The State Governments own, manage and market over 70% of the plantation resource in Australia as well as the bulk of the native forest wood supply. Their historical role as providers of wood to industry is now much broader and sometimes in conflict with this - for example excluding harvests for conservation reasons.. Government wood sales compete with the private sector. On the other hand some investors feel more confident investing with a government partner as this may enhance their guarantee of supply. Some governments are now releasing prospectuses allowing the small investor to participate in “safe” forestry investments.
A National Forest Policy Statement (1992) has been signed by all State and the Federal Governments but few of its recommendations have been implemented. For example, in planning legislation forestry tends to be discriminated against compared to traditional land uses, particularly by local government although this is contrary to the National Forest Policy Statement. Some of these inequities are exacerbated by subsidies to other land uses e.g. tariff protection but this has not been a significant factor in recent time.
Export controls on plantation logs and chips have been a deterrent to investment in pulpwood plantations and whilst these controls have recently been removed, there have been conflicting government signals that confuse overseas investors. Whilst foreign investment guidelines exist they are not perceived as a major impediment to investment, particularly in the joint venture scenarios where land is not being purchased.
Private (investor) growers have long complained about the market behaviour of the dominant government suppliers which undermine their investments such as setting an artificially low rate of return, not publicising log sale prices (commercial in confidence), and so on. On the other hand, private growers do benefit from some government wood sales as it is the scale of the public resource that usually attracts the processing industry in the first place.
Government growers can also benefit from lower costs compared to the private grower. Whilst much of this stems from economies of scale some levies and taxes are not paid by government. For example State Forests has been exempt from sales tax on vehicles and equipment and does not pay local government rates (by law).
Government growers have also probably benefited from a lower cost of capital and a lower risk premium built into their borrowing cost compared to private growers. On the other hand government plantation programs have often pioneered new plantation resources where an individual private grower would not have taken the initial risk. This has been particularly in the case of sawlog regimes for two reasons; the long time frames for the bulk of revenue to flow and the fact that a number of different products are grown. Most sawlog regimes in Australia take at least 30 years whilst most private investment horizons are about half this. Whilst a number of products are produced, most investors to date have been wood buyers interested in buying just one product such as pulpwood, and integrated regimes would involve them in ‘non core’ business.
Much of the skills and knowledge base that is part of Australian plantation practise has flowed from the government programs into private industry. This has now matured to the extent that cooperative research is done by government and private industry in partnership.
In comparison with many other countries seeking to expand plantations, Australia has a relatively unattractive tax environment. For example;
With their large plantation base and public funding, government growers have probably taken bigger risks and have been prepared to accept more uncertainty than many private growers and indeed other private land users. It is often many years later that these risks have been quantified and this is particularly the case with long rotations. New investors who probably have a higher expectation of returns than, say, existing industry will usually insist on carefully quantifying all major factors such as land availability, yields, costs and risks. Governments have played a major role reducing these uncertainties and risks.
Many plantation investment schemes in Australia in the past 30 years have been tax driven, with the major gains flowing to the investor at establishment. A lack of subsequent management and indifferent markets has tainted forestry investment in the eyes of private investors. When combined with a couple of well publicised “plantation investment failures”, there is a somewhat sceptical view by potential investors.
Government based incentive schemes have also generally had limited success because of a lack of on going management and restricted markets for the pulpwood components in some areas. They were expensive (sometimes>$100/ha/year) to administer and had little “flow on”. Although largely abandoned now, the schemes that gave away seedlings/subsidised small plantings have helped many landowners become familiar with the concept of growing trees and makes the idea of industrial scale forestry less daunting. State Forests’ experience with joint ventures suggests that most landowners are very receptive to planting if they see trees growing in their neighbour’s paddocks and they are or will be receiving a reasonable financial return from the trees. Joint ventures aim to provide landowners with a partner (State Forests) who will provide on going management expertise and market all the plantation products for the best return.
