Ms FORREST (Murchison) - Mr President, I agree with the member for Apsley. This report makes it abundantly clear that the Government has no vision and no plan to grow the forest industry.
It is clear that the search party is still looking for a plan. In fact, the search has only just begun. I was gobsmacked when reading this report some months ago to find out that we are still at square one. The instructions for the treasure hunt have just been handed out. Perhaps the treasure hunt is a wrong description, as it is unlikely we are going to discover much treasure. The reverse is possibly more likely.
Forestry Tasmania is effectively insolvent. I do not say this lightly. FT is unable to cover its costs. It needs a loan from Tascorp to meet its costs. This loan requires a letter of credit from the Treasurer. The loan limit is $50 million, roughly equal to two years' losses. The letter of credit, or comfort as is often referred to, is now the only thing between Forestry Tasmania and insolvency.
If Forestry Tasmania was a private company, this report would be seen as an administrator's first report to creditors, which traditionally canvasses options for the future, whether the company can be recapitalised with more equity or whether loan funds or asset sales are needed prior to handing back the company to directors to continue operations.
The Government continues to state its commitment to no more equity funding. Borrowings can only be serviced by a company through asset sales and the only assets that can be sold are the hardwood plantations.
Asset sales will mean a smaller Forestry Tasmania. A smaller Forestry Tasmania means less chance of survival. It will mark the complete reversal of a strategy over the last 15 years which has been to expand the plantation estate with the view to make Forestry Tasmania more sustainable. In fact, expansion and value-adding with the plantation estate has been mentioned many times in this place and in the community as the way forward in growing this industry.
We have a resource that has value, is sustainable and has opportunity if we are smart and innovative in our thinking and have a vision to expand and grow the industry. Selling it removes any chance for Forestry Tasmania to become economically sustainable and operate in a way that sees the industry as a whole grow. Selling off the plantation asset is a short-term and short‑sighted solution to a problem facing Forestry Tasmania and the Government, some of which has been well outside their control but other aspects of this problem are of their own making, as has been noted in reports in the past by the Auditor-General and our own Government Administration Committee A in 2011.
It is being proposed that plantations costing $200 million, all supplied by the federal government, will be sold for $40 million. I want members to take that in. That is the price that has been mentioned by members of the steering committee. We need to understand what is being proposed: that is, to sell the plantation that cost $200 million of federal government money for approximately $40 million. This is nothing short of a fire sale. It is unclear whether this figure relates to all the plantation resource or part of it. Maybe there is some of that detail in the redacted sections but I do not think so.
If there is any consideration to sell the plantations that have been pruned and thinned and therefore are likely to be available for value-added uses, this would be an absolute travesty. However, other uses such as pellets, as mentioned by the member for Apsley, for highly effective and efficient pellet heaters, et cetera, could and should perhaps also be considered for the unpruned and/or unthinned plantation resource as this resource is generally only considered fit for pulpwood. It does not have to be made into pulpwood, chipped and sent offshore; we could use it for other purposes in this state.
We need to understand the reality of this proposal in this report. If we allow these assets we own, the plantations, to be sold to meet the current debts and operating expenses of Forestry Tasmania, where will we go next? If - and I say 'if' as I believe a decision is yet to be made and I hope the Leader and the member for Montgomery will correct me if I am wrong - this is the decision and the action is taken, it does not suggest a restructure of Forestry Tasmania, it will constitute a wind-up. It seems all the funds from asset sales will be needed to pay for operating expenses and there will be none left to grow the industry, none to develop a new vision or plan, and none to see some R&D into value-adding opportunities. How can the industry grow under such a process?
Just over $50 million from the recent sale of softwood plantations, the bit that was not used to discharge the Tascorp loans, was swallowed up very quickly by operations. So, too, were the proceeds of the sale of the hardwood plantations. I ask again: then what? The report does not pretend to know the answers. The best that can happen, it appears, is to limit future losses.
