Australian Financial Review page 41, 19-20 May 2001
By Alan Mitchell
The wood for the trees
Another report on the forest industry, another nail in the coffin of native-forest logging.
The Australian Conservation Foundation commissioned a review of the economics of the States' forestry operations from Melbourne consultant economists Marsden Jacob Associates.
The review argues that, on simple economic grounds, the NSW and Victorian State forestry agencies are undercharging the logging industry for the right to harvest native forests.
"It suggests that the State authorities'prices be regulated.It is difficult to believe that there would be much native-forest logging if they were."
The two agencies do not properly recognise the cost of production in their log prices, do not pay rates to local government and benefit from GST exemptions on stumpage rates and other charges for their services. This results in an artificially high share of the market being supplied from native-forest logging.
Marsden Jacob says this also undermines investment in plantation and farm forestry, which the Federal Government is encouraging as part of the battle against dry-land salinity.
The Residual Log Value pricing systems used in NSW and Victoria may fairly reflect the state of demand for wood, but they do not take adequate account of the costs incurred by the forestry agencies in maintaining the supply.
Marsden Jacob argues that the State forestry authorities and their pricing practices should be reviewed as part of competition policy. It suggests that the State authorities'prices be regulated.
"I would baulk at requiring an "adequate" rat e of return on the forest resource, but just demanding the full coverage of costs would probably be enough to kill most of the industry."
It is difficult to believe that there would be much native-forest logging if they were.
Marsden Jacob suggests that the prices charged by the managers of the native forests should be market based, should at least cover the full costs of efficient management (including regeneration) attributable to wood production, and should provide a fair return on capital and an adequate return to the community from the use of the public resource.
I would baulk at requiring an "adequate" rat e of return on the forest resource, but just demanding the full coverage of costs would probably be enough to kill most of the industry.
The NSW Auditor-General estimates that the net present value of the future revenue from the NSW forestry commission's native forests is only $180 million.
"The uncosted impact of logging on the environment... may not be particularly large. But it would not have to be large to wipe out the forestry commission's profits."
That calculation includes the cost of the forestry commission's environmental restoration works, but it almost certainly does not include the full environmental cost of logging.
The uncosted impact of logging on the environmental value of the forest is a matter of debate, and may not be particularly large. But it would not have to be large to wipe out the forestry commission's profits.
The main determinant of the market price for wood in Australia is the price of imported wood, so a reduction in the supply of native forest wood is unlikely to have a huge impact on the economics of the plantation and farm forestry.
The expansion of the plantation industry will require government support.
Marsden Jacob argues that pricing decisions of the native-forest managers do affect the economics of plantation and farm forestry.
That's the argument for examining the forestry authorities under the auspices of competition policy.
Ends