where Sappi provides technical advice on the growing and tending of trees.
The associated costs for managing plantations are recognised as silviculture costs in cost of sales (see note 4).
11. Plantations [Extract]
Sappi manages the establishment, maintenance and harvesting of its plantations on a compartmentalised basis. These
plantations comprise pulpwood and sawlogs and are managed to ensure that the optimum fibre balance is supplied to
its paper and pulping operations in Southern Africa.
The group manages its plantations on a rotational basis. As such, increases by means of growth are negated by fellings,
for the group’s own use or for external sales, over the rotation period.
The group manages plantations on land that the group owns, as well as on land that the group leases. The group
discloses both of these as directly managed plantations. With regard to indirectly managed plantations, the group
has several different types of agreements with many independent farmers. The terms of the agreements depend on
the type and specific needs of the farmer as well as the areas planted and range in duration from one to more than
20 years. In certain circumstances, the group provides loans to farmers that are disclosed as other non-current
assets on the group balance sheet (these loans are considered, individually and in aggregate, immaterial to the
group). If the group provides seedlings, silviculture and/or technical assistance, the costs are expensed when
incurred by the group.
The group is exposed to financial risks arising from climatic changes, disease and other natural risks such as fire,
flooding and storms as well as human-induced losses arising from strikes, civil commotion and malicious damage.
These risks are covered by an appropriate level of insurance as determined by management. The plantations have an
integrated management system that complies with Forest Stewardship Council® standards.
Plantations are stated at fair value less estimated cost to sell at the harvesting stage and is a Level 3 measure in terms of the fair value measurement hierarchy as established by IFRS 13 Fair Value Measurement which is consistent with
the prior year.
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The fair value of plantations has been calculated using a real pre-tax discount rate of 9.77%. The group currently values approximately 28 million tons of timber using selling prices and delivery costs that are benchmarked against industry
norms. The average annual growth is measured at approximately 17 tons of timber per hectare while immature timber
comprise approximately 101,000 hectares of plantations. As changes to estimated prices, the discount rate, costs to sell, and volume and growth assumptions applied in the valuation of immature timber may impact the calculated fair value,
the group has calculated the sensitivity of a change in each of these assumptions as tabled below:
(US$ million)
2017
2016
Market price changes
1% increase in market prices
2
2
1% decrease in market prices
(2)
(2)
Discount rate (for immature timber)
1% increase in rate
(3)
(2)
1% decrease in rate
3
2
Volume assumption
1% increase in estimate of volume
4
4
1% decrease in estimate of volume
(4)
(4)
Costs to sell
1% increase in costs to sell
(2)
(2)
1% decrease in costs to sell
2
2
Growth assumptions
1% increase in rate of growth
1
1
1% decrease in rate of growth
(1)
(1)
5.2
Fair value measurement disclosures
IFRS 13 specifies the disclosures that are required for fair value measurements of
biological assets and agricultural produce. Prior to the introduction of IFRS 13, IAS 41
required an entity to disclose:
(a) the methods and significant assumptions applied in determining the fair value of
each group of agricultural produce at the point of harvest and each group of
biological assets; [IAS 41(2012).47] and
(b) the fair value less costs to sell of agricultural produce harvested during the period,
determined at the point of harvest. [IAS 41(2012).48].
While these requirements have now been removed from IAS 41, they are subsumed
within the disclosure requirements in IFRS 13. That standard requires substantially more
information to be disclosed about fair value measurements, for example:
• the classification of a fair value measurement within the fair value hierarchy, i.e.
Level 1, 2 or 3, and, for recurring fair value measurements, any transfers between
levels in the hierarchy;
• a detailed reconciliation of movements for fair value measurements classified
within Level 3 of the hierarchy, along with narrative sensitivity analysis; and
• the highest and best use of a non-financial asset if it differs from its current use,
including why the non-financial asset is being used in a manner that differs from
its highest and best use. [IFRS 13.93].
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The following extract illustrates fair value disclosures for biological assets, as do the
extracts at 5.1.2 and 5.1.4 above.
Chapter 14 at 20 discusses IFRS 13’s disclosure requirements in more detail.
