VAFI Refutes Clark Report Claims

Contents

• Summary

• Introduction

• Major Deficiencies in the Report

• Comments on the Findings of the Report

• References

Summary

The 'Australia's Plantations' report presents data on Australia's plantations and plantation based industries. It argues that plantations have the capacity to supply all of Australia's timber requirements and that Governments need to focus industry policy on the plantation sector and rapidly phase out logging from native forests.

In arguing that Australia can be self sufficient in wood products by using only plantation timber the report fails to adequately analyse market trends and ignores changes in the international supply and demand for forest products that are providing Australia with both import replacement and attractive export opportunities for products from both plantations and native forests.

Over the last decade Australia has made considerable progress in developing more competitive export orientated manufacturing industries. The proposal that the development of the plantation processing industry should be facilitated by the phasing out of all industries processing logs from native forests not only aims to reduce competition and it associated benefits but is based on the largely erroneous premise that products manufactured from logs from plantations and native forests compete for the same markets.

Adoption of reports' conclusions would reduce investment and economic activity, lead to a net loss of possibly 10,000 jobs in the timber industry. Furthermore it would deny Australians the opportunity to benefit from its competitive advantages and opportunities arising from the emerging world shortage of timber and wood fibre. The community has a choice as to how it uses its natural resources. The option being presented on behalf of Environment Victoria and other conservation groups is detrimental to the long term interests of the majority of Australians. The option, in terms of alternative uses of native forests have been exhaustively studied and debated through independent State & Federal Government processes and investigations over the past 25 years. The fact that some Environmental Groups reject the outcomes must not be used as an excuse for abandoning attractive, environmentally sound growth opportunities.

Introduction

Investment by the public sector, which accounts for about three quarters of Australia's plantation resources and much of the investment by the private sector was clearly targeted at creating a wood resources to complement resources available from native forests. The Australia's Plantations Report argues that wood resources from plantations can substitute for resources from native forests, industries using resources from native forests are in decline and that to assist plantation industries reach their full potential logging in native forests should be phased out. The Report's conclusions are similar to those of earlier reports by Clark & Blakers 1989 and Clark 1992. Detailed critiques of these earlier reports are available.

The Report has a number of major deficiencies. Furthermore the policies proposed would significantly reduce employment in the forest products industry, limit Australia's opportunities to benefit from changes in world markets for wood products and reduce the choice of timbers available to consumers.

Major Deficiencies in the Report

1. International Market Trends Are Ignored

It would be absurd to undertake a study of Australia's wool or wheat industries from the perspective of only meeting our domestic requirements. It is equally absurd to ignore opportunities in international markets when examining Australia's forest industries.

The Industry Commission (1993) noted potential export opportunities for both softwood and hardwood. Recent decisions by Malaysian interests to establish an MDF plant at Wangaratta utilising softwood and plans by Japanese interests to establish an MDF plant in Tasmania utilising a mixture of softwood and hardwood, reflect growing interest of overseas companies in Australian timber resources and their preparedness to investment in plants whose production will be exported.

2. No Detailed Analysis of Timber Usage

Hardwood producers have been repositioning their products into areas where hardwood can be expected to maintain a competitive advantage by exploiting its superior properties in relation to durability, appearance, strength and hardness. Rather than declining, sawn timber production from native forests has remained relatively constant over the four years 1990/91 to 1993/94 and growth in production of sawn timber from plantations has been accommodated by the declining market share of imports and higher consumption.

Apparent Supply of Sawn Timbers in Australia (000m3)
         		1990/91   1991/92   1992/93   1993/94
Production Plantations  1219.0    1446.5    1544.9    1775.1
Native Forests          1555.3    1499.6    1545.4    1667.7
Sub Total               2774.4    2946.1    3090.3    3442.8
Imports                 1238.24   1193.1    1225.5    1078.8 
Exports                   16.5      23.7      22.6      40.2 
Apparent Supply         3996.1    4115.5    4293.2    4481.4

Source:	Quarterly Forest Product Statistics ABARE

3. Sawlog Production Estimates Are Not Sustainable

Projected Plantation Sawlog Availability (million m3/yr)

SOURCE                   YEAR
             2000   2005    2010   2020   2030
RAC 1992     7.8    N.A.    9.7    9.7    6.7
Clark 1995   9.5    10.6    N.A.   N.A.   N.A.

4. Understates Potential Investment and Employment in the Forest Products Industry.

While the above estimates are not unreasonable they do not reflect the total number of persons currently employed in Australia's forest industries or the full potential for further investment.

Estimates of the total number of persons employed in harvesting and processing forest products in Australia range from 60,000 (Draft Wood and Paper Industries Strategy 1995) to over 70,600 (Centre for International Economics 1995).

