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Royce Millar and Adam Morton – November 22, 2010

BOB Brown could have scripted John Brumby’s passionate address to an adoring anti-logging rally in Treasury Gardens in 1995. ”An end to native forest woodchips, the protection of our high-conservation value forest areas and an industry which is based in the future on plantations. That’s what we want.”

Standing on stage with a head-banded hippie, Brumby, then Victoria’s opposition leader, slammed the ”bizarre” policy that allowed state-owned native trees to be sold for peanuts, chipped, shipped to Japan and sent back as expensive paper. ”It’s bad economics, it’s bad industry policy, and it’s appalling environment policy.” There is a widespread view, including within the government, that little has changed.

In 2010 the total take of wood from the state’s native forests is almost as much as it was 15 years ago – about 4000 Melbourne Cricket Grounds worth. What has changed is that the proportion of that timber sold for woodchips has increased dramatically. Of the 1.8 million tonnes of timber logged in eastern Victoria each year, more than 70 per cent is sold as export woodchips for as little as $2.50 a tonne.

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Labor’s plan to address the problem did not match the rhetoric of 1995. Instead, warring parties – industry representatives, unions and environmentalists – will be brought together for peace talks.

Modelled on this year’s breakthrough Tasmanian forestry peace process, Brumby’s stakeholder forum is a major disappointment for some environmentalists and scientists. Australian National University ecologist Professor David Lindenmayer, dismisses it as a ”Clayton’s” forest policy that ignores the biodiversity crisis facing the forests after the bushfires of the past decade.

But government insiders insist the policy is no cop-out. The Tasmanian draft agreement represents a serious breakthrough on a national scale, they say, and Brumby is keen to exploit it.

Despite the mixed response, industry and environment groups have welcomed the proposed Victorian talks. To that extent, they acknowledge that Brumby may mean business.

But if progress in the 30-year Victorian forest conflict is in the offing, it is likely to be driven more by economics than concern for the endangered Leadbeater’s possums or the potential value of the bush as a carbon sink. The timber industry is struggling and keen for help.

Seasoned commentators warn that if real change is to flow from the forum, it is unlikely to come cheap; taxpayers will be asked to foot a substantial part of the bill, and environmentalists will likely be held responsible.

In Tasmania, the controversial Gunns timber firm was the key industry player in the Apple Isle draft agreement to move out of native forests and into plantations. The Gunns’ announcement followed a 98 per cent collapse of profits in the second half of 2009, and a push by large institutional shareholders for a withdrawal from forests.

Gunns also faced pressure from Japanese paper makers who boycotted woodchips that lacked forest-stewardship accreditation or were taken from high-conservation-value native forests. The company’s Swedish finance partners also demanded it use plantation timber in its proposed Tamar Valley pulp mill.

The ”pot of gold at the end of the Tasmanian rainbow”, as one senior industry figure describes it, is a $2.2 billion pulp mill and probably a big lick of Commonwealth money to ease the transition. ”My personal view is that Tasmania may not have gotten to this point without a pulp mill underpinning the transition,” says Philip Dalidakis, chief executive of the Victorian Association of Forest Industries.

However, Victorian timber companies are quick to point out that the industry here is a different beast. Gunns operates in Victoria, but is focused on producing timber for housing, not woodchips. The international customers of Victorian woodchips have not applied the same pressure to the state’s big exporters, Midway and South East Fibre Exports. And the Victorian talks will not have a pulp mill on the table, removing the key ingredient that gave environmentalists leverage in Tasmania.

Gunns has flagged its intention to eventually move out of native forests in Victoria, but chief executive Greg L’Estrange says this is difficult because most of the state’s plantation timber is in the far south-west, a long way from its mills in Alexandra in the Central Highlands and Heyfield in Gippsland.

Distance, however, is not the only disincentive. Timber from publicly owned native forests is much cheaper. Environmentalists say forestry in Victoria remains a classic example of old-fashioned feather-bedding. The government provides the land, grows the trees and contracts the workers to cut and cart the timber. The price paid for publicly owned trees does not factor in the true long-term capital cost of managing the forest and producing the trees.

A state parliamentary committee report shows that government timber agency VicForests, was paid between $2.50 and $6.50 a cubic metre for its trees in 2008. This compares with about $50 from commercial plantations.

In a report for environment groups released last week, the National Institute for Industry and Economic Research estimated that if Victoria’s public forests were run on the same basis as commercial plantations, the state would receive income of $200 million per year from the sale of wood. In the five years to 2010, VicForests made a total loss before tax of $627,000.

Government support for forestry is not a new phenomenon. Commonwealth and state governments have played an active role for 100 years, initially by setting aside forest reserves to protect the industry from advancing land-clearing for agriculture and later, under former prime minister Robert Menzies, by encouraging dramatic clearing of native forests for softwood plantings.

When this policy ran foul of the environment lobby, tax breaks were introduced for private plantations, prompting the creation of managed investment schemes, including the now troubled Timbercorp and Great Southern – the companies behind the bulk of blue gum farms in south-west Victoria.

