Category Archives: Forestry Tasmania

Island Specialty Timbers Tender Results

ist

http://www.islandspecialtytimbers.com.au

For the past three years I’ve been collecting, analysing and reporting blackwood log tender results from Island Specialty Timbers (IST) as, despite the miniscule volumes and generally poor quality, these are the only competitive blackwood log prices that are publically available.

Just for the fun of it I thought I would start collecting and analysing all the tender results. You never know what might turn up!

This data doesn’t have much market value. Besides blackwood, no one is going to invest money based on the tender results for the other specialty species, which are too slow growing to allow for profitable investment.

The best value this data has is to show what the marketplace might pay for premium quality timber. When Tasmanian public native forest oldgrowth and rainforest timbers are no longer available, will the marketplace come to better appreciate farm-grown Tasmanian blackwood?

Forestry Tasmania and the Tasmanian Government consider the management and harvesting of public native forest specialty timbers (including blackwood) as a taxpayer funded community service. So why does Forestry Tasmania/IST put these tiny volumes to tender and publish the results? What is the point?

Forestry Tasmania’s major product Tasmanian Oak has no price or market transparency. Why the need for competitive markets and price transparency for community-service specialty timbers, where there is no competitive markets and price transparency for eucalypt hardwood? It makes no sense!

IST was established ”to increase the recovery, availability and value of specialty timbers from harvesting activities in [Tasmanian] State forests”. Does IST achieve its stated objectives? Does it operate at a profit? We will never know!

Island Specialty Timbers has been operating for 25 years. In that time it has never produced a market report; and only in the last 3 years has Forestry Tasmania included IST sales highlights in its Annual Report.

http://www.forestrytas.com.au/about-us/publications

So far as I’m aware these are the only publically available competitive market log price results available anywhere in Australia!

30 million cubic metres of wood is harvested in Australia every year and all we have are competitive price results for less than 200 cubic metres! Isn’t that extraordinary??

Does the forest industry really want to encourage investment?

isttender-chart

The size and quality of products tendered by IST varies enormously so it is difficult to draw conclusions from these results.

Remember these prices are equivalent to mill door log prices, so harvesting and transport costs are theoretically included in the prices.

All up over the 15 months 210 cubic metres of logs were sold by tender with total revenue of $162,000. An additional $18,100 revenue was received by Forestry Tasmania directly from Tasmanian taxpayers to compensate for the costs of harvesting this 210 cubic metres.

87 cubic metres remained unsold from the tender process. Few of the logs tendered were of premium (Category 4) grade, most of which are sold under private long term sales agreements, including virtually all of the Huon pine.

Five species attract strong demand and high prices, these being black heart sassafras, plain white sassafras, king-billy and huon pine and leatherwood with average log prices over $1,000 per cubic metre. Celery top pine sold for an average price of $530 per cubic metre. All of these species take 400-1,000 years to reach maturity so I suspect even these prices are cheap.

And don’t forget these public native forest specialty timbers come to you courteously of an $86.27 per cubic metre direct taxpayer subsidy.

https://blackwoodgrowers.com.au/2016/11/13/special-timbers-subsidised-charade-continues/

Black heart sassafras and blackwood made up 25% each of the successful tendered volume over this 15 month period, but made up 46% and 6% of the sales revenue respectively. Blackwood comprised 55% of unsold log volume, perhaps suggesting that the local Tasmanian market for plain grain blackwood is saturated. This is not surprising given you can buy plain grain select blackwood timber in Tasmania for the same price as Radiata pine.

https://blackwoodgrowers.com.au/2016/11/12/blackwood-timber-price-list-summary-2016/

The harvesting of specialty timbers from Tasmanian public native forests is neither profitable nor sustainable.

I will provide an update on IST tender results every six months.

Wish List Revisited

Makeawish

The recent Ministerial Statement by Tasmanian Resources Minister Guy Barnett, and the strong negative reaction it provoked from both the community and the forest industry got me thinking about the wish list I wrote last year.

http://www.premier.tas.gov.au/releases/ministerial_statement_-_forestry

So I’ve decided to update my Wish List.

Does Tasmania want a successful forest industry?

If so then here are a few ideas:

  1. Government policy

Tasmanian Government forest policy continues to focus on public native forest, a failed State forest agency, and protecting local jobs at any cost. If we adopted this same thinking for any other primary industry Tasmania would be an economic basket case. Our politicians and large sections of the forest industry and the community still think of the forest industry as a community service, a government employment program.

Sorry guys but it’s the 21st century.

The only basis for a successful modern forest industry is profitable tree growing.

Most wood now grown and sold in Australia comes from private tree growers.

It is time to put the policy focus on profitable private tree growers and away from public native forest and a failed State forest agency.

