Comment

John Cameron

Summary

THE state government decision to close the native forest timber industry culminates eight years of mismanagement that turned VicForests from a profitable business into a loss maker.

Victoria will no longer be a major domestic producer of appearance grade and further manufacturing grade sawn. Also, Melbourne will no longer be the centre of further manufacturing of hardwood sawntimber into value-added engineered wood products that generate lots of jobs.

The closure of the Victorian native forests to timber production will deliver bad environmental and socioeconomic outcomes and have adverse geopolitical impacts.

In Victoria, appearance grade sawntimber accounts for about 60 per cent of hardwood sawntimber output (and Australia 42 per cent of output and 58 per cent of mill gate revenue). For our largest mill, ASH at Heyfield, 100 per cent of output is appearance grade or further manufactured into timber products that expose the natural beauty of the timber. Australian hardwood sawntimber mill gate revenue, sells for 3.5 times the price of Australian softwood sawntimber, and contributes to much greater value-adding and job creation than softwood.

A lot of Victorian hardwood that is not ‘appearance grade’ is further manufactured into products where its unique beauty is on display such as in stair cases and exposed Masslam beams. This has been driven by the greater strength, hardness, dimensional stability, low degrade and other unique wood properties of Victorian native Eucalypts. The Softwood Plantations proposed, but yet to be delivered under the state government’s forestry plan, are unsuitable for many applications where these qualities are critical.

The announcement has resulted in a raft of bad outcomes:

A deterioration in VicForests log production, proportion of sawlogs and log sales revenue;

VicForests ‘operable area’ has been reduced from 450,000 ha to 160,000 ha due to overzealous increases in ‘various conservation reserves’ that ignored win-win outcomes that would have been available under multiple use, in accordance to the RFA’s and the National Forestry Statement;

Increased conservation reserves were implemented following the 2019/20 bushfire. The 1.5million ha burnt was preventable and a result of negligent bushfire mitigation under the flawed ‘Safer Together’ bushfire policy that ignores recommendations of the Bush Fire Royal Commission;

A profitable VicForests was turned into a huge loss maker with cumulative losses of $51 million over the last three years to 2021/22;

In 2021/22 preventable activist litigation cost VicForests $24.1m in legal and associated costs;

Lack of legislative support and mismanagement of VicForests resulted in its net worth declining by $64m delivering a business that is now worthless;

The flawed forest policy and lack of a rigorous forest strategy has resulted in a decline in hardwood sawntimber output and also a decline in sawntimber recovery (and decline in plantations);

Mills will have to write off large investments made in value-adding for the production of high value appearance timbers and further manufacturing of timber components. These investments were made on the assumption that government log supply agreements would be honoured, and;

The government has scrapped its agreements without adequate consultation and relegated sovereign risk to something riskier than junk bonds.

VicForests net worth declined by $64M under the state government.

Vicforests native forest log sales under the state government

UNDER the state government, there has been a deterioration in VicForests log production, proportion of sawlogs sold (sawlog percentage) and log sales revenue

The proportion of sawlogs, which typically average more than 40 per cent, dropped to 35.7 per cent in 2021/22. From January 2024, native log supply will cease.

VicForests worth plunged $64m under cumulative losses of $51m

THE state government inherited a profitable business and turned VicForests into a huge loss maker with profit before tax last financial year negative $33m. Cumulative losses over the last three years to 2021/22 are $50.7m

The mismanagement by the state government has resulted in the Net Worth (net assets) of VicForests decline by $64m. The state government turned a business that was worth $61m in 2014/15 into one that is now worth negative $2.9m i.e. worthless.

The state government burnt $64m, sufficient to put a roof over the heads of a few hundred homeless people or help deliver a functioning emergency and health system. These are the ‘opportunity costs’ of their poor management and negligence.

Native and plantation HW sawlogs under state government

UNDER the state government, the decline in native forest hardwood sawlog production has not been made up by an increase in plantation sawlog production.

In fact, there has also been a decline in plantation sawlog production. The state government transition to plantation-based hardwood sawlog supply has clearly failed. This is because the state government took four years in office to produce its forestry plan in 2019, and after a further four years the government has yet to implement its forestry plan with new planting.

