Abstract
Growing Indian Sandalwood in plantations in the Ord Irrigation District.

I am the Special Projects Manager for Integrated Tree Cropping. The bread and butter of our company is selling a tax-effective prospectus to investors. Most of our bread and butter work is Blue gums, eucalyptus, plantations. More recently we have made an expansion up into the tropics. In Queensland we plant eucalyptus hybrids in broadscale plantations. We also plant Indian sandalwood in Kununurra in the Ord irrigation area.

Our involvement in sandalwood goes back about three years in the Ord. Our director went up and had a look at some CALM trials. CALM has had some trials up there for about eight years now. There are some very old plantings of sandalwood there, twelve years old. We recognised the potential for expanding that and commercialising it. We sort of missed the boat initially, some other companies got in before us and did some wide plantings of sandalwood. We have since taken over the management of some of those projects and established some trees of our own.

But first, a story. Sandalwood is a really interesting story. It is a very romantic tree, and an exciting tree for a forester to grow, because it has such a wide range of uses. It can be used for carving logs, you can refine the oil from inside the tree to make perfumes. It can be broken down into chips and made into incense. It is a great part of Hindu culture. As a forester, it is a sexy tree to grow because it is quite difficult to grow, challenging. It is a multi-species plantation. There are all these very tricky things we have to manage.

There are 16 species in the Santalum genus. It is all valued for its heartwood, the wood on the inside of the tree. As trees grow, they all start off with sapwood. Sapwood is the living part of the tree; it is generally around the outside. The sapwood conveys water up the tree and conveys both water and nutrients up and down the tree. It is living wood. As a tree gets older, the tree discovers that it doesn't need as much wood to support the crown as it used to, so the inside of the tree changes to a support function. There is a chemical change that happens. The wood dies on the inside of the tree and the tree produces chemicals, generally known as exudates, and produces oils in the middle. As the tree grows, it maintains the area of sapwood around the outside to support the crown. In the case of the sandalwood, the exudate it produces is the oil which has a beautiful fragrance, and is of a non-varying composition. It is great for cosmetic companies because a fragrance can be 'fixed' to it and it doesn't alter.

Anyone been to Bali? Young fellows try to flog perfumes on the street, in gallon bottles. And it smells fantastic, but it is a very inferior grade oil, so the fragrance volatilizes quickly. By the time you get home, about the only thing it is good for is cooking your chips. A really high quality oil like sandalwood, you can fix the smell, and it doesn't volatilize.

Of all the 16 species, Santalum album, which is the Indian sandalwood, is the most valued. It grows the fastest, it has the greatest percentage of oil in the heartwood. The West Australian species is 2% to 3% oil in the heartwood, the Indian sandalwood is 6% to 7%. Growth rates of the Indian species is far in excess of the Australian species.

Sandalwood is a hemi-parasite, which means it forms attachments to other plants, but it photosynthesizes. Its leaves produce its own carbohydrates. From other plants it gets water and some nutrients. It needs those associations to grow.

Santalum album comes from India. It was from India that the first trading in sandalwood happened thousands of years ago. Two thousand years ago wood was traded with China, Chinese Buddhists. Even as far back as a thousand years ago, the Dutch and the Portuguese came to Indonesia, set up trading posts in Flores and Sumba and Timor, mainly to exploit the sandalwood there. It was also a base so they could get out to the Spice Islands. The initial traders would have brought the sandalwood seed from India and distributed the seed to the islanders, recognising that the soil and the climate were suitable. Santalum album is found in India and in those Indonesian islands. Most of it has been cut out of Indonesia now.

So, a world trade for sandalwood was established. When Australia was settled, the convicts and all the staff looking after the convicts, had developed a taste for tea. The way to get tea was to trade with China, so they needed some means of trade. The Chinese liked to trade in sandalwood, but at that stage everyone was on the east coast where there is not a lot of sandalwood, so they needed to find some. They found it on south Pacific islands. The early sealers and whalers would go out into the wild waters for six months, catch and process whales, and then had six months of the year in which they were doing nothing. They would head off into the south Pacific and trade scrimshaw and beads, whatever else, with these cannibalistic natives who would come down to the beach with their logs on their shoulders and do their trades. That was in the early 1800s.