Implementing the Federal Government’s Farm Forestry National Action Statement 2005 would be a good place to begin.

http://www.agriculture.gov.au/forestry/australias-forests/plantation-farm-forestry/publications/farm_forestry_national_action_statement

 

  1. Government structure

We need to think of forestry as a primary industry and not as a Government-run, politically-driven, taxpayer-funded employment program.

One example of this change would be to move Private Forests Tasmania (PFT) from the Department of State Growth Tasmania to the Department of Primary Industries, Parks, Water and Environment (DPIPWE). At the moment this DPIPWE website contains no mention of forestry at all:

http://dpipwe.tas.gov.au/agriculture

Why isn’t forestry regarded as a primary industry in Tasmania?

Why isn’t Private Forests Tasmania part of DPIPWE?

So that all commercial forest policy and practice is aligned with primary industry policy the Government Minister responsible for PFT/DPIPWE should also be responsible for Forestry Tasmania. Now does that sound logical or what?

  1. Private Forests Tasmania

Following from the above logic Private Forests Tasmania needs to become the dominant Government forest agency, NOT Forestry Tasmania.

  1. Forestry Tasmania

And following on we need to get the politics, conflict and the anti-competitive policies out of the industry. That means either a) completely transforming Forestry Tasmania into an independent, fully commercial, profitable business, or b) shutting down public native forest logging.

  1. Plantations

The future of the forest industry is plantations. And like all primary industries the only basis for a successful forest industry is for (public and private) tree growing to be transparently profitable. The forest industry and the Government need to do everything they can to encourage profitable market-driven plantation investment. No scams!! See below for my comments on forest practices and markets and transparency for two ways to achieve this.

  1. Native forests

If there is any value/profitability at all left in logging Tasmanian native forest it must be pretty marginal. The Tasmanian Oak brand has been pretty well trashed over the last 50 years. Commercially managing native forest is a very costly operation. The only way it can be viable is by producing very high value products from most of the resource. This has never happened. Certainly in the pulp and construction markets, which account for the vast majority of the wood market, native forests don’t stand a chance competing against plantation-grown wood.

  1. Special Timbers

Using scarce taxpayers money to cut down 400+ year old public native rainforest and oldgrowth in the 21st century, with the excuse that special timbers are an essential part of “Brand Tasmania”, makes no sense whatsoever. All wood production must be fully commercial and profitable. There must be no community-service forestry in Australia. Given that blackwood makes up the vast majority of special timbers production anyway, and it can be grown in commercial plantations, the focus of special timbers policy must change.

  1. Forest practices

I have four thoughts here:

  1. The current Tasmanian forest practices code was developed when community-service public native forestry dominated the industry. However in the spirit of over-regulation it provided a significant hurdle to private plantation development. The forest practices code needs to be reviewed within the light of the following three comments.
  2. We need to create a primary industries level playing field when it comes to environmental management, so that regulation does not distort land use decisions. New Zealand has this approach to “forest practices” with their Resource Management Act 1991. I don’t see why Tasmania should not follow their example.
  3. Following on from b) the Tasmanian Forest Practices Authority should be merged with the Tasmanian Environmental Protection Authority to provide environmental monitoring, regulation and research services across all jurisdictions. Why does the forest industry need its own separate environmental regulation system?

http://www.fpa.tas.gov.au/

http://epa.tas.gov.au/

  1. The Australian forest industry should work towards developing a single set of national plantation management guidelines for the whole country as much as it is able within the maze of different State jurisdictions. At the moment regulations governing plantation management vary enormously across Australia. This is stupid and anticompetitive. It will be a long process but a worthy goal.
  1. Tasmanian Farmers and Graziers Association

The Tasmanian Farmers and Graziers Association (TFGA) needs to become a genuine independent, vigorous advocate for private forest growers. The interests of private forest growers are not the same as those of sawmillers, or Forestry Tasmania nor the Government of the day. A thriving commercially competitive, profitable forest industry can only exist when private tree growers have a strong, fearless, independent voice. The TFGA is the only option currently available.

  1. Competition, prices, markets and transparency

The forest industry in Australia hates open market processes and transparency! This is not surprising given its history. When was the last time you saw a forestry market report in the Australian media? When was the last time you saw a sawmiller hang out his slate looking to buy sawlogs?

In my books this is the major challenge for the industry. There have been a few attempts in the past to change this but they have failed due to lack of industry support. The industry will have no future until it becomes fully commercial – aggressively commercial!!! It’s all about competition, prices, markets and transparency. Farmers will never take the forest industry seriously until this happens.

  1. Where to begin?

Tasmania is a great place for growing trees for wood production.

But Tasmania is a small island a long way from world markets.

