – Current Situation Hectares Total = 688 313 ha: At risk = 279 732 ha : Affected = 90 921 ha

22. Areas Involved – RSA Hectares Total = 688 313 ha: At risk = 279 732 ha : Potential Affected = 199 432 ha

23. Estimated Volume Losses – RSA (ex Sirex Damage - Growers) M3 Ex affected = 1 315 000 m 3 : Ex at risk = 1 417 000 m 3

24. Estimated Volume Losses (ex Sirex Damage) M3

25. Estimated Volume Losses – RSA (ex Sirex Damage - Processors) M3 Ex affected = 453 000 m 3 : Ex at risk = 501 000 m 3

26. Estimated Foregone Income - RSA (ex Sirex Damage - Growers) Million Rand Ex affected = R346 million : Ex at risk = R383 million

27. Estimated Foregone Income - RSA (ex Sirex Damage - Processors) Million Rand Ex affected = R1 431 million : Ex at risk = R1 527 million

28. Estimated Foregone Income (ex Sirex Damage) Million Rand

29. Estimated Volume Losses (ex Thinnings - Growers) M3

30. Estimated Volume Losses (ex Thinnings - Processors) M3

31. Estimated Foregone Income (ex Thinnings - Growers ) Million Rand

32. Estimated Foregone Income (ex Thinnings - Processors ) Million Rand

33. Estimated Inoculation Costs Million Rand No inoculations undertaken Current Affected Area = R20 m: Area at Risk = R74 m

34. Conclusion 1 Sirex is already causing massive losses in terms of volume and foregone income for the Industry. Should it spread into those areas where it currently is not present, these losses will increase dramatically. Sirex will require a large amount of resources to be used to control it.

35. Conclusion 2 The best results can be achieved by taking action as soon as new infestations are discovered It is thus critical that an efficient and effective monitoring programme be developed and put in place ASAP