Reality bites: Part 2

Two days ago Minister Harriss announced the way forward for the Tasmanian forest industry by creating a new class of reserve for 400,000 hectares of native forest destined for World Heritage protection designed to allow selective logging of special species whilst continuing to receive funds to compensate for the extra costs of reserve management.

Support for the Minister’s proposal has, so far, been a little underwhelming even from the main industry body FIAT.

The Mercury found a pocket of support:

Andrew Denman, from the Tasmanian Special Timbers Alliance, says the sector wants to work with the Hodgman government to rectify what he says are deficiencies in the agreement.

He says the deal in its current form could result in the special timbers industry losing up to 80 per cent of its non-blackwood supply.

Special timber sales comprised about 70% blackwood, almost 20% myrtle with less than 10% celery top, sassafras and huon pine.

How much and what value timber are we talking about that occasioned the Libs’ revised plan to risk reigniting the forest wars?

Forestry Tasmania’s (FT‘s) 2012/13 annual report contains a breakup of the quantity of timber sold by FT and its mill door landed value. Following is an excerpt of the figures for the 2012/13 year.

                                                         

Mill door sales of special species timber by FT totalled just over 10,000 cubic metres, about 1% of FT sales in quantity terms. The non-blackwood amount was probably about 3,000 cubic metres.

In $ terms the mill door value of special species totalled $1.3 million, about 2.5% of FT’s forest revenue, with the non blackwood component probably only being about $500,000.

That’s the mill door value.

We don’t know the costs incurred in getting the timber to the mill door for each timber type. But we do know the overall figures.

FT’s overall forest sales figure for 2012/13 cut and pasted from the annual report is as follows.

                          

This actual figure of $56 million is less than the total estimated mill door value in the first table of $64 million due to contractual arrangements, discounts etc.

FT’s direct costs of sales, the costs incurred in selling timber to mill door (or wharf) not including overheads or any FT staff wages is as follows:

                          

As is strikingly clear the direct costs of $58 million exceed the forest sales revenue of $56 million.

By the time one includes overheads and wages, the result is disastrous. The best snapshot of FT’s operations in 2012/13 are the operating cash flow details from the cash flow statement.

                                    

Operating cash receipts of $72 million (which includes forest sales) were dwarfed by operating cash expenses of $115 million, both amounts highlighted in red.

Government grants of over $41 million (highlighted in green) were not enough to achieve an operating cash surplus.

The operating cash deficit for the year was $1.7 million.

But there was more to come. Outlays for replanting and roads are included in the investing section of the cash flow statement.

                                     

The costs of roading in 2012/13 were $4.3 million and are included in the property plant and equipment outlay of $6.7 million.

Overall therefore an operating cash deficit of $43 million (before government handouts) plus capex re plantations and roading of $9 million.

Mr Hodgman claims FT won’t require further cash assistance.

As if chopping down a few special species trees will solve all problems.

The more trees are cut down the greater the losses as revenue doesn’t cover direct costs of sales not to mention overheads, wages and capex on replanting and roads.

Special species trees probably produce even greater losses for FT on a pro rata basis than other forest products

Tasmania risks going to war again over the possible loss of up to $400,000 worth of non-blackwood special species timber.

Timber that costs more to extract than it returns to FT.

One of the Libs’ rallying cries was that for too long Tasmania has been at the mercy of minorities.

It’s a little difficult however to escape the view that the noisy few who purportedly speak for all users of special species timber are even more of a minority than the previous interest groups allegedly responsible for all forest turmoil.

There is little doubt that special species users may not have had all their issues properly addressed in the TFA process, but that happened to many others as well.

Mr Hodgman in his wisdom has decided to waste his valuable political capital on a few rent seekers who are indifferent to FT’s unprofitability and disingenuous in their concerns for the wider industry which they are quite happy to see in turmoil once again just so long as they get the timber they want at fixed prices.

I can’t recall such monumental idiocy.