Wednesday, 5 November 2008

CFMEU and the forest industry

One of the architects of current forestry policy, Mr O’Connor from the CFMEU has been quick to call for government assistance, as reported in The Australian dated 3rd November 2008.,,24591921-2702,00.html

The leader of the union representing forestry workers wants the Government to craft an industry plan similar to that which protects jobs and promotes growth in the car industry. It could use mechanisms such as grants and tax breaks for new investment to protect jobs and boost value adding, allowing the local industry to see off the threat of cheaper imports, Mr O’Connor said.

Just to take up a few points.

If cheaper imports are the problem then surely the catastrophic fall in the $AUD has solved that problem.

If tax breaks lead to an efficient industry then the forest plantation industry should be the Rolls Royce of the fleet. One of the principal arguments for tariff protection in the old days was the infant industry argument. Give the industry some help in the early years and they’ll grow to become sustainable contributors to the economy. Unfortunately most grew to become senile adults and hence the gradual wind down of tariffs occurred.

Likewise, so it was said, give the forest plantation industry some assistance in it’s formative years and the economy will eventually reap the benefits. Sow and you shall reap.

For the last 10 years the forest plantation industry has received massive tax subsidies. Economists told the industry they were heading down the wrong track. The market signals were being muffled by the tax driven nature of the industry. Investors weren’t buying trees, they were buying tax deductions. Trees were inappropriately sited, yields were poor. It was a classic case of a wasted opportunity during boom times. We should have built a sustainable industry instead of the Mickey Mouse plantation industry we now have.

And Mr O’Connor and his union share a lot of the blame for this. The interests of his members weren’t paramount. Arguably it was the interest of the forest companies that took precedence. The union leaders helped the forest companies shift 2 significant risks from their operations. They helped shift the risks of harvesting and planting costs from their books by encouraging their members to assume huge financial risks way beyond what a de facto employee with little control over his destiny could reasonably be expected to assume., and secondly, with their vociferous support of MIS schemes encouraged a system whereby investors borrowed to plant trees and assume all the growing risks for trees that were harvested by the forest companies if and when they so chose.

The union weren’t acting for their members. They were double agents acting for the forest companies.

As soon as the downturn occurred Mr O’Connor raised his hand for more assistance. Like all those bankers and financial wizards who helped create our current credit crisis, Mr O’Connor is after a government handout. But he needs to take responsibility for the inability of the current industry to meet future challenges. The model that has evolved is not sustainable. MIS investors will no longer fall over themselves to buy trees. And forest contractors will be more wary of throwing in their lot with Mr O’Connor and the forest companies. We’ve got plantations all over the countryside. No plan whatsoever. What about a Pulp mill? Sounds good. Get the Premier to organise a Bill thru’ Parliament. What about the other permits? No worries. How about the water for the mill? What a shambles. Hundreds of millions of dollars from the taxpayers and where are we?

One can only feel for the hardship that forest contractors may have to endure. But Mr O’Connor knew this. He has used the innocent hard working members of his union to help advance the causes of the forest companies, not necessarily his members.

Mr O’Connor further stated that “(a) whole heap of blue gum resource is about to come on stream supported by taxpayers through managed investment schemes”, most being the results of the short sighted policies promoted by Mr O’Connor. At what price the resource Mr O’Connor? Most of the lower than expected prices is unrelated to the current downturn. Have a look at the 6 projects that Great Southern is trying to buy back from it’s tree investors. Check the decline of Environinvest the Victorian MIS company. How come Gunns still can’t find a buyer for its $170m worth of trees. How come Forestry Tasmania made a loss this year because of a decline in value of some of its biological assets (trees)? Because Mr O’Connor you helped develop a skewed industry. One that has wasted huge opportunities growing the wrong trees in the wrong locations.

Mr O’Connor further said economic turmoil highlighted the need to lift Australia’s ability to export or to at least replace imports. Could someone kindly remind Mr O’Connor that we floated our exchange rate over 20 years ago and since then the import replacement argument has lost much of its force.

Mr O’Connor stopped short of calling for trade barriers against timber product imports. This is very fortunate for the Tasmanian economy. The EU could easily, via non tariff trade barriers, cause grief to Tasmanian exporters. What has happened in the Florentine valley (your members Mr O’Connor?) could easily have far reaching trade effects on Tasmanian produce. We all thought mulesing was a minor issue but the EU didn’t.

Mr O’Connor has helped preside over the current unsustainable structure of the plantation industry. It is questionable whether his views on its rehabilitation should be taken seriously.

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