Because of our size and remoteness we cannot compete well in commodity markets like pulpwood and construction timber. We must think small volume high value niche markets such as appearance grade timbers and timbers for specialty markets. New Zealand farmers are doing this. But it needs focus and a strategy, not a random shotgun approach. One obvious example is macrocarpa cypress. There is a growing demand for this timber, as a handful of people in Tasmania know very well. NZ has thousands of hectares of cypress plantation growing on farms. Why doesn’t Tasmania?

  1. Blackwood

Tasmanian blackwood provides another ideal example of a low volume high value forest product with which to help rebuild the forest industry. Quality appearance grade timber will always be sort after in the market, especially the super premium market. Tasmania could easily be producing 30,000 cubic metres of premium blackwood sawlog per year with the right policy and industry backing. At $500 per cubic metre that equates to $15 million in farm gate value per year. So where is the policy and industry support that will make this happen?

 

Unfortunately all of these ideas are so beyond current forest industry and political thinking they will never happen.

Certainly Minister Barnett’s Ministerial Statement contains nothing like the above plan.

No one is campaigning in Tasmania for private forest growers and a fully commercial profitable forest industry!

Tasmania does a good job running a successful dairy industry; and a pretty good job running beef, vegetable, apple, cherry and wine industries. So what is it about the forest industry?

When will Tasmania get a fully commercial profitable forest industry?

Special Timbers Subsidised Charade Continues

bedroom_suite2

Forestry Tasmania, the State government forest agency tasked with commercially managing the public native forests of Tasmania, has released its Annual Report for 2016. Forestry Tasmania is Australia’s largest grower and producer of Tasmanian blackwood timber.

http://www.forestrytas.com.au/news/2016/10/forestry-tasmania-s-annual-report-2015-16

A previous blog has focused on the insolvency of the organisation and its dismal future.

https://blackwoodgrowers.com.au/2016/10/31/forestry-tasmanias-insolvency-report/

Here I limit my comments specifically to blackwood and other so called special timbers. These are mostly reported on pages 25-26 of the Annual Report.

Since 1991 Forestry Tasmania has had a commitment to supply 10,000 cubic metres per year of millable blackwood sawlog (Category 4 and Utility) to market.

Forestry Tasmania also calculates a blackwood (millable) sawlog sustainable yield which it must abide by. Forestry Tasmania only calculates 2 sustainable yields: one for eucalypt sawlog and one for blackwood sawlog. The blackwood sawlog sustainable yield is 3,000 cubic metres per year.

http://cdn.forestrytasmania.com.au/uploads/File/pdf/pdf2014/review_sustainable_blackwood_supply_2013.pdf

Once again Forestry Tasmania refuses to tell us how much millable blackwood sawlog it produced during the year. Once again all we are told is total special timbers production that includes outspec and craftwood. We are told that 8,007 cubic metres of millable special timbers sawlog was produced.

Once again the report refuses to tell us what prices blackwood and other special timbers achieved. The Government has already admitted that Forestry Tasmania’s prices are ridiculously low give-away prices!!

http://www.premier.tas.gov.au/releases/ministerial_statement_-_forestry

Once again the report refuses to reconcile blackwood sawlog production with the sustainable yield. The overcutting of the public native forest blackwood resource continues unabated.

Once again the special timbers report on pages 25-26 refuses to openly and honestly tell us that special timbers production is managed as a non-profit, non-commercial, taxpayer funded activity. Is Forestry Tasmania being deliberately deceitful?

Once again the long suffering Tasmanian taxpayer has been forced to subsidise the special timbers industry directly to the tune of $0.91 million (p. 70).

That equates to a direct subsidy of $86.27 for every cubic metre of our highest quality, most valuable sawlog, veneer log and old stump and lump of craftwood that was harvested during the year.

Every $10,000 dining suite, every $8,000 bedroom suite on the showroom floor includes a few hundred dollars of taxpayer subsidy. It really is an outrage and a terrible waste of public money that should be spent on our schools and hospitals.

If anyone in the blackwood industry or the Tasmanian community believes this charade equates to open, honest, transparent reporting by our public forest manager they should think again.

When will Tasmania get a fully commercial profitable forest industry?

Forestry Tasmania’s insolvency report

FTAR2016.jpg

FT is never going to make a profit. It sells its products too cheaply and is locked into too many loss making contracts. It even makes losses from supplying high quality sawlogs.

With brutally honest statements like that finance commentator John Lawrence carves up the latest Annual Report from Forestry Tasmania (FT), Australia’s largest grower and supplier of blackwood timber.

http://tasfintalk.blogspot.com.au/2016/10/forestry-tasmanias-insolvency-report.html

On top of that sawmillers are now threatening to close if they have to take on more of FTs costs or pay higher log prices.

