Competitive Neutrality in Forestry


In 2001 the Productivity Commission released a report into the competitive neutrality of the State government forest agencies in Australia.

The report makes for interesting reading 15 years after it was published.

So what is competitive neutrality?

Competitive neutrality (CN) means that state-owned and private businesses compete on a level playing field. This is essential to use resources effectively within the economy and thus achieve growth and development.

CN policy forms part of the 1995 Council of Australian Governments’ agreement on National Competition Policy (NCP).

CN policy aims to promote efficient competition between public and private businesses. Specifically, it seeks to ensure that government businesses do not enjoy competitive advantages (or suffer from a competitive disadvantage) over their private competitors simply by virtue of their public ownership.

The fact that the Productivity Commission felt the need to write such a report says a great deal about the forest industry in Australia. Remember this was in 2001 immediately after the Regional Forest Agreements (RFA) had been completed and signed.

Why weren’t competitive neutrality issues covered as part of the RFA reforms?

It is certainly my belief one of the major reasons we don’t have a thriving blackwood industry in Tasmania is the absence of competitive neutrality.

Here’s my precise of the report by chapter, and what I regard as some of the more salient points from a blackwood growers perspective.

1 Introduction

Forest products industries source wood from both public and privately managed forests, although public forests have traditionally accounted for the overwhelming bulk of wood supplies.

The situation has changed dramatically over the past 15 years with most wood grown and sold in Australia now coming from private forest growers. But State forest agencies continue to exert a significant influence on the industry especially around policy and politics.

Also the privatization of public plantation assets has introduced new distortions in the marketplace such as new owners being exempt from paying local Government rates and charges, competing against other private forest growers who do pay rates and charges. Local communities are now forced to subsidize the new private forest owners.

As forestry agencies are deemed to be significant government businesses, they are subject to CN. This requires them to:

  • charge prices that reflect costs;
  • pay all relevant government taxes and charges;
  • pay commercial interest rates on their borrowings;
  • earn commercially acceptable returns on their assets;
  • and operate under the same regulatory regime as their private sector counterparts.


To this list I would add:

  1. receive no direct or indirect taxpayer subsidies;
  2. harvest all timber on a fully commercial basis. Undertake no community service timber harvesting;
  3. provide complete and separate annual accounts for all Government-funded community service activities (CSOs).

There would certainly be other CN principles that could be added to this list.

2 Forestry background and institutional framework

Competitive neutrality is about a level playing field but the report provides little insight into the nature of the forest industry playing field and the numerous factors that impact the quality of the playing surface. For example there is a section in Chapter 2 discussing employment in the forestry sector, but no discussion on how sector employment impacts CN and the quality of the playing surface!

Chapter 2 provides a background summary of the industry and its institutional framework. There is discussion about “recent reforms” (many of which never eventuated, or were implemented only to be undone at a future date), National Forest Policy and the Regional Forest Agreements (RFA), the 2020 Plantation Vision, National Competition Policy, and Australian Accounting Standard for Self-Generating and Regenerating Assets (AAS 35). But within all this discussion there is little said about competitive neutrality. For example the discussion about the RFAs says nothing about if or how CN was dealt with within the RFAs.

In fact one of the key objectives of the RFA process should have been to set the State forest agencies on a level competitive playing field with each other AND private forest growers; with the objective to become profitable or cease to exist.

Unfortunately that did not happen; in my opinion a major failure of the RFA process.

There is considerable discussion in the report about Australian Accounting Standard AAS 35 ending with this classic quote:

AAS 35 provides a consistent framework for forest asset valuations across jurisdictions, but gives forest agencies considerable flexibility in implementing it. This has led to differences in asset valuations between agencies, and has particular implications for the implementation of CN by forest agencies.

In other words, never mind the level playing field!!

3 Application of CN to forestry

Chapter 3 talks about the implementation, monitoring and reporting of CN across Australian State forest agencies.

Progress in implementing CN is mixed. Jurisdictional differences in the application of CN to forestry agencies include the:

  • institutional models within which CN compliance is being pursued;
  • pricing and log allocation mechanisms;
  • transparency of CSO funding;
  • determination of target rates of return;
  • allocation of overheads to commercial wood outputs (see box 3.1);
  • approaches to achieving regulatory equivalence;
  • monitoring arrangements; and
  • asset valuation methodology used.


In other words the State forest agencies cannot even create a level playing field between themselves, let alone with private forest growers. So much for National Forest Policy!

