The View from Australia – Changes and Challenges

As the lenders start the slow process of unwinding another large forestry company (Gunns), it is natural that industry players start to dissect the issues around this latest collapse and think to the future, albeit with concern for the many individuals and companies that face a long and uncertain wait to find out their futures. At the same time the Australian Forest Products Association has released a comprehensive policy action statement which is in part intended to provide encouragement to state and federal governments to act in the future interest of a sustainable and viable forestry and forest products sector. In this context there is some value to considering a further distillation of the key challenges and opportunities facing the Australian sector and what can be done to address them.

First, let's look at some contemporary facts about the industry:

  1. Managed Investment Schemes are dead…
    …or near enough to it, with no hope of serious commercial revival. Given this fact, and no clear prospect of a role for commercial forestry in the Carbon Farming Initiative, dead also is the likelihood of any strongly positive policy incentive to underpin further expansion of the plantation estate in Australia – so we're on our own. Is this good or bad? It's hard to say but what's clear is that while policy incentives have proved useful historically for supporting forest estate expansion, they have also been demonstrably incapable of dealing with some of the perversities that emerge when commercial rationale plays secondng4pouri fiddle in the decision-making process. These perversities include pushing the viable land use envelope too far with respect to both economic geography (physical access to markets) and plantation productivity.
  2. Wood is an industrial commodity in a global market…
    …which means that the competitiveness of Australian forest and timber products can only be improved by actively seeking to reduce unit costs and increase productivity by:
    • Using less labour per hectare or per tonne (i.e. increased use of systems, mechanisation and automation – which is also safer)
    • Increasing the amount of wood grown per hectare (silviculture and tree stock quality)
    • Increasing wood utilisation (from the stump to the manufactured product)

    None of these should be new ideas to any readers. However, as a sector currently we lag behind our rural resources cousins in the agriculture and mining sectors, where efficiencies at scale continue to maintain Australia's competitive position.
  3. Land use regulation is here to stay…
    …it's not always right, it's not always clear and it can add significant cost to doing business, but regulation will remain. The real opportunity is to work with regulators and legislators to generate increased alignment between jurisdictions and across regulatory themes, in order to reduce costs, make accountability clearer and avoid ambiguity.
  4. Plantations are now commodities too…
    …within five years it is likely that greater than 85% of Australia's commercial plantation estate will have been purchased by foreign investors, will be managed by specialist (in-house or third-party) service providers, and will continue to change hands as part of investor policy. The new owners have different management and marketing priorities to the historical owners and this needs to be recognised across the sphere of influence for the sector.

So in summary, can we distil further a future focus for the sector? I think so and I think it looks like this:

  1. The future viability of the sector won't depend on estate expansion through well-intentioned but ultimately flawed policy incentives – and governments probably aren't that interested anyway.
  2. We can learn lessons from the agricultural and mining sectors; there are efficiency and productivity gains to be had through IT, automation, improved silviculture and management practices and improved tree stocks.
  3. Industry-good investment should be focused in these areas and industry leaders should consider how we can exert further influence on governments to support programs which are developed and driven by industry.
  4. Industry advocates need to understand and embrace the new ownership arrangements and seek to engage the new owners in the definition and delivery of industry priorities and policy agendas.