The tenor of the report is about cost cutting and shifting. Any cost shifting inevitably means risk shifting as well. Under the regime of the former CEO Bob Gordon, Forestry Tasmania never operated like a business but rather a handmaiden to industry. When the industry model built on woodchipping and managed investment schemes folded, FT was left exposed. The mill door model meant Gunns made most of the money from woodchipping. FT was the poorer member of the partnership but at least it had no residue problem. The lack of a residue problem might sound like smart business, but it meant Forestry Tasmania did not have much of a business without Gunns. Now, however, Forestry Tasmania is still saddled with a statutory requirement to produce sawlogs, and the contractual obligation to produce peeler billets, while assuming all of the residue problem. The problem is created by the fact that about 80 per cent of current native forest production is chip logs.
The results of residues remain a real concern, in terms of risk at many levels. This includes managing risk in the social, cultural, and environmental management of the resource, especially in terms of gaining and maintaining FSC certification.
What worries me, and this is mentioned on page 19 on the report, is the private sector has to assume more of the residue risk. It will demand lower prices, and that is the nub of the problem.
The industry has survived the hollowing out and bullying by Gunns, and is not in much shape to assume more of these risks. Forestry Tasmania is in no position to accept lower prices. We need to understand this, and accept this is the reality. We, or Forestry Tasmania on our behalf, needs to sell the product at a profit. It needs to be sold for the value it is worth. Value that reflects the costs incurred with producing what is valuable, sustainable - in terms of environmental, social, economic sustainability. When managed appropriately, it has all those benefits, as well as being a beautiful product.
The report makes a sensible comment on page 19. Subsidising forest activity might lead to a less productive use of resources, if the resources - labour, capital, and government funds - were used elsewhere, in other industries for instance, and that is also true. We need to keep checking to see if we are actually getting value for money. It will be difficult to argue we have our money's worth so far. It has been more a welfare exercise than an industry restructure. The only restructure of note has been the $200 million spent on plantations which the Government is now proposing to sell, and the figure has been mooted at $40 million.
The report talks about the almost certain need to continue funding from governments, regardless of what model is finally adopted. How much does this Government expect the feds will offer? Not much will be my guess. The IGA money of almost $400 million, given to us without impacting our GST share, was a large amount of money. Imagine if all the states received similar amounts. On a per capita basis, the total federal outlay would be $16 billion, and there is no chance of that happening.
We need to remember we are very lucky. Money does not grow on trees like that - no pun intended. Now we have repealed the legislation which flowed from the TFA and IGAs. Thank you for the $400 million, guys, but we are going to renege on the fine print. Is that what we tell the feds when we ask for more?
I sense the public patience for propping up Forestry Tasmania from state coffers is wearing thin. To be told the Liberals' plan included saving $100 million by not propping up Forestry Tasmania, only to discover the Government arranged a backdoor transfer from TasNetworks of $30 million, and tried to argue it was not a broken promise because it was not a budget outlay but rather an equity transfer, was disingenuous. Most people do not like to be taken for idiots, and that is what the Resources minister tried to do. Everyone knows the effect on the total state sector is the same, whether it is a budget outlay from the general government, or backdoor transfer between subsidiaries. That does not mean it has not happened before, it has, and other members mentioned that, but do not tell us is not happening. Being too smart by half will have its shortcomings.
The public's appetite for more funds into Forestry Tasmania, and I would suggest trust in decision-making regarding this matter, is now at all-time low. The best way to make Forestry Tasmania more sustainable is for the prices to rise, and this is hardly canvassed at all in this report.
As we have known for years, cash from native forest operations is only enough to cover the short-run marginal cost of harvest and transport. Other costs of production, such as roads, regeneration, wages and overheads, and superannuation for retired foresters, are additional.
This has been going on for at least five years. I would like to know to what extent Forestry Tasmania's income is constrained by contractual obligations as well. To what extent is Forestry Tasmania's production, currently about 1.5 million tonnes per year, sold at contracted prices? What will the situation be in a year's time or in two years' time? How long will it be before Forestry Tasmania is in a position to renegotiate prices? These are key questions. While I do not expect the Leader or anyone else here to answer these questions, I am hopeful we will receive some answers to these questions at some stage. I am quite happy to put them on the notice paper. Any answers would be helpful.