[CN] Monitoring arrangements vary across jurisdictions [States].

In Tasmania, Forestry Tasmania is subject to monitoring by the State’s Prices Oversight Commission [now the Office of the Tasmanian Economic Regulator]. It also provides quarterly reports to Treasury on performance against agreed indicators.

Clearly no one is doing any monitoring or reporting in Tasmania. Go to the websites of either of these organisations (OTER or Treasury) and you will find NO information about CN monitoring or reporting by Forestry Tasmania. Forestry Tasmania’s own website contains NO mention of CN policy, objectives or performance.

All State government forest agencies should be required by law to have the exact same competitive neutrality policies, objectives, monitoring and reporting procedures. Otherwise the National Competition Policy is just wasted paper.

The report spends considerable time discussing whether logs are being sold at their ‘full’ market value, without the obvious answer that full contestable market value of public forest assets needs to be regularly and transparently determined “by the market”.

4 Log pricing issues

Over the last twenty years, there has been considerable evidence to suggest that forest agencies have frequently sold logs at less than their full market value. … evidence suggests that, in the past, royalties for sawlogs from State forests have often been some 20 to 70 per cent below their market value.

This doesn’t mean log underpricing began in the 1980s. It’s just that in the 1980s some people began to think this was a serious issue. Some people still think it is still a serious issue.

In 2016 the issue of log prices and marketing from State Government forest agencies remains unresolved. Deliberate underpricing continues unabated. Both Western Australia and Victoria started to go down the road towards market-based log sales and pricing, but changes in State governments saw those policies reversed.

In a fully competitive market environment, a sawmill [or other wood processor] will compete against other processors for log supplies from growers…. In practice, the market for logs sourced from State forests [or other growers] cannot always be regarded as fully competitive.

This market situation is no different to any other primary industry [cows, milk, apples, cabbages, etc.].

One of the issues around State forest agencies is that only wood processors are allowed to purchase public forest assets. Organisations that may wish to purchase public forest assets such as carbon sequestration or conservation are deliberately excluded from the market. This is not the case with privately owned forests in Australia. This is a deliberate breach of CN principles. Why can’t public forest assets be sold to the highest bidder (subject to certain management constraints)?

The Report talks about the various difficulties of determining real market prices for logs.

The Report fails to discuss issues around market and price transparency.

Section 4.3 (p. 36) discusses the impact of underpricing on private forest growers.

The major concern expressed about the price of logs sold by forestry agencies has related to underpricing. Whatever the underlying reason, allegations of underpricing [by State forest agencies] have frequently been cited as a factor impeding the development of private wood growing enterprises.


Recent reforms have created incentives for forest agencies to price logs on a more commercial basis. Consequently, it is possible that other factors may now have a greater impact on private growers than underpricing by forest agencies.

In 2001 that was wishful thinking. In 2016 it’s a bad joke!

The Report then discusses how underpricing of logs has left the Australian wood processing industry inefficient and uncompetitive, and therefore unable to pay full market prices for logs. It’s a debilitating spiral to bankruptcy.

A priori, the application of CN would be expected to reduce the incidence of log underpricing, because it requires forest agencies to act more commercially by charging prices that cover all the costs of growing and managing the forest, including a commercially acceptable return to the land and timber assets. This should help ensure that the full market value is realised for logs sold by State forestry agencies.

Lots of hope and optimism with little evidence in 2001 that CN reforms were really being implemented. In 2016 we know that hope was misplaced.

5 CN and the broader policy context

The implementation of CN in forestry will contribute to better cost recovery and pricing policies, and hence a more efficient and better managed public forest estate.

We haven’t seen any evidence of this in the last 15 years!!

It is often argued that the use of competitive tendering (or auctions) for the sale of logs would lead to higher prices because processors would be forced to pay the ‘true’ valuation of the logs.

Outcomes from the relatively few auctions held to date suggest that a competitive market could also lead to greater differentials in log prices.

In other words premium timbers like blackwood would achieve much higher prices than they do under the current system of Government-set prices. Either that or hardwood sawlogs and pulpwood would be at give-away prices.

The role of secondary markets for harvesting rights may be of greater significance in achieving more competitive log pricing in such [one seller/grower, one buyer] markets. Competitive secondary markets for log entitlements would strengthen the processing sector’s incentive to operate efficiently.

Currently, harvesting rights [to public native forest] can only be held by wood processors. However, there would seem to be no reason why parties other than wood processors should not be able to bid for, and hold, such rights. If a timber right was modified to become a right to appropriate all the values of the forest, then holders may be better able to balance all possible uses — particularly in light of the potential development of some markets for environmental services.