That happened for 30 or 40 years, until the Opium Wars in China suspended trade. By that stage Fiji, New Caledonia, Vanuatu, were virtually cut out of sandalwood. Different species there, but the same situation with regard to the heartwood and the oil. When trade recommenced, the sealers and whalers had to look further and further through the south Pacific, and that was how most of the south Pacific was mapped out. By that time, the WA sandalwood had been exported from 1840 onwards, so there was a well-established trade in Australian sandalwood.

As I have said, carving logs, oil, sawdust, powder, chips. Hindus use it in funeral pyres, because they believe the fragrance of the oil evaporating takes the soul off to heaven. It aids in the grieving process. It is used in marriage ceremonies for anointing people on the head.

The world supply of sandalwood is reducing. It has been cut out of most of the south Pacific islands. It is almost gone from Indonesia. In India it is a diminishing resource because of deforestation as the population expands. Sandalwood itself is not cut for firewood, but all its hosts are. Seedling regeneration is intolerant of fire and grazing. Another serious problem they have in India is illegal harvesting. There is a chap there called Virapund, who is also known as the Sandalwood Bandit. He has a reputation like Ned Kelly amongst the Indians. He just has free reign over the country. He poaches sandalwood and takes it over the border and sells it through China, takes it up through Pakistan. The authorities can't stop him. Either he pays very good bribes or he is a very good bandit. I have just been to India. While I was there a dozen trees were stolen from outside one of the forestry headquarters. This was under three armed guards and the forester was on duty. Excuse me, but it is pretty hard to steal a tree. This is part of the reason why the industry there is in a lot of trouble, and why the price for sandalwood is increasing as the supply reduces.

We perceive there is an opportunity there for plantation development. The Indians haven't cracked it yet, but we believe we have the system now.

Sandalwood seed is not as big as the Australian kind, but very valuable. It is very important to have freshly picked seed for seedlings. You have a lot of problems with disease and rot in older seeds. They are bulk-germinated in a mix of charcoal, peat and perlite. The germinants are pricked out into 40 cell trays. At that stage they don't need a pot host.

Because it is a parasite, we need to offer it hosts at various stages of its development, from when it is a little seedling up to when it is 15 years old, close to harvest time. When it is in the nursery, it can survive on the carbohydrate stored in the seed for a short time, but then we have to give it a host. We give the trees a little ground creeper in their pot in the nursery which sustains them until they get out into the field. The pot host then grows along the mounds and will support the tree until it can form attachments to an intermediate host.

The seedlings need to be quite robust when they are going out into the field. They have been growing in 30 degree temperatures, but they are going out into 32 degrees, at the cool time of the year. Planting these in the hot period leading up the wet, they invariably die.

The intermediate hosts are short-lived, 3 to 5 years. They are generally fast-growing legumes, nitrogen-fixing plants which can provide the sandalwood with nutrients. We need a compatible long-term host. As Ron was saying, we want something that will provide partial shade early, which we get from the legumes, and long-term, we want a tree that grows at about the same pace as the sandalwood, so we get lots of light coming in and the host can produce carbohydrates and also supply water. And robust enough so the sandalwood won't rip the guts out of it and kill it.

Our pot host is a thing called Alternanthra nana. One of its other benefits when it gets out into the field is weed control. If we can encourage this creeper to creep all through the plantation, we don't have to worry about weeds. Weeds are a serious issue up in Kununurra, particularly over the wet season. You can't get onto the country. It is all irrigated black soils. As soon as you set foot on it when it is wet, you sink up to your knees, which means we can't do any work in there while that is happening.