Checkmate!!

http://www.abc.net.au/news/2016-10-27/sawmill-viability-doubts-under-forestry-tasmania-price-rises/7969776

You can get your own copy of the Annual Report here:

http://www.forestrytas.com.au/news/2016/10/forestry-tasmania-s-annual-report-2015-16

Forestry Tasmania is an absolute mess but after decades of poor policy and politics it is certainly no surprise.

Here’s another gem:

The past year is best described as a continuation of the de facto wind-up of FT commenced under the watchful eye of Treasury boss Tony Ferrall once he was appointed [to the FT Board] in May 2015. A complying Board is now in place, stacked with directors whose post nominals as long as your arm indicate academic forestry knowledge. Their insolvency experience however looks a little thin. That is the prime challenge facing the company. FT is not turning the corner. That’s yet to be found. There is no plan to build the forest industry. It’s an insolvency operation. Presumably Mr Ferrall is acting on instructions from Mr Gutwein, which makes the government a two faced outfit.

If you have any interest or “skin” in the blackwood industry as a sawmiller, logger, manufacturer, retailer or consumer you need to read Mr Lawrence’s analysis.

Is the blackwood industry going to go down with the sinking ship called FT, or will it turn to Tasmanian farmers to grow blackwood?

When will Tasmania get a fully commercial profitable forest industry?

Forestry Tasmania declares bankruptcy!!

barnett2

This statement issued on the 26th of October by the Tasmanian Government contains the following statement from The Board of Forestry Tasmania:

On the 29th September 2016 the Board of Forestry Tasmania formally advised shareholder Ministers that, despite the efforts to date, the business was not operating profitably and would be unable to do so for the foreseeable future.

That is a formal declaration of bankruptcy.

Forestry Tasmania, Australia’s largest blackwood grower, is now officially trading whilst insolvent.

You can access the full Government statement here:

http://www.premier.tas.gov.au/releases/ministerial_statement_-_forestry

The statement is well worth reading and shows what a terrible mess is public native forest logging in Tasmania.

Another interesting point to note is that blackwood and other special species timbers will now be harvested from informal reserves including streamside reserves and wildlife habitat reserves.

The desperation to find more wood is incredible!

Whilst their Annual Report issued last Wednesday says this:

The Directors have reviewed the appropriateness of continuing to prepare the financial statements on the basis that Forestry Tasmania is a going concern.

Is FT misleading the market?

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

Competitive Neutrality in Forestry

pc-competitive-neutrality2

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

http://www.pc.gov.au/research/supporting/forestry

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.

As for the 1995 National Forest Policy it has never been implemented; and it contains no discussion at all about competitive neutrality.

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.

http://www.economicregulator.tas.gov.au/

https://www.treasury.tas.gov.au/

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.

And

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.

Transparency

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.

https://au.news.yahoo.com/thewest/wa/a/32691021/wa-leads-nation-in-forestry/#page1

Blackwood

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?

Bunnings Timber Price Lists

Bunnings is the largest hardware chain in Australia. When Australians think of timber they think of Bunnings. Bunnings sets the baseline when it comes to timber prices.

https://www.bunnings.com.au/

Bunnings two main timbers are Tasmanian Oak and Radiata pine. If you want timber other than these species you need to go to a specialist timber retailer. But Bunnings don’t show their prices on a per cubic metre basis, so I’ve done the homework.

Firstly the price list for kiln-dried, dressed, Select Grade Tas Oak as at June 2016:

BunningsTOak0616

Tasmanian oak is a native forest hardwood tree, so the costs of growing Tas oak are considerable in terms of management, regulation, roading, harvesting and transport. Most Tas Oak comes from public native forests managed by Forestry Tasmania. Forestry Tasmania is NOT run as a fully commercial profit-driven business, and has received considerable taxpayer subsidies over many years.

So these prices do not reflect the actual cost of growing the timber.

Prices range between $5,500 and $8,500 per cubic metre, with something of a trend of increasing prices for larger dimension timber to (perhaps) reflect the increased cost (to the taxpayer) of growing bigger, older trees.

Next is the price list for Radiata pine.

Radiata pine is a highly domesticated plantation-grown tree species, where scale, volume and efficiency dominate the market. It is grown primarily for the construction and pulp markets. The pine market is extremely competitive so these prices should accurately reflect the dynamic between supply and demand and the cost of production.

The other point to be made here is that Radiata pine must represent the absolute cheapest that solid wood of any kind can be commercially grown. It’s the bargain basement of solid wood prices.

The price list is for Standard grade pine, with Premium clearwood prices shown in yellow.

BunningsPine0616

Growing Premium grade, knot-free pine requires thinning and pruning the plantations at significant cost compared to growing Standard grade, hence the higher price for Premium grade pine.

Does the 100% markup per cubic metre for the Premium pine make it more profitable for the grower? I hope so!

