While the arguments about forestry rage again, the central tenet of the argument, while mentioned in passing, fails to grab the political discourse in the way it should. It is absolutely guaranteed that Forestry Tasmania will lose vast amounts of taxpayers’ money because Native Forest Logging is economic madness. If we understand that losing money is guaranteed then maybe we can again question why we bother doing it?
When people talk about the money Forestry Tasmania lose they do not seem to understand that it happens for a reason – the way they grow trees costs way more than they get paid for the wood. The arguments about rates of return and such are nonsensical and irrelevant; Forestry Tasmania’s activities are loss-making by their very nature.
In plantations, hardwood woodchips are grown on rotations (time from planting to harvest) of around 10 years, often as low as 7. Softwood sawlogs come from 20-25 year rotations. In addition to this, softwood sawlogs have a recovery rate (the amount of the tree that actually becomes sawn timber) of 35-50% while hardwood recovery rates are 10-15%. The vast majority of Forestry Tasmania’s logging regime is on 85 year rotations.
An area used for plantations will produce many times the amount of timber than that which could be generated from a native forest regime on 85 year rotations. But still, we are not at the apex of the problem - interest rates - compound interest rates in particular. Money has a cost and we have to pay to borrow it, governments as well. And when we borrow it for 85 years the costs of funding the loan and the interest payments quickly become astronomical. In simple terms A=P(1+r)n where A is the final amount, P the principal, r the interest rate and n the number of years.
If we assume a long-term business interest rate of 10% then a dollar borrowed for 10 years costs us $2.60, over 20 years $6.73 but by the 85 year timeframe this one dollar costs us $3,298.97. Even at a ridiculously low rate long term business interest rate of 5% these numbers are $1.63, $2.65 and $63.25. It is the interest we pay on the interest that becomes the killer and this grows exponentially as each year passes.
So we get a heap less wood and we pay a mountain more money. This is why Gunns didn’t have native forest logging regimes, North Broken Hill didn’t, no private company does – it simply doesn’t make any financial nor economic sense. Private companies grow their wood in plantations (when they can’t get their hands on the free stuff from governments). And before anybody says ‘hardwood sawlogs are better’ I ask; how much extra are you prepared to pay for it? 5,000 times as much?
Forestry Tas obviously know this but they want to keep their well-paid jobs, so they muddle along surviving off the royalties they get from wood they didn’t grow and all the subsidies and grants that politics continues to throw their way. The ridiculousness of the decisions they make won’t become obvious until well after they have shuffled their mortal coil off.
We have ombudsmen who talk about rates of return being too low, we have study after study that identifies vast amounts of public money disappearing down the gullets of this ravenous industry yet nobody seems to state the obvious – it can’t make money no matter what!
The transition that Forestry talks about doesn’t exist, has never existed and will never exist. There is no way that we will have the same native forest logging regime in 85 years that we do now, so we will never even get back to the first coup that this process plants. And until we get back to this coup and start actually cutting down what we ourselves planted then we are not in a business – we are just clearing and mining the environment.
If we want a native forest logging industry then we need somebody to manage it, in a similar way to that which fisheries manage a ‘hunting and gathering’ activity. They simply control access and allow private businesses to take sustainable amounts of product from the wild. This ‘forestry’ would look nothing like the economic monstrosity we have now.
So next time you see a politician, or a ‘business’ person spruiking forestry, ask them which socialist economic philosophy they follow? And ask them how it is they support divorcing the supply of wood from the demand, such that we guarantee a supply amount regardless of what it costs to produce it? In short, ask them how it is that we simply ignore the realities of the real world where forestry is concerned? Then ask them if they would mind paying your share of the forestry bill because you simply don’t want to anymore?!
Finally, just for fun, ask them for the Business Plan. Ask them to show you in simple ‘back of the envelope’ terms, how they propose Forestry Tas can make money. They can’t. There never has been and never will be a Business Plan for native forest logging as preparing one would be almost as absurd as never having done so.
• *Brian Kohl is an economist and is currently a Director and CFO of one of Tasmania’s largest private hedge funds. In previous lives he has worked as an economic advisor to both Labor and the Greens.
• Examiner: Forestry priced out of Asia
26 Feb, 2012 04:00 AM
JET-SETTING around Asia speaking with the customers so important to the short and long-term future of Tasmania’s forestry industry, Bryan Green kept hearing the same thing: find a solution to the forestry wars.
Speaking exclusively to The Sunday Examiner, the Forestry Minister and Deputy Premier said buyers in Singapore, Japan and China had made clear the need for compromise between the industry and environmentalists.
``It is very important to them - they want the whole matter resolved,’’ he said.
Mr Green and state Opposition Leader Will Hodgman left for Asia on Tuesday in a bid to promote and discuss Tasmania’s forestry industry, largely in reaction to environmentalists lobbying customers of veneer mill company Ta Ann.
What started out as a sales trip quickly evolved into a fact-finding mission, and the news wasn’t good.
