Image for $178 million would end logging wars

Decades of division over Tasmania’s native forests would be brought to an end with a $178 million exit package for loggers, Greens Leader Bob Brown said today.

“It would cost only $73.1 million extra to settle the dispute for ever with a 95% buyback, compared to $105.1 million for a 67% buyback, and solve years of uncertainty into the future, Senator Brown said.

“The statement of principles signed by environment groups and the forestry industry aims to finally exit native forest logging, save a small sawlog and specialty timber allocation.”

“An investigation of sawlog quota buyouts in other states shows that reducing the current quota by 95% would cost in the order of $178 million. This figure does not include the cost of protecting the forests in World Heritage and national park reserves and their ongoing management.”

“A 95% buyout allows for Tasmania’s highest quality sawlog use, including the furniture, boatbuilding and craft industries, to continue as only about 3% of current national native forest wood production is used for high appearance sawn timber.”

“This estimated $178 million will also fund worker retraining, haulage contractor compensation and retooling for plantation rather than native forest timber,” Senator Brown said.

“The recent $20 million contractor assistance package was poorly designed and has resulted in cash handouts without a long-term reduction in logging. Any compensation package considered by the governments should be best practice, involve quota reductions and be accompanied by legislated forest protection,” Senator Brown said.

Executive Summary

The compensation cost of an immediate reduction in crown native forest licenses has been assessed under a 95% reduction. This would result in Gunns exiting native forest sawmilling and other large sawmills exiting or reducing activity. A quantity of high quality timber would be available for allocation to country mills or other mills. Some impact on Ta Ann would occur as its source of peeler logs from native forests would be reduced.

Compensation has been calculated for the loss of Category I, Category III and veneer sawlogs at the rate of $300 per cubic metre.  This rate has been assessed against rates used in native forest license buy backs during the last decade in Australia and appears reasonable.

Compensation costs have also been estimated for employee retraining and relocation and for loss of income to harvesting and haulage contractors. 

These numbers are, by definition, broad estimates however they give a reasonable feel to the levels of compensation likely to be required. 

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95% Buy back  
Compensation to mills for loss of crown quota   $104.1m
Retraining and relocation assistance to employees     $31.0m
Compensation to harvesting and haulage contractors     $43.1m
TOTAL COST OF BUY BACK     $178.2m

The cost of implementing an immediate buy back is estimated at $178 million. Note that the cost is not proportional to the harvesting reduction – at the 95% reduction level, Ta Ann is assumed to be affected as well which greatly increases the restructure cost.

Recent precedents in Australia

1.    NSW River Red Gum 2010.  After a decision to conserve additional river red gum forest it was identified that there was unlikely to be sufficient crown timber from the NSW River Red Gum native forests to supply all sawmills operating in the region.  Sawmills were sent a letter advising them of their reduced quotas after the review of the new sustainable yield from the forests.  At that stage sawmills could choose to exit the industry permanently, in which case they received a compensation package as described below.  Those who chose to stay were then offered a share of the sustainable quotas of those who had exited.

2.    NSW Brigalow Assistance Fund 2005. After the creation of the Brigalow and Nandewar Community Conservation Area, a package of assistance was made available to the industry in Brigalow and Nandewar and adjacent areas. This included business exit assistance, timber worker assistance and industry development assistance.  Over the years between 2005 and 2008 around $37m was paid as exit packages to sawmills, timber workers and harvest and haulage contractors.

3.    QLD Western Hardwoods 2004.  Following the protection of nearly 1 million hectares of state forest, a package was agreed with an immediate buy-out of 25% of crown native timber allocations.  As part of the agreement, the minimum cut size in low value conservation areas, which were to continue to be logged for 7 years, was reduced to 300mm.  After 7 years logging in state forest was to cease and timber allocations were to be sourced from private forest (with facilitation from the government). 

4.    VIC Our Forests, Our Future package 2002.  Our Forests, Our Future was the final component of the Victorian RFA which involved a 31% cut in sawlog output from native forest and an 80% cut in the Midlands.  Sawmills were able to choose to surrender all or part of their licenses.  They could also choose the period over which their licenses were surrendered (i.e. surrender did not have to be immediate).

5.    WA Protection of Old Growth Forests Policy 2001 The West Australian Government announced its decision to immediately cease logging in 99 per cent of Western Australia’s remaining old growth forests in 2001.  The compensation package included a Business Exit Assistance program designed to provide reasonable financial assistance to help certain businesses to completely or partially leave the native forest timber industry and a Workers Assistance Program to provide workers retrenched from the native forest timber industry with redundancy top up payments and assistance with training and obtaining new employment.  In addition, an Investment Security Guarantee was signed in 2004 between remaining industry players and the government, granting compensation if further quota cuts were made.

Quota Buy Out Rates
The table below summarises the quota buy-out rates for affected sawmills.  The buy-out rates are only known for three of the four recent cases. 

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* The NSW situation is very unusual in that two years of quota were compensated for, not one.

Considerations in regard to Ta Ann.

In considering the implication of a 95% reduction in crown quota, with significant reservation of state forest, it is inevitable that Forestry Tasmania’s ability to supply Ta Ann with its peeler log quota would be significantly damaged.  In this case Ta Ann may have a claim for compensation regarding its wood supply agreements or may ask for assistance to switch to small regrowth sawlogs (such as are available from plantations) as an alternative to using peeler logs from native forests.  This has been trialled by Ta Ann but would probably reduce Ta Ann’s operating margin compared to the current native forest arrangement.

Note that Ta Ann has already been the recipient of considerable Federal assistance – while it has invested between $60 million and $70million in its two Tasmanian mills, it has received a $10.4 million grant from the Tasmanian Community Forest Agreement Industry Development Fund towards the cost of its Smithton mill.  Therefore its net investment to date in Tasmania is probably between $50 million and $60 million.