Victorian hardwood sawlog input, sawntimber output and recovery

THE state government’s flawed forest policy and lack of a rigorous forest strategy has delivered a decline in sawlog input, and sawntimber output, and also a decline in sawntimber recovery. VicForests management have not been supported by the government, who were responsible for removing potentially harvestable area through excessive reservation, bushfire losses due to negligence and allowing activist lawfare to halt log supply.

Victorian hardwood production was 30 per cent of Australian production

VICTORIA has been a dominant producer of hardwood sawntimber and accounts for about 30 per cent of Australian hardwood sawntimber output. This was achieved by Regional Forest Agreements providing certainty for mills to invest in upgrades. The RFA’s resulted in a world class hardwood sawmill at Heyfield with nine further manufacturing plants and one of the most modern hardwood sawmills at Bairnsdale.

 

Australian sawntimber output, prices and revenue by product type

APPEARANCE grade accounts for 42 per cent (311,000m3 pa) of Australian hardwood sawntimber production and 58 per cent ($542m) of Australian hardwood sawntimber mill gate revenue. The proportion of appearance grade including further manufacture into exposed components is higher in Victoria.

Australian hardwood sawntimber on average sells for 3.5 times the price of Australian softwood sawntimber because of its greater strength, hardness and other unique wood properties (most sourced from native forests). There is substantially more job creating value-adding in hardwood sawntimber as evidenced by the substantially higher prices across all sawntimber grades.

Integration of the native hardwood industry insures no waste

IN Victoria, the proportion of appearance grade sawntimber (including further manufacturing of ‘exposed’ timber components) is estimated to be about 60 per cent and much higher than the national average. ‘Appearance grade’ is well in excess of two per cent claimed by an ill-informed MP. In Victoria:

‘Appearance grade’ (including further manufacturing) is 60 per cent of native forest sawntimber output;

Sawntimber recovery is about 40 per cent of sawlog input;

Therefore ‘appearance grade’ sawntimber is about 24 per cent of log input;

Sawlog outturn from well managed native forests is about 40 per cent of logs harvested;

Therefore ‘appearance grade’ sawntimber is about 10 per cent of total native logs harvested.

The difference between sawlog input and sawntimber output is not wasted but used by an integrated array of businesses. The outer slab wood has traditionally been chipped and used to make white paper in a high value-adding process that supports lots of high paid jobs. The shavings and sawdust are sold to chook, horse and goat farmers as bedding, and after that use becomes fertiliser. Some of the shavings and sawdust are also used as renewable boiler fuel.

The ash pulplogs have traditionally been the mainstay raw material used to make white paper in a high value-adding process that supports lots of high paid jobs. The mixed species pulplogs have traditionally been used to make unbleached Neutral Sulphide Semi Chemical (NSSC) pulp which has a high yield pulp and is used to make high value-added packaging papers. Logging residues from harvested coupes have become an increasing source of firewood supply.

Vicforests log sales, sawlog percentage and sales revenue under the state government.

ASH Heyfield hardwood sawmill and further manufacturing

ALL of the output from Australian Sustainable Hardwoods (Ash) mill at Heyfield is either appearance grade or goes into manufacture of timber components that display the beauty of the timber. ASH is a leading and advanced manufacturer of innovative hardwood products.

ASH is the largest vertically integrated hardwood manufacturer in Australia and directly employs 192 people. Its sawmill and nine further manufacturing plants produce Masslam laminated appearance beams, staircases, benchtops, custom mouldings, lining, solid flooring and various timber components, all for use where the beauty of the timber is exposed.

What the government got wrong

THE decline in supply over the last eight years of the state government has been due to a reduction in VicForests operable area, negligent bushfire mitigation and lawfare.

The state government allowed VicForests ‘operable area’ to be reduced from 450,000 ha to about 160,000 ha over the last eight years, due to increased Reserves, Special Protection Zones and the Immediate Protection Areas. These were created without a balanced appraisal of environmental, economic and social values, nor geopolitical considerations. Socioeconomic aspects of forest management have been neglected, including ‘win-win’ opportunities if the government supported more balanced multiple use and delivered conservation with lower opportunity costs.