Private forest growers are not subject to such market restrictions so why are State forest agencies?

There is very little published information on [log] prices realised by forest agencies. …[log] pricing policies and the terms on which harvesting licenses are allocated are generally confidential.

These are public assets being sold and the public has absolutely no right to understand the basis on which they are commercially managed!!

In the United States, the Department of Agriculture regularly publishes detailed information on stumpage prices (royalties), fob mill prices, harvest rates and sustainable harvest rates by species and region (Warren 2000). While the relatively small size of the Australian industry may prevent the publication of statistics in the same level of detail without breaching confidentiality, the limited information available in Australia denies the community information on a very significant natural asset and inhibits scrutiny of the pricing practices of State forest agencies. This increases the difficulties in assessing the performance of these agencies. At the same time, the absence of public information on market prices and conditions itself may constitute an impediment to private investment in forestry — information about farmgate or market prices is readily available to potential investors in most other natural resource and primary industries.

Overall it is not a great report. It could have been better.

Here’s my thoughts on a few other CN-related issues not discussed in the report:

Public benefit

The NCP allows State Governments to ignore CN principles if they claim public benefit overrides commercial interests. In 2001 when most wood grown and sold in Australia came from State forest agencies this was pretty easy. However in 2016 the reverse is now true, most wood now grown and sold in Australia comes from private forest growers. The public benefit from being a minor player in the forest industry is much more difficult to argue. Growing trees for wood production is now very definitely a commercial business not a community service.


One of the fundamental issues around competitive neutrality is that it must be transparent. Private businesses that compete against Government businesses must be able to clearly and readily see that they are operating on a level playing field. The PC Report says:

The focus on cost recovery, and the trend toward greater transparency and accountability of public agencies in their management of public resources, has encouraged forest agencies to evaluate their forest management practices in terms of their impacts on efficiency and financial performance.

Otherwise the Report is generally critical of State governments and State forest agencies in their lack of CN transparency.

Log Export

There always seems to be strong community concern around the export of native forest logs. But the concept of competitive neutrality means that whatever markets are available to private tree growers must also be available to public forest managers. That is the level playing field. If private forest growers look to improve their profitability through log export markets, then the same must be available to the State forest agencies, including the export of sawlogs and specialty timbers. If high value log exports are banned then the viability of commercial native forest management may be compromised. Unfortunately the PC report does not discuss this issue.

Resource Security

Any legislation, regulation or policy that seeks to create a distinction between the public and private commercial forest is in breach of competitive neutrality principles. For example the concept of “resource security” is by definition a breach of competitive neutrality principles, because the concept is only applied to the public forest resource, never to the private resource. The Report even mentions resource security (p. 15) but fails to identify it as a breach of CN!

In New Zealand, where 100% of the forest industry is privately owned, they don’t talk about resource security. They do talk about the tensions between supply and demand, and how to manage fluctuations in supply and demand, but resource security is never mentioned.


State governments and State forest agencies continue to ignore their commitments and responsibilities under the National Competition Policy.

The so called level playing field has never been realised in the forest industry.

Vast sums of taxpayer’s money continue to be squandered on the industry. The most recent example is the Western Australian Government’s announcement of investing $21 million of taxpayers money in softwood plantation expansion without a business case. Presumably “public benefit” overrides the need for wise investment.


Of course with blackwood in Tasmania competitive neutrality has been thrown under a bus with the Government and Forestry Tasmania declaring “public benefit”; blackwood is officially a taxpayer-funded community service not a commercial activity.

It is time for the Productivity Commission to revisit and review the issue of competitive neutrality in the forest industry in Australia.

When will Tasmania get a fully commercial, profitable forest industry?

Native forests are worth more unlogged, so why are we still cutting them down?


This article in The Age newspaper from the editor of Money magazine says a great deal. Like this…

All Australians should be angry about logging of [public] native forests. If you don’t care about the environment, what about the fact your taxes prop up an unviable industry that employs very few people?

Here’s another…

The annual reports for the various state forestry businesses reveal logging native forests is marginally profitable at best, and a sinkhole for taxpayer money at worst.

And here’s how the article finishes..

Victoria offers a glimmer of hope.

Last month the Forest Industry Taskforce, which includes groups such as The Wilderness Society and the CFMEU, requested a methodology for earning ERF credits.