Victorian hardwood sawmillers have been investing approximately $10 million per annum in kiln drying and further processing facilities over that last five years and current rates of investment are expected to be maintained over the next five years.

Hardwood sawmillers in other States are also making significant investment in order to reposition their products into high value added end uses.

The recent announcements of approval for the Japanese company Hokushin to invest $90 million in an MDF plant in Tasmania, Amcor's intention to build a $400 million fine paper plant in either Victoria or Tasmania and the completion of pre-feasibility studies by Taiwan Pulp and Paper Corporation into a $1.2 billion pulp mill in northern Tasmania are indicative of the potential importance of timber from native forests to the future development of Australia's forest industries.

The Wood and Paper Industries Strategy also identifies that investment feasibility studies were being undertaken into the establishment of a medium density fibreboard (MDF) plant and structural veneer mill using residual logs in East Gippsland. These studies which have now been completed indicate that such developments are feasible and could provide 250 new jobs as shown in the following table:-

East Gippsland Marketing Strategy - Potential Outcomes Within 5 Years
 Product          Capital     Employment    Annual Sales    Resource Use
                Investment
                    $m          No.           $m              000m3
Structural Veneer   45          150           31              80 
MDF                105          100           70              240

1. Reduce competition to the detriment of consumers.
2. Result in a net loss of thousands of jobs in the timber industry and the demise of many rural communities in areas such as East Gippsland.
3. Reduce potential investment in the further development of Australia's forest industries by some $1.5 billion over the next five years.

Comments on Findings of the Report

1. Finding: Plantations already dominate Australian markets for wood products.

The statement that wood from plantations accounts for 65% of the wood for wood products manufactured in Australia for the "shelter market" and that plantation and recycled paper supply 70% of the wood fibre used in the manufacture of paper products clearly implies a more important role for plantation resources than is the case.

Sawn timber and panel products (i.e. plywood, particleboard, MDF, hardboard etc.) have been grouped into an artificial category called "shelter products". These products generally have different applications and there is limited substitution.

Accordingly they should be considered separately.

(a) Sawn Timber

 Source Volume         000's m3
Plantations           1775.1
Native forests        1667.7
Sub Total             3442.8
Imports               1078.8
Exports                 40.2
Apparent Supply       4481.4

(b) Panel Products

In 1993/94 the total fibre used by the pulp and paper industry in Australia was sourced as follows:

 Recycled fibre              48%
Imported pulp               10%
Domestic pulp 
  - from plantations     27%
  - from native forests  15%

2. Finding: Market competition will continue to favour plantations for wood production at the expense of native forests.

Similar assertions made by Clark in 1992 have been spectacularly wrong as shown in the attached graph. Notes:

• Actual figures supplied from ABARE - 1994/95 figures are for 12 months to March 95*. Predictions were contained in A summary of the Report: Growth in the Victorian Timber Industry by Judy Clark prepared for the Conservation Council of Victoria April 1992.
• Key supply demand influences: In 1987 hardwood sawlog quotoas in East Gippsland were halved and many other areas were significantly reduced to attain sustainable yield. 15 year supply licences were granted at that level. In 1990 the industry faced one of the worst housing downturns in 30 years and the worst recession in 60 years.

3. Finding: Plantation wood supplies are poised for continued major expansion.

It is generally agreed that the volume of sawlogs, will continue to rise over the next decade. We believe however that the magnitude of the rise should be independently reviewed and that proper account should be taken of lower planting rates in the late 1980's and early 1990's.

4. Finding: Major investment in plantations processing is already underway.

Improved market opportunities in Australia and overseas for both softwood and hardwood is encouraging for investment. About half the value of the investment listed in the report relates to expanding production of MDF for expanding overseas markets.

Substantial investment is also planned in hardwood sector. In Victoria hardwood producers are re-positioning their products into high value added applications and are expected to invest over $10 million p.a. over the next five years. Proposals to build a $90 million MDF plant in Tasmania and expand investment in the pulp and paper industry involve the use of hardwood resources.

5. Finding: There is enough plantation wood to support more investment.

We would go further and suggest that the planting of additional areas should be encouraged to ensure that additional wood is available to support growth opportunities expected as a result of an emerging global shortage of timber.