Prices for the Standard Grade pine range between $1,100 and $3,500, whilst Premium grade ranges between $2,400 and $3,500 per cubic metre for a limited range of sizes.

And here we have a retailer selling blackwood for the same price as radiata pine:

https://blackwoodgrowers.com.au/2015/10/19/blackwood-pricing-and-the-forest-industry-1/

It’s completely insane!

According to Bunnings Select grade Tasmanian oak is 2.5 to 5.2 times more valuable than Standard grade radiata pine (when comparing the same sizes), and 1.7 to 2.6 times more valuable than Premium pine.

Given that Tas Oak is much slower growing than pine and is a native forest species (ie. higher cost of production, lower productivity), one would think that a 2x times price premium can in no way reflect the relative costs of production!

No wonder then that our native forest industry is in such trouble with give-away prices like these.

Also given that Tasmanian oak is not generally regarded as a premium appearance grade timber and is relatively abundant, what would be the relative price of select grade blackwood, which is regarded as a premium timber and is relative scarce? Would it be 3.0 times the price of Premium grade pine, ie. $7,500 per cubic metre? Or 2.0 times the price of Select grade Tasmanian oak, ie. $12,000 per cubic metre?

Surely Tasmanian blackwood timber should be priced well above Tasmanian oak!!

For my previous reviews of timber (including blackwood) price lists see here:

https://blackwoodgrowers.com.au/category/price-lists/

Special Timbers Management Plan April 2016 Update

FTSTS2010

After the embarrassing back down by the Tasmanian State Government over the proposal to log the World Heritage Area, two important reports were quietly released last week with no fanfare from our politicians or forest industry leaders. These reports relate to the forthcoming 2017 Special Timbers Management Plan.

http://www.stategrowth.tas.gov.au/forestry/special_species_timber_management_plan

You can read my previous blogs on the very long drawn-out process to create yet another special timbers management plan here:

https://blackwoodgrowers.com.au/category/management-plan/

Special Timbers Resource Assessment

The first report is a special timbers resource review produced by Forestry Tasmania of the 812,000 ha of the Permanent Timber Production Zone Land (PTPL).

The report does not include forests on private land, or forests on public land that are managed by other agencies (including Future Potential Production Forest).

The report does not speculate about any potential for helicopter harvesting or underwater salvage, nor make any assessment about the commercial viability or costs associated with [management,] harvesting and/or extraction operations.

Given that in 2010 Forestry Tasmania determined that its special timbers operations were no longer commercially viable one must presume that this situation remains unchanged. In other words how much taxpayers money is to be wasted harvesting this wood is not considered important in determining the resource that is available!

As always with State forest policy and practice it is about the volumes of wood to be given away never about the profitability of the forest asset.

One suspects that if commercial viability was considered in the report, then little if any of this public native forest special timbers resource would be available for harvesting!

Centrelink Timbers is a thriving industry in Tasmania.

The blackwood resource figures in this report are from the 2013 Blackwood sawlog resource review. No additional work has been done in this assessment for the north west blackwood production zone.

The significant reduction from the targets set in the 2010 Special Timbers Strategy reflects the smaller landbase that is now available, longer rotations required for some species and more accurate volume estimates resulting from the rainforest modelling work using LiDAR.

So two of the three issues [longer rotation age estimates and more accurate inventory ]that have driven down the estimate of available special timbers resource, have nothing whatsoever to do with any forest industry agreement, but are the result of changes in methodology.

Now to blackwood…

The headline figure which this report uses is not the “millable sawlog” figure that the RFA and the 2010 Special Timbers Strategy used, but now includes outspec wood including craftwood. This outspec wood makes up 55% of the headline blackwood volume. Forestry Tasmania does not have any sales obligations or commitments for outspec wood!!

So in addition to the 3,000 cubic metres per year of millable sawlog from the north-west blackwood production zone as outlined in 2013, there will be another 1,275 cubic metres of millable sawlog per year from the rest of the State up until 2027, when the blackwood resource in the rest of the State will be exhausted.

So much for guarantees! So much for sustainability!

In 1991 with the FFIS, again in 1996 with the RFA, and again in 2010 with the Special Timbers Strategy, Forestry Tasmania guaranteed an annual supply of 10,000 cubic metres of millable blackwood sawlog to industry.

And here we are at the end of the blackwood industry!

These volumes of blackwood sawlog will not be enough to sustain a commercially viable industry. There will not be enough resource to sustain our commercial furniture makers. These volumes will barely be enough for our custom furniture makers.

The Tasmanian blackwood industry now has only two clear choices:

  1. Close down due to the exhaustion of the public native blackwood resource; or
  2. Look to Tasmanian farmers as the future of the blackwood sawlog resource.