The taskforce represents all Victorian state forests east of the Hume Highway, though the main focus has been on the Central Highlands because of the endangered Leadbeater’s possum. If an ERF method is established, it could be valid nationally.

Let’s hope common sense prevails.

The problem is that the Victorian Forest Industry Taskforce is fundamentally flawed. It has all the same weaknesses as the failed Tasmanian Forestry Agreement, including the fact that come the next change of Government in Victoria, the work of the Taskforce will be thrown on the political scrapheap.

It is guaranteed that common sense will be completely absent.

Politics and ideology (and taxpayer subsidies) are the only things keeping the public native forest industry alive!!

Enjoy the read!

Global rosewood market continues to tighten


The current CITES Summit (Convention on International Trade in Endangered Species of Wild Fauna and Flora) in Johannesburg South Africa has voted to further tighten global trade on all Rosewood species in another attempt to save these species from extinction.

CITES says that rosewood timber is the world’s most illegally trafficked product accounting for 30% of all seizures by value.

The Convention on the Trade in Endangered Species (Cites) summit on Thursday placed all 300 species of rosewood under international trade restrictions.

Here’s a report from The Guardian:

Rosewood is one of the world’s premium tonewood timbers, and whilst the tonewood market accounts for only a small percentage of demand nevertheless it is a significant driver in the rosewood marketplace.

Sooner or later the tonewood market is going to have to face the reality of rosewoods bleak future.

Parkwood LE061


This might just be the most beautiful commercially built blackwood acoustic guitar ever made.

Only 150 of the 2007 Parkwood Limited Edition LE061 models were built.

With Master Grade solid fiddleback blackwood back, sides and soundboard and abalone trim, this guitar is definite eye candy. The chatoyance of the fiddleback is extraordinary.

In a plush red velvet with faux crocodile skin case this guitar was designed for the collectors market.

The full page add in Guitar World magazine in 2007 was clearly designed to impress.


Parkwood is the premium brand name for the Cort Guitar company based in South Korea.

These days Parkwood guitars are hard to find with limited distribution. That’s unfortunate given their quality and price.


I especially like the matching blackwood on the headstock.

Fiddleback blackwood tonewood of this quality is very rare. A Tasmanian Blackwood Growers Cooperative could potentially supply tonewood like this under two scenarios:

  1. Occasional arising from the active management of the remnant native blackwood forest that exists on farmland across northern Tasmania;
  2. Research is needed to determine the extent to which fiddleback blackwood can be cloned. Cloned fiddleback blackwood would then only have value within the context of a commercial blackwood plantation program.

The question remains is anyone in the tonewood market prepared to support such an opportunity?

And why am I writing about this 9 year old guitar?

Because I finally got my hands on one that’s why!


In 2013 Parkwood released an updated version of the LE061 called the LE081CE. This model has a cut out and onboard electronics, again with limited production (only 60) and distribution. Check this out!


Here’s one currently for sale on Ebay:

Addendum: Here’s an LE061 for sale in the USA on Reverb:


Blackwood Timber Price Rises by 15%

One retailer has recently increased the price of their blackwood timber by 15% or $1100 per cubic metre!!

Here’s a chart showing the old and new prices:


There’s no explanation given by the retailer for the price rise.

Is it due to declining supply, rising demand, or increasing costs of production? Or is it a combination of these factors?

Is the price increase likely to affect existing or potential growers?

If forestry operated under normal market conditions then a timber price increase of 15% would cause a significant response in the marketplace.

Under normal markets farmers would be doing their calculations and deciding if and how much to invest in growing commercial blackwood.

A 15% price increase should be stimulating new blackwood planting.

But forestry in Australia does not operate under normal market conditions. In fact forestry avoids “normal markets”. Using market forces to generate new investment is fundamental to any business.

Without my detective work these price increases would be largely unknown.

By way of comparison here’s a chart showing the price list for imported American Black Walnut offered by the same retailer:


Black Walnut is regarded as one of America’s premium appearance grade timbers. Most supply of this timber comes from private native forest owners in the eastern and mid-west United States, although some Americans are growing this species in plantations.

So this retailer at least regards blackwood as being on par with the finest hardwoods in the world.

So why isn’t that message (and the price) making its way back through the marketplace to help stimulate supportive policy and investment?

Private Forests Tasmania


A dedicated Government agency fostering the private forestry sector seems like a great idea at face value.