6. Finding: The plantations based industry is a major job generator because it undertakes extensive further processing.

The timber industry provides a total of 60,000 to 70,000 jobs in Australia. The Report claims that about 30,000 of these jobs are dependent on plantation resources. The expansion of plantation processing should increase this number. However if native forest logging phased out there will be a net decrease in the total number of jobs. The Report identifies that there are plans for expanding the present capacity of Brown and Dureau's softwood sawmill in the Latrobe Valley and claims that its current log input can be increased from 200,000m3 per annum to 450,000m3 per annum by 2000. An expansion of that magnitude would increase the number of jobs, after allowing for benefits arising from greater economies of scale, from 170 to about 300. It is further claimed that the additional employment opportunities will provide jobs for timber workers who will inevitably lose their jobs as the result of the phasing down of the native forest sawmilling industry in that area.

A number of sawmills, currently operating in this part of Gippsland, such as Drouin West Sawmill Pty Ltd, S M Collins (Vic) Pty Ltd, Neville Smith Timber Industries Pty Ltd, Bonang Timbers Pty Ltd, Stoll Bros Pty Ltd, Erica Sawmills Pty Ltd and W H Micah and Sons Pty Ltd have all invested in kiln drying and further processing facilities over the last five years. In aggregate these small to medium sized family companies process about 160,000 cubic metres of hardwood sawlogs per annum and employ 360 persons. By continuing to target niche markets where hardwood has a competitive advantage have the potential to increase current employment to over 400 persons.

Two of the companies, Drouin West Sawmill Pty Ltd and Neville Smith Timber Industries have commenced the export of Victorian Ash to Japan. Current export orders are worth more than $15 million per annum and are expected to increase.

The point that has been completely overlooked in the Report is that value adding hardwood producers target different markets to softwood producers such as Brown and Dureau and that they employ more than double the number of persons per thousand cubic metres of log processed. The growth of the plantations sawmilling industry is not contingent on the demise of the native forest sawmilling industry.

7. Finding: Regional Australia will benefit from the growth of the plantation processing industry.

It is already self-evident in centres such as Mt Gambier, Colac, Tumut etc that industries processing softwood are crucial to some regional economies in Australia. These economies are clearly set to benefit from any expansion of wood supplies.

8. Finding: If native forests are to compete with plantations in producing they would have to be made like plantations with short rotations and intensive management.

There is no evidence to support this statement in the Report and the claim that the native forest based industry is characterised by large volumes of low value products, lack of investment, shrinking employment and high levels of conflict is demonstrably wrong in Victoria where:

• approximately half the volume of logs harvested from State forest in Victoria is processed by sawmills.
• hardwood producers have been repositioning their products into high value added markets with investment in kilns and other value adding facilities exceeding $10 million p.a. over the last 5 years.
• new products and new markets have been developed for hardwood including export sales which are expected to exceed $15 million in 1995/96.
• employment has increased in mills who have re-positioned their products into value added applications.

9. Finding: The community has a choice.

The community has always had a choice and should continue to have a choice.

The community has chosen to accept the costs of a burgeoning current account deficit by supporting very conservative management and regimes in our native forests. Obviously, this has been driven by a desire to ensure proper balance between economic and environmental factors.

The Land Conservation Council has consulted Victorians on the balanced use of public land and consumers can choose in the market place between timber from native forests or plantations or substitute materials such as cement, steel, bricks and aluminium.

The Report proposes that this choice be reduced by excluding logging from native forests.

10. Finding: To reap the benefits that Australia's plantation processin industry can deliver in the 1990's, all stakeholders have to escape from pst attitudes and structures of declining relevance.

The Report's central thesis that to achieve the benefits from an expanding softwood industry, a rapid phase out of logging in native forests is necessary is absurd. To protect one industry from another is inconsistent with developing a competitive economy but to do so when the hardwood sawn timber industry is repositioning itself into value added niche market, and when an emerging shortage of wood is providing Australia with significant new export opportunities is like urging all Australians and particularly those in many rural areas to accept a lower standard of living.

KW:NJ 14/9/95

References

Clark, Judy, 1992, "Growth in the Victorian Timber Industry: Initiatives for Jobs in the 1990's". Paper prepared for the Conservation Council of Victoria.

Clark July, 1995, "Australia's Plantations": "Industry Employment Environment" Environment Victoria Inc.

Industry Commission, 1993, Adding Further Value to Australia's Forest Products, AGPS.

Neilson D A and Associates, 1995, "The Future Management of Australian Native Forests: An International Perspective". Paper prepared for the National Association of Forest Industries.

Commonwealth of Australia, 1992, National Forest Policy Statement, A New Focus for Australia's Forests, Canberra.

Commonwealth of Australia, 1995, Wood and Paper Industries Strategy, A Discussion Paper, Canberra.

Resource Assessment Commission, 1992, Forest and Timber Inquiry, Final Report, AGPS.

Centre for International Economics, 1995, "Projections of Revenue and Employment Growth in the Forest Industries", Paper prepared for the National Association of Forest Industries.