Sesbania formosa is one of the hosts we use. Sesbania is a terrific host. The sesbania can take an absolute flogging before it dies. It can be completely defoliated three times in one year and it will still come back to life. Sesbania has another use, too. CALM has a policy in the Bungle Bungles of stocking their fireplaces with wood from a renewable source. We can sell the sesbania to them when they start getting too big. We also use an acacia. We give them a choice of hosts.

The hosts are usually planted about 1.5 m away from the sandalwoods. Any closer, and the host tends to overtop it and damage the form. Any further than about 2 to 2.5 m is getting too far away to form attachments easily.

This is the layout we use. We have two sandalwood rows then a row of long-term hosts. The principle is that two sandalwood rows on this side will utilise this row of hosts along here. By the time these trees are 12 months old we are looking to have Alternanthra spread all along the mounds. It is preferable to plant everything at once, and then you can control the irrigation. If you plant at different intervals, the first plantings can get stressed, so everything is planted at once in a logistical operation akin to Pearl Harbor.

We can control the weeds in between the rows with tractors, but on top of the planting rows we need to get chipping crews in with hoes, to chip the weeds out before they get too advanced. We keep it as weed-free as possible.

Our plantations are all irrigated. The Indian sandalwood is not quite as robust as the Australian sandalwood, not quite as promiscuous. It is a lot more picky about the hosts it will choose to live off. Plants exude hormones from their roots to stop other plants forming attachments. Some parasites, like Australian sandalwood, are very good at overcoming those things. It is called an 'allelotrophic' reaction. It would be like me taking off my socks here and asking someone to touch my feet. There would probably only be two percent of the people here who would be willing to do that. The Australian sandalwood would touch my feet without any drama. The Indian sandalwood is like the other 98% of the people here. So, we need to provide it with good weed control. If there are weeds in between the sandalwood and the hosts, there will be all those stinky feet in the soil, which stops them forming attachments. Weed control is essential until they can form attachments to the hosts. For the first 12 months, we have a very intensive weed control program which is all mechanical control. Sandalwood is very sensitive to herbicides. Just a sniff of glyphosate and they turn up their toes.

ITC has a policy of not spraying insects unless it is absolutely necessary. Spraying the bad insects also kills all the good ones, so we just let it go for a while. Then the populations of the good, the parasitoids and the predatory bugs will get up to a size to control the bad bugs.

In the first year, we have very high establishment costs, mainly for the mechanical weed control. There is also irrigation. We have trees pushing towards two years old and are now ready for pruning, initial form pruning.

We want to maintain a host ratio of at least one to one. That is the long-term host ratio, which CALM says is the minimum to maintain production in sandalwood. As Ron was saying, we want to keep the canopy diffuse so we get sunlight some time of the day, and a bit of shade at other times.

Global demand for sandalwood is currently 6000 tonnes per annum. Santalum spicatum, the Australian sandalwood, supplies a third of that. That is unlikely to change in the near future. The reduced supply is driving the price of sandalwood up all around the world. Santalum album is currently selling out of India at US$20,000 per tonne. That compares to the export price of A$4,000 for the Australian sandalwood. There have been sales of Santalum album at US$40,000. The price of sandalwood has been increasing at 16% per annum for the last ten years. The sky is the limit, it is out of control.

Q. How do these do down south?
A. They don't. They hate cold. Even at 15 degree temperatures, the seedlings die.

Q. When do you expect to get a crop?
A. 15 years. It can be harvested earlier than that, but you get the maximum benefit at 15 years. We anticipate that at that age trunks will be about 25 cm diameter at the base, and a 2.4 m billet. All our calculations are based on that. That is not including the upper part of the stem or any significant branches or the root mass. There is a significant amount of heartwood in the roots. We haven't decided yet whether we will pull all the roots out and replant. That is a decision that is a way off yet. Hopefully, CALM will do the research for us. They have 7 and 8 year old trees they can play around with. Little trees like this are just completely heartwood.