The upshot was that the state’s major timber export companies enjoyed profits that were the envy of other industries. In more recent years, however, returns have been in a tailspin. Victoria’s timber industries have taken a pounding from the global financial crisis, the depressed US housing market, declining Japanese demand for pulp, and lower than expected uptake of timber products by the surging Chinese economy.

Earnings per share for South East Fibre Exports for the year to December 2009 were one-third of the year before, and before-tax profit was down from $15 million to $5.3 million. Victoria’s traditional mills are closing as the industry rapidly consolidates and shifts focus from high-end sawlog products to woodchips.

As in Tasmania, jobs are haemorrhaging out of timber – so much so that the forestry division of the Construction, Forestry, Mining and Energy Union last month described the industry nationally as in ”crisis”.

Nationals leader Peter Ryan last month said there were 19,500 workers in the Victorian timber industry, a figure that includes plantation labour. Green groups claim the true native forest workforce is in the hundreds.

CFMEU national secretary Michael O’Connor is a central and controversial player in the forestry debate. He made a watershed concession after a dogged 20-year defence of native forestry workers. Commenting on Tasmania’s draft peace agreement, he said it signalled a way forward for the industry in other states. ”We want the best possible future for our members and their families and if that can be achieved by peace, not war, then let’s talk, not fight,” he said.

These words may well prove pivotal as warring parties sit down to negotiate John Brumby’s proposed peace plan.

O’Connor belongs to a small but influential left grouping within the ALP faction that includes Prime Minister Julia Gillard and Resources Minister Martin Ferguson, as well as senior advisers to both Premier Brumby and Victorian Agriculture Minister Joe Helper.

His change of heart has given Labor the cover it needs to propose Tasmanian-style peace talks for Victoria.

Also important to both the economics and politics of the Victorian industry’s future is Labor’s announcement last week that it was scrapping its timber trading arm VicForests, and replacing it with a body with a broader forest management remit than just selling wood.

VicForests has few friends, having been widely criticised for its logging practices and lack of economic viability. Judith Ajani, a Victorian government forest policy adviser turned Australian National University academic, says the abolition of VicForests is crucial if real change is to be achieved.

Ahead of this week’s state poll, the industry association made clear that it prefers the unapologetically pro-forest position of Ted Baillieu’s Coalition.

A Baillieu government would maintain the current level of native forest logging and change contract arrangements to give the industry longer-term certainty.

But, after determined lobbying, forestry industry leaders are also relieved that Labor has opted for peace talks over the preference of some others within government – a unilateral decision to end logging in Melbourne’s water catchments.

Philip Dalidakis acknowledges the Tasmanian deal has the potential to ”establish a precedent in the public mind” about withdrawal from native forests.

In a sign of growing confidence, boosted by progress in Tasmania, most environment groups also back the peace talks over the Melbourne catchment ban. The Wilderness Society and the Australian Conservation Foundation have opted to roll the dice on Labor’s forum delivering more fundamental change.

But not everyone is supportive. Bob Humphreys, industry association president and owner of a timber mill at Cann River in East Gippsland, says the talks are unrealistic.

”I don’t believe that I could bring myself to sit around the table with … all those environmental groups and try to thrash out an agreement between us because we don’t agree,” he says.

”They are going to keep pushing until there is a total cessation of native forest logging. I will keep pushing until we keep surviving.”

John Brumby says he will not dictate terms to the forestry forum, but under questioning, he confirmed that he expected a shift out of forests and into plantations.

If the parties are able to reach in-principle agreement on such a transition, the question will inevitably become: who pays?

Brumby says he would expect his forum to nut out a joint plan for the future, and the federal government would then be asked for funding to carry out reforms.

Can the differences between the industry and green groups be bridged without a government weighing in?

The industry association maintains there must be a future for both native forest timber and plantations as they provide different products.

Dalidakis says the existing plantations are devoted almost exclusively to wood chips, and that the predominantly blue gum timber grown in the south-west is inadequate for higher value sawlog uses, such as flooring and joinery.

He says a best-case scenario would involve plantations providing timber for domestic flooring in 35 to 60 years. Corporate backing for such a long-term gamble would be non-existent.

”If government is serious about pursuing this policy, then they would have to do it because the resource is not going to come from anywhere else,” he says.

Environment groups instead emphasise how quickly the shift to plantations can be made.

The recent consultant’s report on their behalf found that most of Victoria’s native forest logging could be replaced by plantations within five years. It suggested plantations could meet demand for wood for lesser-value products such as woodchips and pulp by plantations by 2015, and most sawn timber for structural products within a decade. Some of the top-end wood products – the floorboards and joinery that make up to 10 per cent of wood from native forests – would take longer.

Judith Ajani sees the Tasmanian model as a positive move, but says governments should not be fooled into paying more than necessary.

”What we’re seeing now in these negotiations is an industry push for more government money … That is, business as usual,” she says. ”It’s time to take stock and find out what this industry really is and to let market realities drive plantation investment.”