Sandalwood is possibly the most valuable wood on the planet; and in Australia the first commercial and sustainable harvesting programme ever devised is just a couple of years away, as Alan Swaby discovers.
Think of Western Australian exports and it’s usually the rough-tough end of the spectrum that comes to mind—coal, iron ore, uranium. Even the sheep come across as more like wire wool than fluffy clouds. But there is a softer side to the state—almost a spiritual one, you might say. For well over a century and a half, Western Australia has been a key source of sandalwood, satisfying a range of requirements from meditation to medication.
To be precise, Western Australia exported santalum spicatum—an indigenous variety of sandalwood—since the 1840s, and distillation of the oil was an important industry for almost 100 years until developments in antibiotics put paid the to market in 1963. There is still a monitored supply of spicatumin the state, but the exciting prospect comes from the world’s only significant commercial plantation of santalum album, the Indian variety, worth three times the price of its Antipodean cousin.
The location for this project is Kununurra, in the very far north-east of the state, in the fertile Ord River Irrigation system fed by bountiful Lake Argyle. It’s here that the listed company TFS has planted 3,800 hectares of Indian sandalwood trees since operations began in 1999.
“For many years,” explains CFO Quentin Megson, “the Western Australian government conducted research into high value crops that could be grown in the north. Sandalwood looked promising, despite the difficulty of growing it as a crop, as it is a deep-rooted tree which helped get over some of the salinity problems being encountered at the time.”
‘Difficulty’ is something of an understatement which undoubtedly explains the lack of commercial harvesting of sandalwood. To thrive, trees need the support of parasitic hosts from which they can draw nutrients. Even at seedling stage they are accompanied by a ground-covering host. Under the soil, the two sets of roots inter-twine and merge into one. When the seedlings are planted out, they are surrounded by three other plants which act as short-, medium- and long-term hosts.
“TFS was formed to exploit the intellectual property gained from the government’s research work,” says Megson, “and some of the original research foresters are still with us. Even so, turning scientific research into a commercial enterprise has not been easy. In the beginning we had our share of failures but in effect, the complexity of soil, water, host and maintenance has become a very effective barrier to other companies that might consider this an attractive market.”
And attractive the market is, with heartwood selling at auction for over A$100,000 per tonne. In fact when mature trees start to be harvested in 2013, Megson calculates that each of the first 100 hectares that are cut will generate A$1 million in revenue. “We have conducted some trial harvesting,” he says, “of trees left behind by the Western Australian government. The findings indicated that our initial expectations have been exceeded.”
With the benefit of irrigation, trees come to maturity in 14 or 15 years, whereas in the wild they could take twice that time. The trees themselves are quite slight, measuring 20 to 30cm in diameter. Although there is some value to be had from the branches and even the roots themselves, it’s the heartwood which is of most worth but even then, only delivers between 25 and 30 kilos of oil bearing wood per tree.
Perhaps the greatest single use is in Indian funerals where the tradition is for sandalwood to be burnt. It could be as little as a sandalwood pillow but wealthier corpses depart this earth on a bed of several hundred kilos of precious wood.
Alternatively, heartwood can be chipped and then steam-distilled for its essential oils, with a fully grown tree yielding just under one kilo of oil. Fragrance manufacturers love sandalwood as it acts as a fixative for other fragrances. Sandalwood oil has long been used in herbal medicine, particularly for dermatological treatments. Today, the pharmaceutical industry is once again looking at the product and TFS already has a long-term agreement to supply oil to ViroXis, once regulatory approval has been gained, for use in its botanical drug albuterpenoids.
Although the trees themselves have yet to turn a profit, TFS has still been able to generate income by selling interests in the project to retail investors in Australia and large institutional investors worldwide. “Ideally,” says Megson, “we would have preferred to retain exclusive ownership of the output; however, the investor products enable us to fund the plantations and ultimately provide good results for both the investor and TFS. Around 3,500 retail investors have put money into the retail scheme, buying lots of one-sixth of a hectare, giving us needed working capital to pay for the 120 full-time and up to 200 part-time staff we need.”
TFS has another source of revenue following its acquisition of Mount Romance in 2009. Mount Romance has picked up the mantle of Western Australia’s abandoned sandalwood heritage and created a business with a turnover of approximately A$18 million in the process. At its plant in Albany, Mount Romance distils oil from the Australian sandalwood tree, producing as much as 20 tonnes of oil a year which then either goes into an extensive range of branded cosmetics and skin conditioners, or is exported in bulk to India and Europe.
Both sides of the business are tuned in to ecologically sound practices. Mount Romance, for example, uses renewable energy to power its boilers derived from waste wood products from nearby plantations. It has even introduced water catchment and recycling facilities which cut water usage by 75 per cent.
Although it’s still going to be a couple of years before the exact success of the project can be measured over and above the tax credits this type of investment provides, those working in the business are no doubt happy to be surrounded by the sweet smell this fragrant wood provides.