Private Forests Tasmania (PFT) is the only government-funded authority established in Australia to specifically promote, foster and assist the private forestry sector on forestry matters. We provide strategic and policy advice to Government on private forestry issues and represent Tasmanian private forest owners’ interests nationally.

But as soon as you start thinking about it the idea doesn’t look so good, especially when the Government is itself a major player in the industry in terms of wood production, market domination and control, and industry policy.

What happens when Government policy is in direct conflict with the interests of private forest growers as it often is? PFT cannot come out and oppose Government policy. They are Government employees after all.

And as for providing policy advice to Government that must present quite a challenge within a policy vacuum. The PFT website has no policies so what it says to Government remains a complete mystery.

Where’s the policy for the Radiata industry?

Where’s the policy for the pulpwood industry?

And where’s the policy for the high-value appearance grade timbers industry, including blackwood?

And where are the policies around the changes that are needed to the Forest Practice Code around plantation establishment and management?

And how about some policies about greater competition, price and market transparency?

I could go on….

And what about a PFT business plan?

You know a plan with goals and objectives and performance benchmarks and criteria, and a regular review process.

At least they have Vision and Mission statements.

But that seems to be about as far as it goes.


Our Vision

Sustainable private forestry in Tasmania as an integral and crucial part of our social fabric, economic well-being and a healthy environment in which soil, water and biodiversity are valued and widely used.


Our Mission

To facilitate the sustainable management of native and plantation forestry on private land in Tasmania. This mission includes:

  • encouraging commercial wood production;
  • encouraging the use of trees in land management;
  • promoting the environmental benefits of trees and forests;
  • promoting opportunities for competitive markets; and
  • optimising returns for all parties.


That mission statement should be clearly divided into a Commercial Wood Production and Other sections.

Regular community forums wouldn’t be a bad idea either.

And a plan of action for implementing the 2005 National Action Statement on Farm Forestry wouldn’t hurt either.

Don’t get me wrong. PFT could be a really great organisation but it remains fundamentally conflicted whilst the Government dominates the forest industry.

The objectives of the Government as a grower, price manipulator and policy maker, are not the same as those of private forest growers.

The only basis for a successful forest industry is profitable tree growers. The PFT website doesn’t seem to mention them.

Guitaronomics: The Rising Cost of Tonewood


Here is another article about the international tonewood market and the coming tonewood famine.

“Guitar enthusiasts love to talk about tonewood….. Rarely do the words sustainability or scarcity come up.

These terms, however, are now central to the lexicon of the guitar industry.”

The article features comments from three people in the tonewood market:

Chris Herrod of Luthiers Mercantile International [LMI], a major American tonewood retailer, which is seeing major changes in the tonewood market.

“LMI aims to provide as many “new” varieties [of tonewoods] they can find to offer alternatives to the classics while educating the customer base along the way.”

Perry Ormsby a small Perth [Australia]-based luthier provides us with this great quote:

“Using Tasmanian blackwood (Acacia melanoxylon) as a substitution [for Honduran mahogany] has been a game changer.”

“A close cousin to Hawaiian Koa, it is heavier than mahogany and difficult to work with, but it sounds great. It looks cool, and it’s Aussie,” Ormsby says.

“When his customers are educated about the wide range of wood possibilities he is using and and see the results, it makes them rethink everything they wanted out of their dream guitar.”

And finally Bob Taylor from Taylor Guitars features prominently in the article.

“When the wood is in rare supply, the price goes up. Nearly all our woods have probably increased in price about 15% over the last few years. I don’t blame this on regulation. I blame it on supply. But since the supply is so low, it’s also become highly regulated to the point of illegality.”

In addition to its ebony partnership in Cameroon in west Africa, Taylor have also started a company called Paniolo Tonewoods, a partnership with Pacific Rim Tonewoods. Together they are undertaking a massive planting of Koa (Acacia koa) timber in Hawaii.

Tasmanian blackwood also gets a mention within the discussion about Taylor Guitars as a growing alternative sustainable tonewood.

But I’m not sure the article finishes on the right note.

There’s a strong emphasis on nostalgia and traditional tonewoods. There is not a strong message about the future and sustainable tonewoods.

In that regard it tends to reflect where the general tonewood market is at right now – caught between the traditional buying habits of its customers and lacking the commitment and leadership to move to a sustainable future.

But the time of the profitable sustainable tonewood will come; perhaps in the next few years.

Ultimately if the tonewood market wants to continue to access quality wood then it will have to start paying farmers to plant trees. There is no other option.

Will Tasmania be ready when the time comes?