Market conditions in Asia are not favourable to Tasmanian forestry product exports. The high Australian dollar plus comparatively high production costs here mean Asian buyers are finding cheaper product elsewhere, particularly from Vietnam and Thailand.
Still, Mr Hodgman and Mr Green had very different views on what the message from the market meant.
On his return to the state last week, Mr Hodgman said the talks were a clear indication that his belief that the intergovernmental agreement on forestry between the state and federal governments needed to be torn up was correct.
Still in China, Mr Green yesterday said that was blatantly wrong.
``The IGA is not the cause of the problem: it’s in response to a change in the market,’’ he said.
``It is clear we need to act to put Tasmania’s forest industry on a sustainable footing. Putting your head in the sand and taking a do-nothing approach is simply not an option.
``Mr Hodgman was either not listening or simply didn’t want to hear the facts.’‘
Mr Green said compensation and funding received as part of the IGA had eased the impact that the market downturn had on many forestry workers and their families.
It may also hold the key to to the industry’s salvation, he said.
That will be the case if it brings lasting peace to Tasmania’s forests, with Asian market interest and the development of Gunns’ Bell Bay pulp mill now seemingly reliant on an end to the discord.
``We need a viable forest industry balanced by conservation outcomes that will allow businesses and investment in the sector to continue,’’ he said.
That investment, particularly the pulp mill, relies on a social licence.
It’s a message repeating that made by potential Gunns investor - some would say saviour - New Zealand-born billionaire Richard Chandler.
Mr Chandler’s company, Richard Chandler Corp, last week announced the parameters of the due diligence investigation it is undertaking before committing to invest $150 million in Gunns - an investment seen as critical to the prospects of getting the pulp mill built.
Key among the criteria that Richard Chandler Corp is investigating is whether its investment will lead to improving sustainable environmental practices and attract local support. In effect, will it have a social licence?
• Peter McGlone, Director Tasmanian Conservation Trust: Tasmanian Forests IGA may sacrifice threatened species protection as a trade off for allowing Forestry Tasmania to maintain current logging levels
The Tasmanian Conservation Trust today claimed that the Tasmanian Forests Intergovernmental Agreement (IGA) may weaken the protection granted to threatened species, by giving Forestry Tasmania an exemption to the Forests Practices Code, in a perverse strategy to allow them to maintain current logging levels from less forest.
“If the government weakens the protection currently given to the swift parrot, tiger quoll, wedge-tailed eagle, masked owl and other species, rather than improving them as expected following the Forests Practices Code review, what a field day the conservation movement will have telling the industry’s overseas buyers and consumers,” said TCT Director Peter McGlone.
“Having a forest practices system which could at least measure up to international standards was one thing the industry used to be able to hold up when criticized.
“To consider granting Forestry Tasmania exemptions to the Forest Practices Code, which would weaken protection of threatened species habitats, when the Code review found they needed to be strengthened, is just environmental and economic madness.
“Unless the IGA is changed, it proposes a perverse trade off where wilderness and world heritage areas get reserved and threatened species and threatened forest communities, found mainly outside of proposed reserves, get pushed faster towards extinction.
“If the IGA proposed reserves included these values then we would not be as concerned, but they contain very little habitat of threatened species or threatened forest communities.”
Ever since the Tasmanian Forests Statement of Principles, signed in October 2010, endorsed the retention of wood supply volumes, the TCT has been concerned that the biodiverse private forests and unreserved public forests would come under greater logging pressure as a result of new reserves. This now appears to be the reason the state government refused to implement the recommendations of the Forest Practices Code review.
Our concerns have been confirmed by the FPA’s submission to the IGA which stated that further reservation of state forest without an appropriate reduction in wood supply commitments will increase the intensity of logging on public and private land and will lead to dire environment outcomes.
In its submission to the IGA, the FPA warned that:
‘From a significantly reduced area of state forest (resulting from the IGA reserves), Forestry Tasmania cannot meet both the TFIGA wood targets and the requirements of the current Forest Practices Code. That is, either the wood targets would need to be substantially reduced or Forestry Tasmania would need to be given an exemption under legislation to operate at a lower environmental standard than currently applies. This would have serious implications for the conservation of important values, including threatened species habitat, karst, water catchments and visual values.’
(FPA submission to the IVP, 6 December 2012, pages 2-3)
In its submission to the Independent Verification Panel, the TCT recommended that the state and Australian governments ensure the IGA delivers both the proposed reserves and improved threatened species protection through a stronger Forest Practices Code. To achieve these environmental outcomes, Forestry Tasmania’s wood supply volumes must be significantly reduced.
The current Forests Practices Code is seriously out of date and must be modernized to keep up with current science regarding biodiversity conservation. This is why the Forest Practices Authority - Tasmania’s independent forest practices regulator – triggering a review of the biodiversity provisions of the Code between 2007 and 2010. The state government suspended the review in July 2010, without explanation, and the review recommendations have not been implemented.