The Inconvenient Truth: Forestry is in crisis

When Gunns – Australia’s biggest buyer of native forest wood – said ‘no more’, resistance abounded. Instead of grabbing the opportunity for a much-needed fundamental policy overhaul, Forestry Tasmania leapt into finding new companies and markets. Even the industry-environment discussion group kept its traditional ‘balance’ approach.

But behind Gunns’ announcement, lies the reality of an industry in crisis. Australia-wide, we see the forestry industry deep into plantation resource-driven structural change and – most significantly – facing stagnating markets. A radically different approach is needed. Geraldine Doogue’s interview with me reproduced by the Tasmanian Times, here:

http://oldtt.pixelkey.biz/index.php?/article/dr-judith-ajani-the-truth-about-the-forestry-industry-the-transcript/

touched on some elements of what needs to change. Essentially, it is time for the industry to become independent of government supports.

Overhauling forest policy demands that we rise above four entrenched forestry falsehoods.

1. Australia’s $2 billion forestry trade deficit has to be overcome
The deficit is a biased netting of imports (with customs and insurance included) from exports (with these items excluded). It comprises many products (eg newsprint, cork, resins, builder’s carpentry, letter pads) which all bar one group (exports of woodchips and imports of printing and writing papers) are individually insignificant but in aggregate dominate the $2 billion figure (ie account for three quarters of the deficit). Over the past 15 years, the deficit has hardly budged.

2. Imports (most worryingly from rainforests and illegal logging) will increase if native forest sawmilling ceases
Over the past 20 years, native forest sawn timber production has trended down (by an average 1.8% pa) but hardwood imports did not increase. They have trended down at an even faster rate (an average 2.3% pa). For half a century, consumers have been shifting to Australian-made softwood plantation sawn timber and wood panels, and there is more shake-out to come in hardwood (native forest) sawmilling.

3. We have to keep logging native forests to produce high appearance grade native forest sawn timber
Using research undertaking for Australia’s National Carbon Accounting System, around 80-85% of Australian native forest sawn timber remains heavily exposed to (softwood) plantation competition: these being framing timbers, pallets, palings and a proportion of flooring and boards. Appearance sawn timber accounts for around 2% of Australia’s native forest log cut. Are we not capable of solving this?

4. Because of market failure, government must bear the risk and subsidise plantation wood supply
A long lead time for hardwood sawlog plantation investment is not evidence of market failure which requires government intervention and perhaps subsidies. Long lead times increase risk, so investors require higher returns – higher log prices. This is how markets should operate. Irrespective of this, why should Australia use the public purse to grow wood for a product in long term decline and where the main competition is government subsidised native forest sawn timber supplied from loss-making state native forestry corporations?

In 2011, the reality of Australia’s wood products industry is that already 82% of Australia’s sawn timber production is plantation made. Sawn timber consumption globally (and even in China) has been trending down since 1980. But, forestry today is dominated by the structural change in the hardwood chip market. With Regional Forest Agreement deregulation, native forest chip exports peaked in 2003 and then plummeted by nearly 50% (year ending June 2003 to year ending June 2010) as Australia’s hardwood plantations came on stream, starting in Western Australia. The Japanese market had already stagnated well before the global financial crisis and tsunami. In a remarkably short period, plantations have captured nearly 50% of the Australian hardwood chip trade and government projections indicate the capacity for existing hardwood plantations to displace fully (and comfortably) all native forest chip exports immediately. Australia’s plantation based industry is poised to secure the commodity wood and wood products markets (at least 95% of current native forest production). This is good for industry and good for native forests. Why are we resisting?

The time is right for Australia to build a new forest and wood industry policy: where native forests are valued primarily for their contribution to biodiversity conservation, climate change mitigation and water conservation, and commodity wood production becomes part of agriculture. This is simply allocating land to the jobs it does best – to realise the best of both landscapes. There is also an exciting and dynamic meeting area between native forests and agricultural land: trees and native vegetation integrated on farms and carefully selected, low volume log extraction in carefully specified native forest areas.

I propose a new Australian forest and wood industry policy frame with six action components.

1. Manage Australia’s entire native forest estate for biodiversity conservation and restore degraded areas
Outcome: Enhanced biodiversity conservation, water conservation and carbon stock maintenance and accumulation contributing to climate change mitigation.

2. Complete the commodity wood production shift to agriculture
Outcome: Enhanced industry competitiveness.

3. Contract and converge subsidies to food and wood production (in particular, end plantation managed investment schemes)
Outcome: Enhanced efficiency in agricultural land, water and other resource use.

4. Facilitate wood grower and buyer dialogue about risk and cost and revenue sharing
Outcome: Improved alignment of plantation wood demand and supply.

5. Develop agricultural processing industry policy for food and wood
Outcome: Builds buffers against cost reduction and increases rural wealth and employment.

6. Develop an environmental improvement policy across all agriculture
Outcome: Builds long term stability for rural industry.

Lined up against this policy frame, we see substantial gaps in the Tasmanian environment-industry discussion group and Kelty review documents. Two of great importance are the silences about opening native forests to the energy and biomass feedstocks markets and continued support for plantation managed investment schemes. If government facilitates the former and maintains the latter, Australia’s forestry industry will be engaged in many more decades of conflict with environmentalists and farmers. This is a conflict governments can choose to prevent right now.

Further reading:
Ajani J. (Feb 2011) Australia’s Wood and Wood Products Industry – Situation and Outlook – Working Paper, Fenner School of Environment and Society, The Australian National University. http://fennerschool.anu.edu.au/people/visitors/ajanij/Ajani%20(2011)%20Australian%20forestry%20industry%20-%20situation%20and%20outlook.pdf
Ajani J. (2011) The global wood market, wood resource productivity and price trends: an examination with special attention to China, Environmental Conservation, doi:10.1017/S0376892910000895 http://journals.cambridge.org/repo_A79MEoV2 – Conditions for URL link

Judith Ajani is an economist at the Australian National University’s Fenner School of Environment and Society. She has nearly 30 years of forestry industry research and policy experience in government and academia and is the author of The Forest Wars (MUP 2007).

First published: 2011-07-07 01:01 AM