STT revisited

 Most people hoped we’d heard and seen the last of them.

But then a bell rang, and out they came, like the travelling troupers from Harry Paulsen’s Touring Stadium.

The forest fighters were back, determined as always to ignore recent events if it didn’t suit their narrative.

The spark that re- ignited the fire was the decision of the Victorian government to halt native forest logging. It was described as a Dan Andrews stuff up, as the actions of an anti-forestry government, but that shows a wilful ignorance of the financial unsustainability of native forest harvesting in general and VicForests in particular, where the final nail in its coffin were the massive 2020 bushfires.

VicForests doesn’t own native forests, rather it gets allocated tracts of Crown forests to harvest. After logging and replanting, the regrowth is returned to the Crown. That was the plan.

Even though standing timber was a gift from the Crown, VicForests struggled to generate enough cash to cover replanting costs. Coupes were increasingly remote and more costly to log. The 2020 bushfires led to a failure to supply contracted timber in the 2021/22 year and compensation was paid to contractors and customers. The government refused to reimburse VicForests for amounts paid and the debt had to be written off. The 22/23 year was even worse. VicForests was insolvent.

The right to compensation doesn’t apply in cases of force majeure.  Many will remember that was Basslink’s defence when Hydro and the State government sued for compensation following the 2016 cable outage. Paying $50 million a year for the next eight years to prop up an insolvent VicForests overseeing further degradation of public forests was the prospect facing the Victorian government. It wasn’t a shock when native forest harvesting was called off. To not have done so would have been more of a shock.

Sustainable Timbers Tasmania P/L (STT) has much in common with VicForests. Any native forests on its books are gifts from the Crown. It may post book profits in some years, but underlying cash deficits from operations confirm it is financially unsustainable. 

STT uses a loophole in accounting standards to pretend it is financially sustainable. The starting point for valuing a forest estate are estimated future revenues less harvest and associated costs and holding costs over time. The net proceeds are then converted into current dollars to give a value for the forest estate.  Conceptually it’s simple. A forest is worth what you can get for the timber after costs. If some costs are overlooked the forest estate has a higher value. STT doesn’t include the costs of access roads or replanting costs. For a perpetual asset like a forest estate excluding some costs gives a false value. Were they included net proceeds would be negative and hence the value would be negative. That means STT would be underwater, just like VicForests. To assert we have a world class sustainable forest industry is a Trumpian exaggeration.

If STT makes a profit, it’s just a paper profit, principally due to increases in the book value of its forest estate. Cash losses from forestry operations are a much more appropriate measure of financial sustainability. They rarely rate a mention.

STT can fund cash deficits for a few more years because it still has some cash on hand following the sale of the majority of its plantations, meant to allow STT to transition to a plantation-based operation, funded entirely by governments, but sold well before harvest time at a considerable loss.

Effectively that makes the sale proceeds just another handout to prop up a scaled down STT, enabling it to sell native forest timber at less than break-even prices to self-entitled locals who are now complaining about subsidised Victorians encroaching on their turf.

Hundreds of millions of government grants under the Tasmanian Community Forest Agreement (TCFA) and the Tasmanian Forests Intergovernmental Agreement (IGA) have been showered upon contractors and processors to restructure and for STT to fund operations and expand its plantations. But after running out of grant funds (and acronyms), and despite shifting its large superannuation liability to the government, STT’s only survival option was to sell its plantations. The alternative was insolvency, the fate that now awaits VicForests.  

Adversarial politics is usually introduced to muddy the waters and avoid the need to understand issues. The Labor Party isn’t as anti-forestry as Resources Minister Felix Ellis alleges. There are many on that side of the fence who have the same remedial understanding of forestry financial statements as he does.

Dan Andrews didn’t stuff up VicForests. STT is only one mega bushfire, one act of force majeure, removed from VicForests. A more fitting description of the state of our native forest industry is ‘There but for the grace of God, go I’.

(as published in The Mercury 4th August 2023)

Addendum 7^th Aug 2023

There’s wasn’t enough space in a 800 word op ed to raise all the relevant issue.

One such issue is the alleged flow on benefits of the native forest industry.

The Mercury printed a letter in response to the above op ed from a retired forester on 7^th August 2023 which stated in part:

Like most critics of native forestry, “independent observer” John Lawrence makes the mistake of asserting that the financial accounts of the government agency that sells logs (ie. STT or VicForests) measures the sustainability of native forest harvesting (Talking Point, August 4).

 In reality, more than 90 per cent of the economic activity and employment that flows from timber harvesting is generated within the industry that purchases and processes those logs into usable wood products. Accordingly, the profitability of the government’s forestry agency forms only a minor component of the overall socio-economic value of native forest harvesting.

This is not an uncommon justification for native forest harvesting.

The problem with it is that it conflates financial sustainability of the logging agency with flow on effects into the broader economy.

Financial sustainability of a logging agency and measures of flow-on economic activity are two vastly different issues.

That there is flow on effects is not disputed. There are flow effects with most activities. Selling Queen Anne furniture for firewood, say?  Or maybe like Federal Hotels trumpeting the flow on effects from its gambling business.

It’s the flow on costs which are often ignored ……the negative externalities.

What is also ignored by promoters of a particular industry, is the benefits that would flow if the inputs into that industry were instead directed into another activity.  Even if clear-felling has some flow on benefits, are there other uses for a native forest that might produce flow on benefits?  Perhaps ask the Blue Derby Mountain Bike promoters if you’re unsure.

Foresters attribute a nil value to STT land so when it’s logged there are a myriad of non-timber losses that go unrecorded.

Then there’s the run down in the value of native forests. If a logging agency is financially unsustainable (which the letter writer seems to tacitly accept) native forest logging reduces the State’s balance sheet with every passing year. Nothing else is possible. It’s an iron clad law of accounting. It is not a polemical assertion.

If you want to talk about flow on benefits, you must also mention the flow on costs. The run down in the State’s balance sheet plus all the unrecorded non-timber losses year after year can’t be ignored.