I am told a stumpage price of at least $40 per tonne is needed for a tree grower to make any money, even from plantation chip logs. The industry needs to become used to paying more for logs, and soon. Like many oversubsidised infant industries, it is starting to grow into a demanding adult. I am speaking collectively; I am not referring to individuals in the industry. There have certainly been individuals who have worked very hard to address some of these matters, and also challenged decisions and approaches that have been taken over the years. Some of them have been my friends.
The report talks about the value of the forest industry to the economy. I accept it is an unsubstantiated assertion, but not unreservedly so. Forest operations can deliver benefits but as for all business that seeks to be profitable, we need to be mindful about all of the costs. The report talks about operating costs but ignores the wider costs.
As the report points out, the capital costs to access timber are high, and in many cases becoming higher. Coupes are smaller and more remote so access costs will not fall. That is another reason why prices need to increase. The timber should be sold for its true value. I have heard people saying in this place as well as outside this place that the market will not pay higher prices. What we are offering is a high-value product that should be marketed and sold as such, particularly our native timbers. In a pure economic sense we need to raise the most value we can here in Tasmania. In doing so, we must understand all the associated costs.
Whether one is green, red or blue, and whether one believes in climate change or goblins, we cannot ignore there is now a price on carbon. Tony Abbott's first direct action option established a price. Not that state governments as owners of public forests can participate at this stage, but the fact there is a price and there will continue to be a price, whether it is via direct action, a tax or an emissions trading scheme, means that before long the value of the forest will include the value for its carbon. The decision to log will inevitably include taking that value into account. The industry will change. We cannot expect it to stay the same. If the world changes the way it values forest, we too will change. That may include at some stage even deciding not to chop the forests down. This is all part of the economics of the argument.
This report raises many concerns for me about where we may be headed, the impact of some of these recommendations and the likely costs associated with any transition. The possible negative impact on the likelihood of Forestry Tasmania gaining FSC certification is barely demonstrated. I believe this is a significant issue if we are to provide value-added products into world markets. I hope the Leader at some stage may be able to update us on the progress of this and provide more detail on risks associated with the proposed recommendations in the report. The report does note there is a potential risk with a change of this nature.
The report makes a few references to Forestry Tasmania becoming a dominant player where it could become a potential competitor to its customers. I would like a bit more information about how they see that happening. Competing with the private sector as a government business, particularly where they are receiving a government subsidy, is not something most people look favourably upon, those in the forest industry particularly.
For instance, may Forestry Tasmania's contractual arrangement with Ta Ann to supply peeler billets under contract also be supplied by private growers? Do those arrangements violate competitive neutrality principles if FT receives ongoing assistance from the government? This does appear very likely into the future and the contract price acts to suppress the market price otherwise obtainable by a private grower. The same applies to the price of export woodchips where Forestry Tasmania must compete with the private operators. Is Forestry Tasmania's current untenable position on competitive neutrality one of the reasons this review needs to get a hurry on, before someone sues? I do not know the answers. I am just posing the questions.
The report also recommends that the Treasurer and the minister approve that Forestry Tasmania continue as a GBE and will, among other things, develop a high-level implementation plan for approval by 31 May 2015, including the recommended approach for stakeholder and customer consultation with proposed cost and staff reductions together with detailed time lines for the above actions. I would be interested to know from the Leader if she can inform us if this has been completed. If so, would she be in a position to table this important part of the plan for the future? Maybe the plan is further down the track than we realise. If not, what has the minister and Treasurer done to progress this? It is clear that time is of the essence here and 31 May is well and truly past.
