Forests

The Australian Native Forest Sector: Causes of the Decline and Prospects for the Future 2013
Extract from the executive summary of the Austraila Institute's Techincal Brief Paper No 21

Australia’s native forest sector has experienced a significant contraction over the past five years. This is reflected in log production from native forests: roundwood removals over the period 2009-2011 were 30 per cent below the average from the previous 18 years. Similarly, woodchip exports, a mainstay of the hardwood sector, fell by 33 per cent between 2008 and 2012. The fall in production and exports has bankrupted the native hardwood industry’s largest producer, Gunns Limited, and led to the closure of numerous processing facilities around the country. State forest agencies have also recorded substantial losses. For
example, Forestry Tasmania (the agency responsible for public native forests in Tasmania) recorded a net loss before tax and other items of AU$64 million over the period 2009-2012 (or AU$16 million per annum). Over the same period, Forests NSW’s (now the Forests Corporation of NSW) total net loss before tax (excluding net fair value adjustment, asset revaluation and impairment of assets) was AU$85 million (AU$21 million per annum).

The response of federal and state governments to the downturn has been to look for ways of assisting the sector to enable it to adjust to the new market conditions. The most high profile example of this is the Tasmanian Forests Intergovernmental Agreement (IGA), which was signed by the Commonwealth and Tasmanian Government in August 2011. The aim of the IGA is to:
… support the restructuring of the industry towards future sustainability based on both public and private resource, create a significant conservation benefit by reserving and protecting High Conservation Value forest areas, and strengthen the partnership between the two Governments and other stakeholders to develop and diversify the Tasmanian economy, creating new sources of prosperity and opportunity for all Tasmanians.

Under the IGA, industry representatives, unions and environment groups were charged with the responsibility of negotiating an agreement on key conservation and resource access issues. This would then provide the basis for government action, including the provision of Commonwealth and state government assistance for the forestry industry and other nonforestry projects that would be designed to help diversify the Tasmanian economy.
The agreement between the forestry industry, unions and environment groups — called the Tasmanian Forest Agreement 2012 (TFA) — was finalised in November 2012. It contains a number of elements, the most important of which are the support for the creation of an additional 504,012 hectares (ha) of forest reserves, a reduction in the high quality sawlog guarantee from 300,000 to 137,000 cubic metres (m3) per year, and a restructuring package for the Tasmanian forestry industry. Prior to the release of the TFA, the Commonwealth had already provided Tasmania with approximately $130 million under the IGA. If the terms of the TFA are accepted, Tasmania is expected to receive an additional $300 million from the Commonwealth to subsidise restructured operations, compensate displaced forest workers, payout forest contracts, and help establish and manage the new reserves. All of the parties involved in the process believe it will deliver ‘an ongoing, vibrant forestry industry in Tasmania based on native forests and, increasingly in the future, plantation’.

While laudable, this ideal ignores the economic realities facing the native forest sector, particularly in Tasmania. There is a perception amongst some policy makers and the wider community that the contraction of the Australian native forest sector has been due to three main factors:
- The increase in forest reserves and changes in forest management practices that have occurred since the mid-1990s;
- The global financial crisis; and
- A loss of competitiveness in trade-exposed markets due to the appreciation of the Australian dollar.

The argument often advanced by the industry is that the conservation initiatives of the 1990s and 2000s triggered the initial decline in the sector; then the global financial crisis and high dollar caused the abrupt downturn seen after 2008. This analysis suggests that government assistance may only be needed on a short-term basis to see the sector through the current crisis. However, while these three factors have had a material impact on the industry, the underlying drivers of the contraction are related to structural changes in domestic and international wood product markets. These structural factors are likely to persist and raise questions about the merits of providing additional government assistance to the native forest sector when it is potentially financially unsustainable.
The full report can be seen at: https://www.tai.org.au/index.php?q=node%2F19&pubid=1137&act=display