Extract 38.3: Marine Harvest ASA (2017)
MARINE HARVEST GROUP FINANCIAL STATEMENTS AND NOTES [Extract]
NOTE 6 – BIOLOGICAL ASSETS [Extract]
VALUATION OF BIOLOGICAL ASSETS
Biological assets are, in accordance with IAS 41, measured at fair value,. All fish at sea are subject to a fair value
calculation, while broodstock and smolt are measured at cost less impairment losses. Cost is deemed a reasonable
approximation for fair value for broodstock and smolt as there is little biological transformation (IAS 41.24).
Biomass measured at fair value is categorized at Level 3 in the fair value hierarchy, as the input is mostly
unobservable. In line with IFRS 13, the highest and best use of the biological assets is applied for the valuation. In
accordance with the principle for highest and best use, the financial reporting industry group considers that the fish
have optimal harvest weight when they have a live weight corresponding to 4 kg gutted weight. This corresponds to
a live weight of 4.8 kg (there may be regional variances). Fish of this weight or above are classified as ready for
harvest (mature fish), while fish that have still not achieved this weight are classified as not ready for harvest
(immature fish). The valuations are carried out at business unit level based on a common model and basis for
assumptions established at group level. All assumptions are subject to monthly quality assurance and analysis at the
group level.
The valuations are based on an income approach and takes into consideration unobservable input based on biomass
in the sea, the estimated growth rate and cost to completion at site level. Mortality, quality of the fish going forward
and market price are considered at business unit level. A special assessment is performed for sites with high/low
performance due to disease or other deviating factors. The market prices are derived from observable mark
et prices
where available.
ASSUMPTIONS USED FOR DETERMINING FAIR VALUE OF LIVE FISH
The estimated fair value of the biomass will always be based on uncertain assumptions, even though the group has
built substantial expertise in assessing these factors. Estimates are applied to the following factors; biomass volume,
the quality of the biomass, size distribution, cost, mortality and market prices.
Biomass volume: The biomass volume is in itself an estimate based on the number of smolt released into the sea, the
estimated growth from the time of stocking, estimated mortality based on observed mortality in the period, etc. There
is normally little uncertainty with regard to biomass volume.
The level of uncertainty will, however, be higher if an incident has resulted in mass mortality, especially early in the
cycle, or if the fish’s health status restricts handling. If the total biomass at sea was 1% higher than our estimates, this would result in an increase in value of EUR 1.9 million.
The quality of the biomass: The quality of the biomass can be difficult to assess prior to harvesting, if the reason for
downgrading is related to muscle quality (e.g. the effect of Kudoa in Canada). In Norway downgraded fish is normally
priced according to standard rates of deduction compared to a Superior quality fish. For fish classified as Ordinary
grade, the standard rate of reduction is EUR 0.15 to EUR 0.20 per kg gutted weight. For fish classified as Production
grade, the standard rate of reduction is EUR 0.5 to EUR 1.5 per kg gutted weight, depending on the reason for
downgrading. In our fair value model for salmon of Norwegian origin, we have used EUR 0.20 and EUR 0.61 as
deductions from Superior grade for Ordinary and Production grade quality respectively. In other countries the price
deductions related to quality are not as standardized. The quality of harvested fish has been good in 2017. For the
Group as a whole, 93% of the fish were graded as Superior quality. A 1% change from Production grade to Superior
quality would result in a change in value of EUR 0.8 million.
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The size distribution: Fish in sea grow at different rates, and even in a situation with good estimates for the average
weight of the fish there can be a considerable spread in the quality and weight of the fish. The size distribution affects the price achieved for the fish, as each size category of fish is priced separately in the market. When estimating the
biomass value, a normal size distribution is applied.
Cost: For the estimation of future costs, there is uncertainty with regard to feed prices, other input costs and biological development. Marine Harvest measures cost deviations vs. budget as part of the follow up of business units. Excluding
special situations (incidents etc.), the deviations in costs vs budgets are normally limited for a group of sites, although individual sites might show deviations. The estimation of costs influences the biomass value through the recognized
fair value adjustment in the statements of comprehensive income and financial position (calculated as fair value less
accumulated biological costs).
Mortality: Normalized mortality will affect the fair value estimates both as a reduction of estimated harvesting
volumes and because cost to completion includes cost incurred on fish that eventually will perish.