Salvage blackwood sawlog from the Hydrowood project may keep the industry going for a few more years, but it too will end. The Hydrowood resource can either be seen as a last gasp for the backwood industry, or as a useful stop-gap whilst relationships with Tasmanian farmers are established.

So what’s it going to be? Extinction or a new future?

Market Demand Analysis

The second report is a market demand analysis for Tasmanian special timbers conducted by Indufor. You may remember I was invited to participate in this market survey:

https://blackwoodgrowers.com.au/2015/04/23/special-species-timber-management-plan-update-1/

Despite my being interviewed by the author of the report, the report contains no mention at all of private commercially-grown blackwood, and no mention of opportunities for private investment and private growers. The reports entire focus is on the Forestry (Rebuilding the Forest Industry) Act 2014 and the public native forest resource!

Clearly the consultant had to appease a very narrow-minded client!

This observation on political bias is further strengthened by the fact that Appendix 1 of the report describes in detail the various sub-sectors of the industry, but Appendix 1 begins with sawmillers. Apparently growers are not a sub-sector of the special timbers industry! Not even harvesting and transport is mentioned as a sub-sector!!

This is yet another failed report into Tasmania’s iconic special timbers industry.

The report contains no mention of blackwoods unique position as the only Tasmanian special species that has the potential to be grown commercially due to its fast growth rate and wide natural distribution. Given the unique and dominant position that blackwood occupies within the special timbers market it should have been given an entire chapter to itself.

The only basis for a successful forest industry is profitable tree growers, and profitable tree growers are conspicuous by their absence in this industry report. In fact discussing special timbers market demand without discussing the economics of tree growing and forest management is completely stupid. Imagine a report that discussed market demand for dairy products whilst ignoring the economics of dairy farming. Anyone would regard such a report as a waste of time.

When I was talking to the author of the report during my interview last year I specifically suggested that the report needed to have a strong focus on the economics of tree growing and forest management. And guess what the report specifically and completely ignores?

For example the report fails to discuss the existing special timbers industry community service business model and the significant taxpayer subsidy that guarantees the survival of the industry. Discussing prices, markets and demand whilst ignoring the business model and taxpayer subsidy is completely fallacious.

From a blackwood growers point of view the parts of the report most worth reading are:

Resource Supply on Page 4.

It’s a carefully selected view of the historical blackwood production from public native forest. Certainly no comparison of production with sustainable yield. In fact no mention of blackwood sustainable yield at all!

Blackwood Markets on Page 14.

Throughout the Report and especially in this section there is a lot of veiled criticism of the forest industry’s lack of market competition and transparency. The fact that most blackwood is “sold” outside normal competitive market processes is particularly relevant, ie. log prices are NOT market-based.

Anyway the report notes that of all the special species, Tasmanian blackwood is sold into the widest range of high value markets.

Resource supply and substitution

According to the report survey the biggest constraint on the industry is the uncertainty of log supply. Section 4.8 (p. 38) talks about survey responses to possible falling supply from public native forest. The option of “shifting to alternative growers” (ie. Tasmanian farmers) is not mentioned. And yet Table 4-5 on page 41 analyses the market’s willingness to pay for the various timber grades of the various species. Blackwood comes out extremely well in this analysis. The market says it is prepared to pay good prices for access to quality blackwood.

So given the dire situation of the public native forest blackwood supply why isn’t the industry asking Tasmanian farmers to grow quality blackwood timber? What is preventing this fundamental market process from being realised? In every other primary industry the combination of high prices and willingness to pay would lead to investment. Why does this NOT happen with the forest industry? The report fails to address this fundamental question!!

This situation provides the perfect opportunity for the TFGA to step up and demonstrate leadership. The TFGA needs to organise a forum between farmers and blackwood industry representatives and let’s start rebuilding the blackwood industry.

The report makes no mention of New Zealand farmers and what they are doing regarding blackwood and other special species. No mention in the report of the handful of Tasmanian farmers who are actively growing commercial blackwood.

One thing is perfectly clear in the report – the Tasmanian Government does not want Tasmanian farmers to grow commercial blackwood!!

The Special Timbers Market Demand report is fundamentally flawed. It certainly cannot be used to help justify the continued logging of our public native oldgrowth and rainforests in Tasmania.

Commentary

Neither of these reports offers much hope to the special timbers industry. Both reports show that the public native forest special timbers industry – including the iconic Tasmanian blackwood industry – is on the verge of collapse due to overcutting and mismanagement of the resource.

So much for declarations sustainability!

The major positive is that the market demand report confirms the continuing demand for premium timbers at good prices.

What is perfectly clear is that these two reports are especially designed to keep the forestry wars at the forefront of Tasmanian politics. The reports avoid discussing alternatives outside the public native forest resource and the taxpayer-funded community service business model.

