Eric Abetz
There are claims that plantations destroy rural jobs and rural communities. Can I say, I have not seen any evidence of this. In fact, all the available empirical evidence is to the contrary.
GOOD morning, ladies and gentlemen and welcome to the Borden Regional Outlook Conference.
It is a pleasure to be here in the west again.
Regional events like this help people on the land like you to take stock and plan for the future, and today’s programme has a great deal to offer.
This is an occasion for having a look at how you’ve been travelling and seeing where you can improve your business.
There are significant opportunities and challenges ahead for rural stakeholders in this vast region.
Our fast-changing world presents many challenges to the whole of rural and regional Australia, but there are significant opportunities too.
For a broad perspective on commodities, you will be hearing from ABARE about prospects in the global marketplace.
Karen Schneider will discuss how world economic growth and demographic change drive commodity markets, the impact on the agricultural industries of oil prices and international trade reform, and how farm incomes can be maintained through productivity.
Other speakers from ABARE will discuss the outlook for crops and livestock, and the performance of farms in regional areas.
I won’t try and pre-empt what they will have to say.
What I intend to do is offer a brief overview, from a Government perspective, about the future of your key rural industries.
I also want to make a few points about the plantation sector, and the current debate about MIS’ and plantation tax treatment.
First, Meat and livestock
Meat and livestock have of course been fundamental to the economic health of this region.
Livestock in Western Australia as a whole contributed about $742 million to Australia’s export earnings in 2005, with more than half in live trade.
The figures are a good measure of the health and prosperity of the industry, but they can mask underlying issues.
You will be all too familiar with them.
Drought, the pressures of rising costs, and consumer expectations about food safety and food product quality – the issues are all very familiar.
There can be no doubt at all about the value of the live trade to Western Australia, which is this country’s biggest exporter of live cattle, sheep and goats.
We want to continue to work together with you to protect this valuable market, and meet the challenges in an open and decisive way.
The Indonesian cattle market remains strong, and the re-opened Saudi sheep market has been a good option for some of you during a very tough season.
For the next 12 months, live sheep exports are expected to increase while the poor seasonal conditions will turn more producers away from stock.
If the seasonal conditions hold up in the north, live cattle exports will continue to be attractive.
Particularly if the forecasts of reduced beef prices and a depreciation of the Australian dollar prove to be correct.
Cropping
Cropping performance has been pretty good during 2003-04 and 2004-05, but what do the current seasonal conditions mean for this region?
With unfavourable seasonal conditions across the cropping regions throughout much of Australia, the areas sown to crops have reduced and the forecast for winter crop production is down on last year.
As we speak, most of the Western Australian grain belt is in need of rain to help the development of winter crops.
Because of the unfavourable conditions this year, we are seeing a forecast decline in barley, canola, wheat and lupin production — and this is clearly a matter of concern in Australia’s largest crop producing state.
Climate trends
Farmers are used to dealing with variable climatic conditions here in the southwest corner of the state.
Changes in rainfall have affected the wheat zone in recent years, but the region has been resilient in adapting to these declining trends.
I congratulate you on what you have achieved through innovative technologies and crop production practices.
New and emerging production
In light of the uncertainties for the traditional cropping and livestock industries base in this region, it is good to see that agricultural production is diversifying.
Timber plantations and value adding developments are also contributing to regional economic development.
Production of cool climate wine is expanding, and has gained recognition with notable awards.
Barramundi are being farmed, and you will hear more on that from a local producer later this afternoon.
Honey production is growing too.
These are all dynamic new developments that show how people have been thinking outside the square.
Plantations
But today I particularly want to focus on plantations, something which I take a great deal of interest in as Australian Minister for Forestry!
As you know, the growth in the plantation timber industry is very positive news for the Great Southern Region.
I believe it will have far-reaching positive benefits for your region, and for the hardwood timber industry Australia-wide.
We need to remember that as we move out of harvesting old growth and native forests around the country, limiting our timber supply, there are only two alternative sources for timber:
1) Import more timber and timber products from overseas — bearing in mind we already have a $2b. annual trade deficit in timber and timber producers;
And also bearing in mind that often this imported timber comes from the unregulated forests of south east Asia, of the Solomons, or of the Amazaon.
Or
2) We can crop our own trees. That is, plantations.
It is very encouraging to see progress on the new timber processing plant near Albany, which will mainly use plantation blue gum timber.
Lignor will be the first in the world to apply its ‘engineered’ strand board and lumber technology to eucalypts, and I wish the venture every success.
In fact, I will be heading to Albany at the conclusion of this speech to inspect the Lignor plant with your local member Wilson Tuckey.
I am very pleased to see a real possibility for more employment in the forest sector in this region.
And I am also strongly in favour of more value-adding to our plantation timber resource before it leaves the region or the country.
In addition, we are already seeing that significant exports of woodchips out of Albany are making up for decreasing grain exports in the local economy caused by drought
Plantations tax review
I am sure you are all familiar with the review into taxation treatment of plantation forestry.
Plantation taxation has been one of the most challenging issues I have dealt with as Forestry Minister.
I am very supportive of the current “12-month rule” plantation taxation arrangement, and want to maintain it.
Whilst the future of this rule is currently being considered by Government, I would like to make a few points about the plantation sector and address a few “rural myths”.