Market price: The market price assumption is very important for the valuation and even minor changes in the market
price will result in significant changes in the valuation. The methodology used for establishing the market price is
explained in Note 2. A EUR 0.1 increase in the market price would result in an increase in value of EUR 14.7 million.
The market price risk is reduced through fixed price/volume customer contracts and financial contracts, as well as
our downstream integration as explained in Note 13.
See Note 2 regarding the work of the financial reporting industry group change in model for calculating the fair value
of live fish.
WRITE-DOWN OF BIOMASS AND INCIDENT-BASED MORTALITY
Incident-based mortality is accounted for when a site either experiences elevated mortality over time or substantial
mortality due to an incident at the farm (outbreak of disease, lack of oxygen etc). The cost of incident based mortality
is included in “cost of materials” in the statement of comprehensive income, see Note 33. The fair value element is
adjusted through fair value adjustment on incident based mortality, and included in net fair value adjustment in the
statement of comprehensive income.
RECONCILIATION OF CHANGES IN THE CARRYING AMOUNT OF
BIOLOGICAL ASSETS (EUR MILLION) [Extract]
2017 2016
Carrying amount as of 01.01
1573.8
1140.2
Cost to stock
1383.1 1340.2
Net fair value adjustment
–353.5
386.2
Implementation of new biomass valuation model 1) 13.2
–
Mortality for fish in sea
–36.5
–59.5
Cost of harvested fish
–1282.0
–1268.5
Effects of deconsolidations
–
–9.0
Effects of business combinations
0.7
11.6
Currency translation differences
–98.3
32.5
Total carrying amount of biological assets as of 31.12
1200.5
1573.8
[...]
1) Change in estimate recognized through other comprehensive income according to IAS 8.
[...]
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SENSITIVITY EFFECT ON FAIR VALUE (SALMON
Price
Biomass
Quality
ONLY) AT YEAR-END (EUR MILLION)
+0.1 EUR
+1% LWT
+1% SUP
Marine Harvest Norway
9.0
1.1
0.2
Marine Harvest Chile
2.0
0.1
0.4
Marine Harvest Canada
1.9
0.2
0.1
Marine Harvest Scotland
1.3
0.4
0.1
Marine Harvest Faroe Islands
0.3
–
–
Marine Harvest Ireland
0.3
0.1
–
Marine Harvest Fish Feed
–
–
–
Total sensitivity effect on fair value
14.7
1.9
0.8
5.3
Additional disclosures if fair value cannot be measured reliably
If an entity rebuts the presumption that fair value can be reliably measured on initial
recognition of a biological asset (including produce growing on a bearer plant) and
measures the asset at its cost less any accumulated depreciation and any accumulated
impairment losses it is required to disclose the following information:
(a) if the entity holds such assets at the end of the period: [IAS 41.54]
(i) a description of the biological assets;
(ii) an explanation of why fair value cannot be measured reliably;
(iii) if possible, the range of estimates within which fair value is highly likely to lie;
(iv) the depreciation method used;
(v) the useful lives or the depreciation rates used; and
(vi) the gross carrying amount and the accumulated
depreciation (aggregated with
accumulated impairment losses) at the beginning and end of the period;
(b) if the entity held such assets at any point during the current period: [IAS 41.55]
(i) any gain or loss recognised on disposal of such biological assets;
(ii) the reconciliation required by paragraph 50 of IAS 41 (see 5.1.4 above) shall
disclose amounts related to such biological assets separately;
(iii) that reconciliation shall include the following amounts included in profit or
loss related to those biological assets:
• impairment losses;
• reversals of impairment losses; and
• depreciation;
(c) if the entity held such assets and their fair value became reliably measurable during
the current period: [IAS 41.56]
(i) a description of the biological assets;
(ii) an explanation of why fair value has become reliably measurable; and
(iii) the effect of the change.
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5.4 Government
grants
An entity that has received government grants related to agricultural activity covered
by IAS 41 is required to disclose the following information:
‘(a) the nature and extent of government grants recognised in the financial statements;
(b) unfulfilled conditions and other contingencies attaching to government grants; and
(c) significant decreases expected in the level of government grants.’ [IAS 41.57].
References
1
IFRIC Update, June 2017.
8
IASB Update, March 2018.
2
IFRIC Update, June 2017.
9
Website of the IFRS Foundation and IASB,
3
Agenda
Paper
13,
Valuation of biological assets
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 628