That Tasmania cannot work positively towards realising the commercial opportunities around Tasmanian blackwood remains a fundamental continuing failure of our political and business leaders.

Lapoinya and Forestry Tasmania profitability and commercial management

 

Here’s a great video interview with economics commentator John Lawrence who has been following the mismanagement of Forestry Tasmania for a very long time.

His comments relate somewhat to the current conflict around the logging at Lapoinya in north west Tasmania. But much of his observations relate to FTs general business operations.

I have two comments to make in relation to what Mr Lawrence has to say:

  1. John talks about FT profitability and covering the costs of harvesting and overheads. But the discussion is almost as if the objective is to breakeven. Forestry is a business! It’s about making profits NOT breaking even!! I think the best analogy is to remember that FT competes in the marketplace with private forest growers. And private forest growers do not grow trees in order to break even. They grow trees so they can make a profit. They grow trees so they can put food on the table and a roof over their heads. Forestry Tasmania needs to be run just like the private businesses against which it competes. Forestry Tasmania needs to set commercial performance objectives and meet them ever year without fail!
  2. Later in the interview John Lawrence talks about selling our native forest wood as if it were all special species. It’s about marketing and product placement. Every single log needs to achieve top dollar. It’s a great idea. I remember making the same recommendation 25 years ago to a meeting at FT. The FT senior managers at the meeting laughed at the idea.

But it’s way too late!

The forest industry should have been reformed along commercial lines back in the mid 1980s when the Hawke-Keating economic reforms were in progress. But the forest industry refused to reform. By my reckoning the last chance the forest industry had to reform was during the RFA process in the late 1990s. But once again the forest industry resisted change.

And now it’s too late!

The public native forest industry is all but gone. Decades of politics, conflict and waste have driven the industry to the point of extinction.

Any idea that there is still something that can be rescued is pure delusion.

Forestry Tasmania is now just a political play thing. A toy to help win the next State election.

The problem for Tasmania is that no politician has the courage to face the truth.

Legislative Council GBE Oversight Committee 2015 – Forestry Tasmania

HarrissAnnells

Following on from my previous blog I have now reviewed the GBE Scrutiny transcripts in relation to special timbers. They provide me with no cause for optimism.

I don’t know why we have Corporate Governance standards in Australia.

Clearly they don’t apply to Government business enterprises.

Even more clearly our politicians have no understanding of their corporate governance responsibilities.

Friday the 4th of December was the annual fiasco called the GBE Oversight Committee with Forestry Tasmania as one of the performing circus acts.

The transcript from the 3.5 hour performance is available here:

http://www.parliament.tas.gov.au/ParliamentSearch/isysquery/9b76370a-4ba7-473d-9766-61717c5e7862/1/doc/

It makes for sad reading. In fact I would advise against reading all 52 pages. Severe brain haemorrhaging may result.

My review here focuses on special timbers/blackwood as they were discussed by the committee.

Special timbers are mentioned 28 times in the 52 pages of transcripts, on pages 2, 17, 18, 37, 39, 40, 49, 50, and 51.

Blackwood is mentioned only 3 times, even although blackwood comprises 80 % of special timbers harvest volumes, on pages 18, 49 and 51.

 

Community service obligations (CSO)/grants are mentioned only in relation to roads not special timbers!

The World Heritage Area is mention 9 times in the transcripts, on pages 39, 40, 46 and 48.

The word “profit” is mentioned 26 times even although Forestry Tasmania has no corporate objective to generate a profit.

So what matters pertaining to special timbers were discussed in the annual “scrutiny”?

What clarity, meaning and understanding does the annual scrutiny hearings provide for special timbers?

Page 2

Spin from the Resources Minister trying to oversell FTs performance including “and the speciality timbers effort has also been buoyant – I think more buoyant this year than even two years ago, at about 11 000 cubic metres of speciality timber”. Most of this 11 000 cubic metres is craftwood and outspec log for which FT has no supply contracts or commitments. FT is supposed to produce 12 500 cubic metres of special timbers sawlog per year.

Pages 17 & 18

A question from MLC Ivan Dean about the profitability of special timbers:

“CHAIR – That was the point of your question: how long before you can see the business becoming profitable as a whole?

Mr DEAN – That is very clearly it. With specialty timbers, is there a profit returned to Forestry Tasmania?

Mr ANNELLS – It depends who you ask.

Mr DEAN – That’s why I am asking you. You are the chairman and you ought to know – and with the minister here I would thought we would get the truth.

Mr ANNELLS – I certainly hope you would.

Mr DEAN – I would hope so.

Mr ANNELLS – I will flick it to my chief executive.

Mr WHITELEY – With special timbers, some portion of it is profitable and others it is done as a CSO. Things like blackwood swamps and those sorts of things are really profitable. Wood that is picked up associated with native forest harvesting is profitable in the sense that roading has been provided by an outscale operation. Things like Huon pine aren’t profitable in their own right. We receive some assistance in recovering Huon pine – and it varies. Within our operations there is a profitable component and another component that requires some support.

