Category Archives: Markets

I had a meeting last week with representatives of Forestry Tasmania (FT) to discuss special timbers and blackwood issues. The meeting was in response to my recent commentary about public subsidies and pricing policies. It was an informal meeting with no minutes recorded. Here is a brief summary of what I learnt and concluded:

• FT did not dispute my figures and analysis regarding the special timbers subsidy and pricing.

Business model

• FT regards special timbers very much as a non-profit, non-commercial community service requiring public subsidies. The worse the special timbers economics become (and there appears to be no bottom-line to this) the greater the public subsidy that will be required.
• FT has no interest in getting a better price for its special timbers sawlogs.
• I got the impression that FT would continue to support the current beneficiaries of subsidised public special timbers while the current beneficiaries resist any attempts to introduce commercial reforms.

(NB. The special timbers industry appears to have convinced many people that paying real market prices for special timbers sawlogs would destroy the industry! While opening up the special timbers market is vital for the success of private special timbers growers.)

• Island Specialty Timbers (IST) appears to be deliberately run as a loss-making venture, breaking even in the occasional good year, but generally operating at a loss. Apparently no attempt is made to make IST profitable or commercially focused. IST compete directly with many small private sawmill operators around Tasmania. Anticompetitive behaviour clearly doesn’t seem to bother these guys.
• The IST tender results are used to inform the contracted price for special timbers, with tender prices “informing” the upper limit to contract prices. See my discussion here for further analysis and commentary of FT pricing policy.

Supply

• The supply of special timbers, including blackwood, from State forest will be greatly reduced with the implementation of the Tasmanian Forestry Agreement (TFA), with increasing public subsidies the likely outcome under current policy.
• The 880 ha of blackwood plantation established by FT 20 years ago have now apparently been written off as a failure. These plantations were originally expected to contribute over 250,000 cubic metres of blackwood sawlog to the sustainable yield beginning in 2018, but will now contribute nothing to the future blackwood industry.  Over $4 million was spent establishing these plantations.

(NB. Most of these plantations were located at Beulah, south of Sheffield on a site unsuited to growing commercial blackwood, using a complex and risky silvicultural model).

• Production of blackwood sawlog from the Fenced Intensive Blackwood (FIB) areas has now been pushed back from 2033 to at least 2050. These areas were expected to contribute at least another 250,000 cubic metres of sawlog to the sustainable yield. However it is unknown whether these areas are being managed or are performing according to original expectations.
• For at least the next 40 years therefore the production of blackwood sawlog from State forest will be centred on the swamp forests of Circular Head. My estimation is that supply will shrink to about 3,000 cubic metres per year.

The future

• FT regards any private person (including yours truly) who thinks they can grow blackwood commercially and profitably either now or in the future as seriously misguided, and certainly not deserving of a fair go let alone to be encouraged by the introduction commercial reforms and a real market price.
• On that basis FT regard the non-profit, taxpayer-subsidised management of the public blackwood resource as having no bearing whatsoever on any existing or potential future private blackwood development by Tasmanian farmers.

This cavalier attitude to Tasmanian farmers and the special timbers industry ignores the fact that New Zealand farmers have been successfully growing blackwood for the past 30 years. Also as I have noted previously, when New Zealand blackwood expert Ian Nicholas last visited Tasmania in 2011 he was very frustrated and disappointed with the way the blackwood industry was being managed. He thought farm-grown blackwood had a great future in Tasmania. In fact it was Ian’s enthusiasm that got me thinking about a growers cooperative. And finally I am not aware of anyone in Tasmania (including FT) applying the successful New Zealand model for growing blackwood including the use of the Three Principles, so significant opportunity remains for further technical development and understanding.

The proposition that FT must manage its special timbers business activities as a non-profit community service is extraordinary and certainly deserving of the commentary and criticism in The Mercury Editorial of September 24, 2011 “Strong medicine for GBEs”.

The proposition that the special timbers industry cannot survive paying real market sawlog prices is logically self-contradictory and straight economic nonsense. Only real market prices can determine the viability and sustainability of the special timbers industry.

The proposition that Tasmanian farmers should be denied the opportunity of growing commercial blackwood in contrast to their New Zealand peers is an extraordinary expression of State forest policy.

If we were talking about any other primary industry such as beef, dairy, vegetables or fruit Tasmanian farmers would be marching on Parliament house. Fortunately, for example, we do not have a non-profit dairy GBE, but many farmers have an intimate knowledge of dairy markets and a long history of running profitable dairy farms. Unfortunately we do have a non-profit forestry GBE, whilst few farmers have much knowledge of forestry markets and little history or understanding of how to profitably grow trees for wood production.

This must now change because profitable, commercially-focused private growers now supply the vast majority of wood grown and harvested in Australia. Why do we therefore persist with State forest agencies that are managed on any other basis, while denying our farmers commercial opportunities, and wasting taxpayers money?

The special timbers and blackwood industries remain in serious crisis with things about to get a whole lot worse, with no indication of any positive change.

As we were leaving the meeting one of the FT representatives asked me whether I thought the TFA would succeed and save the forest industry. I thought it was a curious question given that I had just experienced a perfect 30 minute demonstration of exactly why the forest industry is in its current crisis, and why the TFA faces significant challenges.