Money doesn’t grow on trees

by Rod Campbell and Richard McKeon

The Forestry Corporation of NSW (‘Forestry Corporation’ or ‘the Corporation’) is a state-owned corporation that manages more than two million hectares of commercial native and plantation forests in NSW for the primary purpose of timber production.

Forestry Corporation has two operating segments; the Softwood Plantations Division, and the Hardwood Division (which is primarily engaged in native forest logging). For the six years between FY09 and FY14, the Softwood Plantations Division cross-subsidised loss making native forestry logging to the order of $79m. Through significant headcount reductions in FY14, the division broke even in FY15, but this was before making any contribution to the Corporations $8m interest charge. Furthermore, a declining outlook for demand of native forestry products will make this result hard to repeat.

In response to declining volumes, the native forestry industry has increasingly lobbied for forest waste products to be sold to biomass electricity generation plants as a feedstock. In the current economic and regulatory environment, however, the economics of biomass power generation are not likely to provide any meaningful new demand for the Hardwood Division of the Forestry Corporation.

Given that native forest logging currently struggles to generate a profit, that demand is declining, and that supplying biomass power plants will not provide the uplift required, potentially the highest economic use of native forestry would be to leave the trees standing. Although the Emissions Reduction Fund does not currently recognise the protection of native forest from logging as a method for which revenue can be claimed, if the industry were to push for inclusion, Forestry Corporation could finally begin generating decent earnings by simply ceasing native forest logging.

If native forest logging were to be discontinued in NSW, existing grants and avoided losses could provide funding for ongoing management by the NSW National Parks and Wildlife Service. Furthermore, the impact on jobs is likely to be minimal, as approximately only 600 people are directly employed in the native forestry industry in NSW, less than 0.1% of the total workforce.

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