Mr DEAN – Why can’t it be profitable? It’s a very sought-after timber worldwide. The users of it tell us they are paying higher prices for it where they are getting it from – obviously a lot of it through Forestry Tasmania. Why is it not possible to make it profitable in the circumstances – Huon pine, for instance?

Mr ANNELLS – Basically because the market will only pay a certain price. It is not an inexhaustible or elastic price mechanism. Huon pine is harvested like a lot of specialty timbers, as a by-product of our main activity. At the moment we have very significant costs for roading and other establishment costs that if we try to apply it against Huon pine, for example, would take it beyond the reach of all but the very few. We choose to sell special species timber at what we think the market will bear, but we do not seek to gouge in that process because to do so, we think, would lead to more bad publicity and, quite frankly, the market would simply dry up until we reduced the price again.

I have a lot of confidence in our people who are setting the price for this sort of stuff. You will always be able to find examples where people say, ‘You could have got more for this or that’. That is why we set up Island Specialty Timbers, much criticised in certain places, but it was a genuine attempt to bring some stability into the marketplace and to test the marketplace pricewise on a more regular basis”.

 

And the answer is a lot of mealy-mouth waffle.

No mention of the fact that in 2014-15 FT received a $900 000 taxpayer subsidy for it special timbers operations. That’s $82 per cubic metre subsidy.

Given the context of the question I find Chairman Bob Annell’s answer “It depends on who you ask” to be highly offensive; as if squandering taxpayers money is of no consequence whatsoever. And none of the MLCs called him on his attitude!

Mr Dean was after “the truth”. Instead he got obfuscation.

Some parts are profitable some parts aren’t. Why can’t it be profitable? “because the market will only pay a certain price!” “we choose to sell special species timber at what we think the market will bear!”

Has anyone heard of competitive market-based pricing?

It’s enough to make you cry!

These are adult businessmen talking as though they know absolutely nothing about economics and markets.

“That is why we set up Island Specialty Timbers, much criticised in certain places, but it was a genuine attempt to bring some stability into the marketplace and to test the marketplace pricewise on a more regular basis.”

Even although the tiny amount of wood that IST sells through tender and the prices they get bear no relationship at all to the administered price that FT sells to its long term customers.

And no member of the oversight committee sought any further clarification or understanding around wood prices and markets!!

No mention of the CSO grant and no question about how the $900 000 of taxpayers money was spent?

Pathetic!!

 

Page 37

A very specific question about 72 kilometres of new roading for special timbers from Ivan Dean, for which he got no answer.

Page 39

A question from Rob Valentine about special timbers regeneration following clearfelling. A question that seems completely irrelevant as it is generally known that the eucalypt regeneration will be harvested again long before the special species are of any commercial value for wood or honey.

Page 40

A question from the committee Chair MLC Tania Rattray about the UNESCO delegation visit and special timbers harvesting in the World Heritage Area.

Given the political and social significance of special timbers logging in the World Heritage Area the lack of any serious questions from the committee about this subject is truly negligent. True it doesn’t directly involve Forestry Tasmania, but this is the main forum for discussing public native forest management and special timbers, so why the silence?

Pages 49, 50 and 51

More questions from MLCs Ivan Dean and Tania Rattray about special timbers supply and demand, which produce no clear credible answers. A new management plan is mentioned. The Three Year Wood Production Plan is mentioned. Hydrowood is mentioned, but not by name. By page 51 the mind is confused and exhausted.

Not one of the committee members seems to understand that the Hydrowood project may have significant positive and negative impacts on the special timbers industry. Certainly no one asked any questions in this regard.

Mssrs Dean and Rattray seem to be the committee members who have an interest in special timbers, but they seem to share the general view that our forests are a community service not a commercial resource. Never mind the fact that private growers are also competing with FT in the special timbers market.

I guess our elected representatives are busy people and just don’t have the time or interest to understand the special timbers industry and forest economics generally.

Three and a half hours and barely one useful question and certainly no useful answers.

I’m not sure what is more pathetic – the lack of quality and depth of the questions or the lack of quality and depth of the answers.

Even reading small parts of these transcripts is a mind numbing experience. The lack of clarity, purpose and outcome in these scrutiny hearings is truly staggering.

Twelve highly paid people in one room for 3.5 hours wasting time and money.

Three and a half hours of scrutiny and the special timbers industry is no better off than before.

Perhaps I should send a list of questions to the committee members next year so that they may better perform their corporate governance responsibilities, and the Tasmanian community may actually get some useful information from this circus act.

When will Tasmania get a fully commercial profitable forest industry?