Increased reservation of previously multiple use forest was undertaken solely for protection of biodiversity values as determined by the Department of Environment, Land, Water and Planning in their Forest Protection Surveys. This reservation was based on an inadequate appraisal of the impact of the increased reservation on economic and social values and ignored the opportunity cost of effectively dealing a death blow to a billion dollar timber industry.

The state government’s negligent bushfire mitigation and protection also contributed. The 1.5 million hectares burnt in the 2019/20 wildfire was a result of the inability to contain wildfire, caused by a flawed ‘Safer Together’ bushfire policy, insufficient and ineffective fuel reduction, and tardy fire detection, and failing to implement effective bushfire suppression. The weather and the forest fire danger index were adequate for effective suppression during the fortnight after ignition of the 2019/20 East Gippsland bushfires.

The state government stood back and allowed litigation (lawfare) by extreme activists who failed to respect the balanced outcomes of the Regional Forest Agreements (RFA’s) and the National Forestry Statement. Injunctions granted in legal proceedings made harvesting in many planned coupes unviable or prohibited harvesting altogether. In 2021/22 more than half of approved operations were halted by litigation during planning or after harvesting had commenced. In 2021/22 this cost VicForests $24.1m comprising direct cost of litigation $10.4m, stand down payments to contractors of $6.2m and $7.5m in compensation paid to customers for failing to meet supply obligations.

The latest 2021 review of native timber harvesting in Victorian RFA’s was a Major Event Review and took into account the 2019/20 bushfire.

This review concluded that, after the bushfire, Victoria’s annual timber supply commitments can still be met and support ecologically sustainable forest management. The current timber supply commitments were actually less than the forecast timber supply levels.

The maximum potential Harvest Levels for D+ sawlog as at August 2021 were:

172,000 cubic metres per financial year for ash and

144,000 cubic metres per financial year for mixed species.

East Gippsland was the most severely affected RFA region with 757,305 hectares of public forest within the bushfire extent, however West Victoria and Central Highlands RFAs were hardly impacted.

Figures for the RFAs were: Gippsland, 277,729 hectares; North East, 270,369 hectares; Central Highlands, four hectares; and West RFA, 10,823 hectares. The government sold the community a dummy and used the bushfire as leverage to increase reservation for conservation.

Under Victoria’s five RFAs, the forest management system (including legislation, polices, codes, plans and management practices) provides for continuous improvement in relation to ecologically sustainable forest management (ESFM), which is defined as:

“Ecologically Sustainable Forest Management” or “ESFM” means forest management and use in accordance with the specific objectives and policies for ecologically sustainable development as detailed in the National Forest Policy Statement (NFPS).

As signatories to the NFPS, the Australian, state and territory governments committed to the sustainable management of all Australian forests, and were mindful of the important conservation values of Australia’s forests, and of the contribution that forest activities make to the national economy and rural and regional communities. This is reflected in the RFA’s, which were a key outcome of the NFPS.

The issue is the state government adopts a narrow view of what constitutes ecologically sustainable forest management.

Their view essentially excludes socioeconomic imperatives that results in considerable harm to global ecologically sustainable development, resulting in the use of less sustainable materials, greater imports from countries with appalling human rights and environmental records and the increasing geopolitical threats, and tragic consequences for timber workers and rural communities.

Further, the adoption of detection-based threatened species reservation essentially follows a single species approach to conservation of threatened species. A landscape approach to conservation of threatened species is likely to be the most efficient and effective with substantially lower opportunity costs with respect to the foregoing of multiple use.

About the author:

JOHN Cameron (Dip Hort. Burnley, MBA Monash, and tertiary units in economics, mathematics and statistics) is a forestry and business consultant previously holding positions in general management, corporate development and research in forestry and forest products. Former roles include Chairman of Private Forestry Gippsland, Chairman Southern Tree Breeding Association, Chairman Australian Research Group on Forest Genetics, board member CRC for Forestry Hobart and CRC for Pulp and Paper Science Monash.