Q. I read a prospectus some years ago. It spoke of using ebony trees as hosts. What became of that?
A. They did use ebony. Some of the projects we took over used ebony planted. I immediately had it ripped out. It is absolutely a pest. Ebony is an African tree with a very dark wood. There are a number of different types, but the one that grows in Africa has long thorns on it. In Africa, it is continuously pruned by goats, livestock, giraffes, so it tends to grow into a long, straight trunk. They produce lots of high value timber from it, piano keys, clarinets, oboes, fret boards for guitars. But in the plantations, it grows up as a single stem and then falls over. From that stem, a whole heap of other stems shoot up and they fall over. Unless we import giraffes, we would just end up with a massive hedge of ebony. Having ebony in the plantation would mean we couldn't drive any sort of rubber-tyred vehicles. I wouldn't be able to walk through there, I would be stuck irremovably. So, the management decision was made that it was removing the focus away from growing sandalwood, and we should get rid of all the other secondary timber products that were just confusing the issue, and just concentrate on growing sandalwood with the best hosts. We don't even know if ebony was a good host.

Q. Sandalwood is considered an endangered species. How can you have a trade in sandalwood?
A. Twelve months ago they had a moratorium on all sandalwood products out of India. In India, the state owns all sandalwood products, even the seed. So they put a ban on sandalwood, but then Virapund kidnapped the movie star of the moment, in the latest Bombay blockbuster, and demanded that the ban on exports be lifted. And the government backed down.

When we were doing our due diligence process, we had the sandalwood marketing guru from Perth, a guy called John Fox, in the meeting. He was asked what would happen if he went over to China with a tonne of sandalwood. He said, "if you went into China with a tonne of sandalwood, you would get thrown in jail. There is such a demand for it, you would have people coming up with dirty money falling out of their pockets." There is a huge demand throughout Asia.

We fall under the code of practice for plantations. We can get export licenses for plantation-grown wood. If we have grown it for the express purpose of timber products for export, then we can do that.

Our prospectus commits us to harvest all the trees in a plantation in the same year. We do have a window of 13 to 17 years, so we can make the judgement of when the trees are ready. If possible, we will move the harvest time forward, shortening the rotation, as long as we meet our commitment for volume. Forestry is a long-term investment. If you invest a lot of money early, those costs are compounded over time. The longer the rotation, the worse it is. The thrust of all forestry projects is to shorten the rotation, so the costs aren't so great. But the product has to be a decent size.

Each project is for one rotation. We, as a company, have an interest in having a sustainable harvest, so we look to plant new plantations every year. This won't flood the market or affect the price, and will enable us to manage that estate in perpetuity.

There isn't enough land in the Ord at the moment. Stage two of the Ord River Irrigation Project is earmarked, 130 odd thousand hectares. There are problems with native title and environmental concerns.

Part of the problem in the Ord is that water is free. It is the only irrigation scheme where water is free. If you don't have to pay for water, you don't care how much you put on your crop. You just turn the siphons on in the morning, come back in the afternoon, it looks wet so you turn them off again. A sugar crop might use 30 megalitres a year, that is how much the crop will use, but it might be having 60 or 90 megalitres being put on. All of that goes out down the river or accedes to the water table. Water tables in the Ord are rising half a metre a year. In some places they are at the surface. They are drafting some sort of legislation. There is so much water in Lake Argyle. The lake is full. At the end of the wet season there were 900 megalitres per second flowing over the spillway. It is more water than they can use there. The problem is that it is going to the groundwater. The groundwater has risen 20 metres since they established the irrigation area. So they are heading for big problems. In Stage two, groundwater is 2 m from the surface already. It is earmarked for sugar with no regulations. There are 30,000 hectares in total already established. 1,500 of that is tied up in long-term sugar contracts. A lot of the rest will go to sugar. Five hundred hectares for sandalwood plantations, a 1000 in two year's time. So, the amount of land up there is shrinking rapidly. We might be able to have ten years worth of planting there, but we are looking at Queensland as the next big thing, around Cairns.

We have looked at the idea of plantations in the wheat belt, but we can't make the dollars work. We put realistic claims on how the trees were likely to grow, and input costs, and we couldn't make it attractive to an investor.