Monday, 31 October 2011

Prof Stewart didn't get much right

“There is a strong push to stop all logging of native forests, but is this really justified from the point of view of conservation?” asks Professor Stewart in her recent article ‘Forestry didn’t get it all wrong’ ( HERE ).

One may ask is logging really justified from a business point of view if losses continue to accrue.

Prof Stewart’s article was a sober reminder that we are as far away as ever from agreeing on a way forward for the native forest industry.

There are many who wish to see a continuation of sustainable logging of saw logs from native forests, who wish to see a sustainable furniture industry based on Tasmanian native timbers, and who believe as does Prof Stewart that “there is no reason why sustainably managed native forests cannot support a variety of uses”.

But we don’t all accept the shaky premise and specious arguments advanced by Prof Stewart which only serves to offer a panglossian view of the forestry world, with big bits missing.

Like writing a brief history of the Third Reich without mentioning the Jews and the Holocaust, Prof Stewart has failed to stress the overarching dominance of woodchipping and MIS schemes over the last 15 years and the subsequent hangover.

The forestry upheaval is not simply an adversarial battle between Dr Pangloss and The Crazies.

On the surface it may appear so, and admittedly, the selective invitees to the IGA process lends support to the notion that it’s a battle in two, but our current dilemma is principally because of the debris left by the unsustainable woodchipping industry and the MIS money grab.

Any solution will require broader consultation.

Failure to adequately understand the effects of the current situation on the cash flows and balance sheets of all industry players means public policy analysis is shallow and ensuing prescriptions pointless.

Prof Stewart wonders if the Australian environmental movement remains pleased with its success in relation to our native forests.

The area of native forest in public conservation reserves has risen and the area under plantation has grown steadily, with something like 900,000ha of hardwood plantation reported in production statistics for 2011.

Is that a reasonable starting premise for a public policy analyst? Or is just the beginning of another polemic?

How about checking the obverse proposition to test its reasonableness?

How about wondering if the Australian forest industry remains pleased with its success in relation to the unsustainable amount of woodchips that have been extracted from our native forests and the development of over 900,000 hectares of plantations, encouraged by an errant, irresponsible public policy under the MIS banner, which for 15 years promoted the planting of trees useless for anything but pulping and which in 50% of cases are unlikely to be replanted.

Prof Stewart questions whether the cessation of logging in native forests represents the best outcome for Australia’s forests and the wildlife that depends on them, let alone for the timber industry and its related communities?

Again how about testing the obverse proposition? Has the timber industry’s promotion of woodchipping and MIS schemes, which Greg L’Estange confirmed last year made up 92% of Gunns’ profits, led to optimum outcomes for Australia’s forests, the wildlife that depends on them and the timber industry and its related communities?

Prof Stewart reminds us “of course, state Treasuries are now without the revenue that the transferred forests would have produced”.

How about a brief comment on the proportions of revenue that ended up with the owners of the native forests, the monopoly suppliers, relative to the amounts diverted to the private forest companies.

Did the State optimise its returns as stewards of our forests? And maybe a comment, maybe even an analytical one, of the complete absence of any retained earnings in any of the major forest entities after the best 15 years they’re ever likely to see.

As the Professor says, the State Treasuries weren’t the beneficiaries.

A failure of public policy maybe?

Prof Stewart continues,”(c)ompared with farming and tourism, one would have to say that forest industries have real sustainability credentials. Trees do regrow.” What an unbelievably facile assertion. A regular TT correspondent lauded Prof Stewart’s article as “one of the best articles about the forestry situation by an independent academic that has been published for a long time.”

If one is to judge from the quote alone, the article is more akin to a cut and paste from a Grade 7 school project than a revelation from a policy sage.

Prof Stewart further observes, conveniently ignoring that price has been the major determinant of demand, that “we are hardly further ahead if, having shut down Australian forest-based industries, we simply import more products from less sustainably-managed forests overseas”.

That’s right, the hoary old chestnut once again. Why should I stop beating my wife, everyone else still does it? Enlightened public policy or catering for the lowest common denominator?

The industry has failed to demonstrate that it can make money from sustainable native forests.

