Australia’s native forests and wood based industries are at a crossroad. Which path they travel is entirely dependent on government policy concerning, in particular, how the land use sector is brought into the climate change challenge; whether native forest energy and other biomass feedstocks are engineered into profitability; the policy priority given to plantation processing; and whether unprofitable state native forest agencies are retired. Tackling these contemporary policy issues requires an understanding of Australia’s wood and wood products industry: its situation and outlook. The aim of this working paper is to present such background information to those engaged in the policy process and to place it in the context of contemporary policy challenges.
Low consumption growth and surging plantation resources characterises Australia’s wood products industry. Australia’s wood consumption (to make all the sawn timber, wood panels and paper we consume whether domestically produced or imported) increased by only 0.8% pa over 1990 to 2009. Domestic plantation wood supply grew by 6.3% pa over the same period (Figure 1).
Plantations now supply 82% of the wood for solid wood products manufacturing (sawn timber and wood panels) in Australia (Figure 7). Production of native forest solid wood products has contracted by an average 2% pa over the past two decades. In this intense period of industry structural change, buyers have not shifted to hardwood-based imports, including from tropical regions. Instead, consumption of hardwood solid wood products, domestically produced and imported, contracted (Figure 10). Imports of solid wood products from tropical countries accounted for only 2% of our consumption in 2008/09 (Figure 24).
Hardwood plantation chips are decimating native forest chip exports, the single biggest market for native forest wood. On current trends, we can expect a near complete displacement of Australian native forest chip exports within the next few years (Figure 20).
We can also expect increasing plantation-based production, even without any expansion to Australia’s plantation estate, as softwood saw and veneer log supply is maintained (Figure 9) and work to increase plantation productivity is set in train; as the projected supply of hardwood plantation saw/veneer logs increases steadily over 2010 to 2030 (Figure 10); and, in particular, as supplies of hardwood pulp logs soar (Figure 20).
Virtually all native forest markets are vulnerable to plantation competition, including within the small high appearance sawn timber and veneer market. Australia’s two million hectare softwood and hardwood plantation estate can immediately meet virtually all Australia’s wood needs (Figure 1). For too long the false argument, that native forest logging is sawlog-driven and that most sawn timber would survive the plantation competition because of its successful shift to high appearance products, has held sway in state and federal policymaking circles. It is estimated that high appearance sawn timber, less vulnerable to the plantation competition, accounted for 3% of native forest wood production in 2009 (Section 3.1.6). It is a sad reflection on Australian wood and wood products industry policy that a minor product devoid of reliable quantification has stymied coherent forest and wood industry policy for so long.
No doubt calls will be made for more publicly funded hardwood and softwood sawlog plantations. On the softwood front: productivity improvements to lift the existing mediocre performance are waiting for uptake and offer substantial land cost savings compared to the alternative of plantation estate expansion. On the hardwood front: government projections indicate substantial hardwood plantation saw/veneer logs coming on stream over the next 20 years relative to the declining high appearance hardwood sawn timber market (Figure 10). An incorrect interpretation of market failure has been used to support calls for government funding to do the job the private sector apparently is not interested in – investing in long lead-time plantations. Long lead times are not in themselves a market failure. Rather, investors in long rotation plantations require higher returns to compensate for the increased risk. Hardwood sawmillers, however, appear unwilling to pay the higher wood prices to attract the plantation investment and expect the public to keep subsidising their wood costs.
Missed opportunities abound as the benefits of new industry players, products and technologies and biodiversity conservation/carbon store opportunities for native forests lie unrealised. Realising these missed industry opportunities requires government developing a coherent wood and wood products industry policy focussed around plantation processing. Such a policy would completely free the market of state-subsidised native forest competition and stop unending plantation expansion via tax-based subsidies devoid of rigorous market analysis. Instead, it would set the prime objective to encouraging commercially viable domestic plantation processing. The package would include research and development programs, worker and management skill development and transport strategies with a focus around regional hubs with a critical plantation mass for scale economy processing.
Wood products industry and forest policy making today is like being back in the 1970s. Native forest logging interests calling for approval to enter the vast energy and other biomass feedstock markets are the new woodchippers. Their successful lobbying on carbon accounting details and classifying native forests as renewable and therefore eligible for renewable energy certificates works to propel these commercially marginal new opportunities for native forests across the profitability line. The behaviour is akin to the 1970s chip export proposals that depended on low priced native forests logs for profitability. Even the calming sounds of ‘sawlog-driven’ or additional to ‘high value’ processes are familiar, as is the argument that only ‘waste’ will be used. Also familiar are plans for state forest agencies to manage areas of native forests for carbon stores. It was called ‘multiple-use management’ in the 1970s.
The 1970s was the era of government subsidies for softwood plantations followed, a few decades later, by tax minimisation plantation managed investment schemes. These schemes remain in place and tax minimisers keep subscribing despite the predicted and now realised widespread collapse within the sector. Forestry lobbyists have carbon sink plantings, either separate or tacked onto wood producing plantations, on the agenda. With the public purse open, it seems there is no end for plantation expansion in Australia.
There is one difference: we can choose to learn from past policy mistakes.
Public interest outcomes are compromised when policy is dominated by the interests of economically and environmentally inferior incumbents. Engineering commercial viability into wood based energy suits the native forest sector: but it is not an efficient energy production system. Planting carbon sinks, especially with single or limited species, suits the plantation lobby: but such plantings are not efficient carbon stores. Tasking state forest agencies with managing native forests as carbon stores suits the incumbent state forestry agencies: but they are not skilled in biodiversity conservation which is the key to maintaining and restoring native forest carbon stocks.
Quite possibly, government will not resist the lobbying that prevents Australia having a coherent wood products industry and forest policy where each land sector is allocated to the job it does best: plantations for wood products and native forests for biodiversity conservation/carbon stores/water. If government facilitates native forests into the energy and other biomass feedstock markets, Australia’s forest conflict will continue raging. The public can wish to avoid this outcome, but only governments can make that happen.
Download the full analysis: Ajani_(2011)_Australian_forestry_industry_-_situation_and_outlook.pdf
Dr Judith Ajani
Photo of Dr Judith Ajani
Visiting Fellow, The Fenner School of Environment and Society
Judith is ... an economist, graduating with honours from the School of Economics, University of Melbourne (1978) and a PhD in resource and environmental management from ANU (2002). She has worked in the Australian Bureau of Statistics, Bureau of Industry Economics, Port of Melbourne Authority and the Victorian industry department where she managed manufacturing policy for the Victorian wood based industries. Since entering ANU in 1996, Judith has concentrated her research on building environmentally and economically coherent policy frames for the agricultural sector (notably wood production) recognising the cost-cutting nature of commodity production. Her work is deeply integrative - history, ecology, economics, politics, institutional analysis and policy. Judith used integration to investigate why, despite the existence of a pragmatic solution, Australia has not resolved its forest conflict. Her findings are presented in ‘The Forest Wars’ (MUP 2007). She is currently working with colleagues on how best to integrate forests in Australia’s climate change mitigation policy. Judith is a strong advocate for communicating university research and analysis to enhance public policy debates.