The 12-month rule has been very successful in leveraging private sector investment to create plantations, through managed investment scheme arrangements.
It has also been very successful in bringing city money into the country
That is, city money creating rural jobs.
Something which offers a great counter to compulsory superannuation, which is often criticised for taking rural money into the city.
There are claims that plantations destroy rural jobs and rural communities.
Can I say, I have not seen any evidence of this.
In fact, all the available empirical evidence is to the contrary.
Rural Australia has, unfortunately, been in decline for the past 25 years.
The 12-month rule has been in existence in its current form since 2002.
What is actually happening is that plantations are creating new jobs and revitalising rural communities, particularly when they get to harvesting stage as they are starting to now.
There are also claims that MIS’ are driving up property prices at the expense of local farmers.
On that, let me just say that I am informed that more recently it has been New Zealand dairy farmers outbidding companies like Great Southern Plantations for land who are driving up prices.
And can I say I don’t know many farmers who would not prefer their land to be worth more rather than worth less.
Greater capital value means more equity to develop their farm.
But far and away the biggest criticism of MIS’ is the claim that the current taxation arrangements means there isn’t a “level playing field”
Claims that somehow the plantation sector is unfairly advantaged.
Let me make this point.
There never has been, and never will be, a rural sector in Australia which is untouched by special taxation rules.
And rightly so.
Australian farmers face fluctuating prices, closed European markets, and worst of all, the vagaries of the weather.
In fact, support for farmers and primary producers right across the nation amounts to hundreds of millions of dollars each year.
Five-year averaging of incomes, tax deductible farm management accounts, accelerated depreciation…the list goes on and on.
Schemes, I might add, which I and the Government strongly support.
In fact, the 2004/05 Productivity Commission Trade and Assistance Review reveals the following:
In 2004/05, a total of $1,144.7 million — that is, $1.14 billion — in assistance was provided to primary production, including drought funding.
Of this, just $40.3 million went to the forestry and logging sector.
That is, about 3.5 percent to the forestry and logging sector, including both native forest logging and plantations.
And that included $20 million to CSIRO, for research into forestry, leaving only $20 million for forestry and logging. I suspect the plantation sector’s share of this was very small.
Now consider the relative employment levels of these industries.
According to ABARE, 312,000 people nationwide are employed in the agricultural sector.
In the forestry and logging sector its 12,000 — that’s 3.8 percent of the agricultural workforce.
What I’m saying is this: relatively, the agricultural sector receives more assistance per worker than the plantation sector.
Tree farmers receive support mainly because a return on investment cannot be realised for at least a decade.
It is very difficult to encourage anyone to invest in an industry without the prospect of a return for a minimum of 8-10 years if there is not some small up-front incentive.
What farmer in their right mind would plant a wheat crop which took 10 years to mature, or fatten a steer from birth to age 10, if they didn’t have some support in the meantime?
I say all of this because, unfortunately, it has been some sections of the farming community who have been most vocal in their opposition to MIS’ on the basis that it provides ‘unfair’ assistance to the plantation sector.
Rural industries wax, and rural industries wane.
In one decade wool is in the ascendancy, then its dairy, then its wine, then it might be dairy again, and then it might be trees.
All these industries, to some extent or another, have specific and unique support from the Australian taxpayer.
To attack forestry MIS and the 12-month rule as the cause of some rural change is not only unfair, it is unhelpful given the support which the rest of the rural sector receives.
This is not to say that I don’t think the 12-month rule and the plantation sector can’t be improved.
I am very keen that we introduce secondary markets into the mix.
This will inject market-based honesty into the prices per unit for MIS plantations.
A secondary market will bring forward a price discovery mechanism for the market. As an investor, when you know how much a plantation is worth at year 4 or 6 or 8, you have a better idea of what constitutes a reasonable upfront investment.
This ought to ensure that MIS operators are not able to take excessive profits up front, which is sadly the perception that some people hold.
As an MIS operator, when you have 15 or 20 competitors in forestry, and a $1 trillion managed investment market to compete with, you can’t afford to be charging big dollars upfront without delivering solid returns at the end.
All these things are being considered by the current review and I look forward to a positive outcome for the entire rural sector.
Concluding remarks
Can I conclude.
While there are real issues for rural and regional Australia, there is also a good news story to tell.
Technological advances and innovation have underpinned a doubling of agricultural output in the 40 years to 2003-04.
Over this period, productivity growth has accounted for most of the rise in agricultural output.
Innovative technologies and crop production practices are having a marked impact on productivity in this region, and elsewhere in Australia.
New and emerging industries are also being developed.
Most importantly, we need to recognise tree farming and plantations as a legitimate rural industry.
An industry which creates Australian jobs and which can revitalise rural communities
We also need to recognise that without support from the taxation system, our plantation sector would struggle to be internationally competitive.
Similarly, without tailored assistance measures, a large portion of our rural economy would struggle.
I thank you for your time today and trust you have an enjoyable and informative conference.
Thank you.
Address by Senator the Hon. Eric Abetz
Australian Government Minister for Fisheries, Forestry and Conservation
To Open the
Borden Regional OUTLOOK Conference
23 August 2006
Borden Pavilion, Stone Street,
Borden
Western Australia
Earlier: Timber plantations to the rescue
Also: Forestry and wages
