Implications of Australia's Changing Forestry Scene

For a conservative industry sector, the amount and pace of change in forestry is sometimes quite astounding.

In Australia during the last 18 months we have witnessed substantial change at a scale that probably could not be predicted, and there's more to come.

Forests changing hands

Four leading Managed Investment Scheme providers, with a combined forest area approaching 500,000 hectares, have gone into voluntary administration and/or receivership over the last year and the Queensland Government recently sold its 250,000 hectare plantation estate for $603 million. The Forestry SA estate is expected to be sold in the next 18 months, the WA Government intends to sell its sharefarm business and a change of government in NSW will probably also result in the Forests NSW plantation estate being sold.

Shift in ownership trend

If these transactions unfold as expected, then the majority of these forests will probably be purchased by TIMOs on behalf of institutional investors, a pattern that has already begun with the purchase of the Timbercorp estate by Global Forest Partners, the involvement of GMO in the Taswood joint venture and Hancock Natural Resources Group's ownership of the former government plantations in Victoria and Queensland. According to industry commentators, there is substantial availability of international funds for purchase of Australian forests.

Forest management will change

These facts mean not only that forests are changing hands, but the way in which forests are managed will also change.

With the shift to institutional ownership and a focus on return on investment, greater pressure will quite rightly be brought to bear on improving forest management efficiency, reducing costs and improving revenue options. The way in which forest management services are engaged and wood is sold will change - fewer long-term contracts and continuing industry consolidation along the supply chain.

Reduction in plantation area

Another anticipated outcome is a net reduction in Australia's plantation area, as marginal plantation land is returned to alternative economic uses. The announcement recently by Elders that it will write off 25,000 hectares of plantations in central Queensland and write down the value of its Esperance plantations in Western Australia is partly an example of this. Many current plantation sales are likely to result in the tree crop being liquidated and the land returned to alternative uses.

Government policy implications

Amongst this change, there is emerging a new set of challenges for Australian governments. In the absence of a Carbon Pollution Reduction Scheme, there are few real incentives for greenfields commercial forestry projects. Additionally, the state-based nature of environmental regulation for forestry, as well as localised policy issues with planning, water and remnant vegetation protection, results in genuine inefficiencies for forest managers, particularly those operating in more than one state. Australian governments generally profess a desire to see forestry expand and the forest industries - both primary and manufacturing sector - are still economically significant. With governments moving from forest growing to policy, there is a strong argument for rationalising economic and environmental policy to remove inefficiencies and perversities.

Forest management focus

Finally, foresters and processors themselves will need a paradigm shift at a rate commensurate with the increasing commercial focus of the new forest ownership regime in Australia.

Change is a given and its here to stay for Australian forestry.