From a public policy viewpoint isn’t it incumbent on the industry asking for public favours to demonstrate that it can make a profit?

To be able to use the available resources to produce a better result than alternative resource allocations.

Prof Stewart doesn’t seem too troubled by this matter. She seems to implicitly accept that whatever the undisclosed benefits produced by the forest industry, there will be less if further forests are locked up.

Precisely what are these benefits Professor?

From a public policy perspective it is remiss just to look at one side of the deal. One can’t just look at The Crazies wishing to lock up more forests. What were the others at the table trying to achieve? Gunns knows the native forest industry as presently run is stuffed. They know this because they stuffed it. Nobody believes there’s a future in native forest woodchipping, and an examination of Gunns’ latest financials will reveal the underlying EBIT from native forest sawmilling in 2010/11 was a red number.

So what exactly are you saying Professor? If we lock up more forests we might make a bigger loss? Let’s just stick with the smaller loss, perhaps?

Let’s not forget that FT was in on the deal as well. It was teetering on the edge of insolvency needing a drawdown of $4 million from its line of credit, which subsequently was repaid, presumably with the moneys misappropriated from the IGA funds following the conspiracy hatched with the Crown and Gunns and signed barely the day after the first tranche of the Fed’s $276 million arrived from Canberra. Gunns needed $10 million as a bank repayment in September and the rest went to meeting redundancy payments. FT too needed urgent funds and agreed to assign the wood supply agreements to the Crown. But this assignment had a nil value, because the $11.5 million plus GST received by FT was all for trade receivables owed by Gunns. That’s correct, Gunns’ debt to FT was paid directly out of IGA funds.

The nil value of the assignment is probably commercially realistic because as recently as 2 years ago at a GBE scrutiny hearing FT complained that its Sec 22AA obligation pursuant to the Forestry Act to supply 300,000 m3 of high quality sawlog each year was a burden costing it an estimated $10 million pa.

So from a public policy perspective, it’s not simply a question of The Crazies wanting to lock up more forests. Gunns didn’t want the timber and it was a burden for FT to supply.

It was obvious to those in the know, years and years ago, that the 300,000 m3 was a problem. The FFIC report ‘The New Forest Industry plan: A Fresh Approach’ issued in Feb 2010 forecast annual harvest of 150,000 m3 of high quality sawlogs from public native forests in 2020.

If they admit to such a thing publicly they would have known about it for quite a while.

The industry’s position is now that 150,000 m3 of high quality sawlog from public native forests is acceptable but had they negotiated much earlier from a position of greater strength things would now be different.

But short sighted greed again triumphed. The lure of lucre from the 85% by-product from sawlogs proved irresistible. They kept chipping until the music stopped, kidded themselves for a while that things were only temporary before realising that the world had changed and what logic suggested years ago was their only remaining option.

At the core of the problem, in Tasmania at least, is the complete inaction by the State Government. Unable to work out a way forward the Government finally appointed a Strategic Reviewer, 12 months after setting aside funds in the Budget for that purpose.

The Auditor General’s view is that its GBE, Forestry Tasmania (FT), requires a further capital injection of up to $250 million. Gunns is virtually insolvent. Great Southern and FEA who both had a presence in Tasmania are long gone.

We are almost at the bottom.

The IGA has cobbled together a plan to extract $276 million from the Feds.

Yet Peter Gutwein and Greg Hall and their co conspirators wish to reject the agreement. This may be fine because it’s a flawed agreement between selected invitees.

But do they really think the Feds will contribute more? What is their plan? Do they think we can do better without the Feds money and continue to log native forest on a yet to be identified scale? Show us how we’ll be better off.

They run the serious risk of disadvantaging the very people they claim to be helping.

Both Peter and Greg struggle to understand a set of financial statements at the best of times, neither could explain why their alternative, whatever it is, will lead to superior outcomes in terms of cash flow and profitability, yet both are trying to hold the State to ransom with their half baked populist policies. They may be right, I doubt it though. They certainly haven’t shown us the logic of their position. They’re little better than the very people they criticise.

Unfortunately they are encouraged by belated nonsense spouting cheer leaders like Prof Stewart who really needs to get a better grasp of the problems in the forest industry before attempting to prescribe a public policy solution.

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