The report also recommends that Treasury provide the minister and Treasurer with advice on the appropriate governance framework for the Forestry Tasmania transition that is consistent with the current legislative framework, and provides for the commercial, legal and change management skills required for implementation of potential options for dealing with Forestry Tasmania's defined benefits superannuation obligation and land management costs, and for an integral and external stakeholder management and communication plan to be developed. Has this been provided to the minister and Treasurer? If so, what does the advice entail? I doubt whether we will get a copy of that advice but it would be nice to know what they are suggesting. Does it provide a clear way forward for the industry, or are we facing more of the same? As other members have said, we have been waiting a long time now and we are not seeing anything come out the other end. It is all being done behind closed doors.
The forestry industry does need to transition to a new model. Most of us would accept and acknowledge that we cannot do things the same way and expect a different outcome. Does the minister have a plan and vision for the industry? He seems to be missing in action in the articulation of a new plan and vision over the last 12 months. We even witnessed the deputy chair, who is all but in name the chair of his own advisory committee, showing more original thought and leadership on the issue until she was pulled into line by the minister, possibly a little bit too late.
Nothing in this report is new, except maybe the de facto admission that FT's position is worse than described in the 2011 report into its financial performance prepared by the Auditor-General and Government Administration Committee A, and subsequent annual reports by Forestry Tasmania. Maybe there is another thing that is new, and that is the realisation that governments have spent five years trying to determine sustainable quantities of timber from public native forests as part of the IGA and the TFA processes, without bothering to check whether these quantities imply a financially-sustainable Forestry Tasmania. It is clear now that they do not so I guess we will now spend another five years, as two have elapsed already, trying to figure out how sustainable quantities and sustainable businesses can be reconciled.
I could ask if we are slow learners, or are we just plain dumb. We are still searching for solutions using the same old paradigms. We are forever reacting, searching for patches and temporary fixes rather than recognising that things may never be the same. We need new and fresh innovative thinking as I believe we have the potential for an iconic product that we can value-add to this industry in Tasmania in ways that would return the benefit to Tasmanians. We have in Tasmania a magical source of timber, as good as you will find anywhere in the world. We need to recognise and promote our brand 'Tasmanian timber'. Our native eucalypts are special species and we need the world to see that, recognise it, and pay the right price for our valuable renewable sustainable asset. For too long we have been blasé about our native hardwood but it is just as special in many ways as myrtle, blackwood, celery top, sassafras and even Huon pine. Low-value products, and that includes plywood, need to be transitioned to plantations and that is why I am very nervous about the consideration of FT selling its plantations without suitable take-off arrangements.
I visited the Ta Ann Smithton plant last week. It was great to see the quality formwork being made there through our newly opened ply mill. This is an important addition and it is high‑quality formwork they are producing. I also look forward to Ta Ann progressing higher value‑add products and adding further things to their product range such as reconstituted wood products and appearance grade timbers. When I watched the logs being peeled, some of them are magnificent logs, they are lovely. Most of the best part of the log ends up on the outside of the ply and the not so good ends up on the inside of the ply. Even what is on top should be used in appearance grade timber. It really is a lovely product. They will look at that. They are consolidating what they are doing with the ply at the moment, they told me, but I look forward to them expanding their product range into that more high-value area.
We need to continue the R&D and add to our plantation resource and residue use to ensure these products ease the pressure on our quality native timbers so that the native timbers can exact the price they deserve. Our native forest need to transition to high‑value products.
I am fully aware of the constant refrain from the forest industry that a tree is like a beast as farmers also call them. It is not all fillet steak. There needs to be a market for the other cuts, the mince and other lower‑grade cuts, and so on. I regard this anomaly as a little bit misleading at times. My response is that growing native forest predominantly for chips is like raising sheep for dags.
Selling plantations that could be used for value-added products within Tasmania and beyond, purely to fund existing debt and operating expenses, would be a travesty and in my view, is certainly not a plan for the future. There has to be a better way.
Unless we can move away from the arguments of the past, and the tedious blame game that has dogged this industry, and work together and agree on a way forward, there will be very little chance we can benefit from this high quality renewable, sustainable and highly valuable product that we own.
Hopefully the advice that follows this report will help us find that way. I personally do not see it in this report. Perhaps the Leader and the minister will have the answers very soon.
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