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LOGGING IN VICTORIA
AN ENVIRONMENTAL ECONOMIC APPROACH
WITH SPECIFIC EMPHASIS ON THE OTWAY
FORESTS.
Contents
Logging in Victoria is performed using two main approaches and harvesting
two forms of timber - i) logging of hardwoods from native public forests,
and ii) logging of softwoods from publicly and privately owned plantations.
The harvesting and processing of plantation timber has grown strongly
over the last two to three decades and now overshadows the native
hardwood industry, which has declined in sawn log production, but
has increased the volume of woodchips produced, much of which is exported
raw with little value addition.
Logging operations in native forests receive substantial subsidisation
from the Victorian Department of Natural Resources and Environment
(DNRE), so much so that the existence of logging in native forests
would be in question without it. This subsidised logging, causes
other damage to the Victoria's native forests, far from the financial
losses associated with it. The conservation values of the logged
areas are significantly diminished by logging, as are water quality
and quantity, and recreation use within and around logged areas.
Global effects from logging native forests include the release of
significant carbon dioxide to further increase the Enhanced Greenhouse
Effect. With a strong and expanding softwood plantation industry
which has a current under - utilised stock of mature trees, the
continuation of logging in native forests does not appear to be
supportable economically or environmentally.
Introduction
Logging timber from forests can be a sustainable forestry practise,
performed in a manner that provides the most financial benefits to
the logging industry and to society. Moreover, such practices can
be performed in a way that provides the most economic benefits to
society as a whole. It appears that logging in Victoria's native forests
is not conducted in such a fashion due to the existence of circumstances
that promote this apparently uneconomical logging to continue.
In brief, the circumstances that combine to cause the uneconomical
logging of much of Victoria's public land are : i) that the logging
operations are not fully open to competitive forces, ii) such operations
are subsidised by the Government, iii) are performed using sub optimal
rotation periods given all uses of such forests, and iv) do not
correctly value the non logging benefits received from the logged
areas (Dragun, 1995, page 3). That is the trees are too cheap and
royalties do not reflect their value. The logging of native forests
in the Otway Ranges in south western Victoria is an example of such
practices.
The combined effects of such factors is that the Victorian Government
continues to heavily subsidise logging operations within our native
forests to the financial detriment of the State; and while this
continues softwood plantations will be disadvantaged and under -
utilised, and the other values of the native forests, ecological
and industrial, will continue to be harmed.
Forestry Economics
When performing economic analysis of timber harvesting, there are
a number of factors that need to be known and utilised so that the
most efficient use of the resource can be made. These factors are
as follows : the applicable discount rate, the growth rate of the
trees to be harvested, the cost of harvesting, the revenue received
from harvesting, the cost of planting / re-establishing the forest
/ plantation, other charges / revenues imposed / received from the
timber logging process (Teitenberg, 1992, pages 250 -252). Additional
factors that should be taken into consideration are : changes in i)
the relative price of the timber over time, ii) the harvesting costs,
& iii) the replanting / re-establishing costs; and the non logging
values of the area logged and other affected areas and industries
(Teitenberg, 1992, pages 254 -255). It is assumed in an infinite time-horizon
model that the costs incurred to plant / re-establish the forest are
borne immediately, while the harvesting costs are borne at some time
in the future, and are hence discounted (Teitenberg, 1992, page 251).
The presence and use of these factors will be later analysed in relation
to the logging practices - both plantation and in native forests.
It is a socialisation of costs and a privatisation of profits.
Logging in Victoria
Logging in Victoria can be divided into two main forms - plantation
logging, and logging from native forests. There are a number of significant
differences between these two approaches.
Plantation Logging
Plantation logging is primarily a commercial venture where land
is (usually) used with the sole purpose of growing timber for harvest.
The conservation values of such plantations are quite low due to
the uniform age and tree species present. When producing timber
with plantations, the plantation owner / manager has the choice
of replanting after harvest, or utilising the land for another purpose.
'Softwoods' are predominantly grown in plantations, though hardwoods
are also grown, and fast growing species are usually chosen so that
they can be quickly harvested and provide a financial return as
rapidly as possibly. However plantations also provide revenues over
the growing life of the plantation, as 'thinned' limbs or trees
are sold (Clark, October 1995, 1995, page 2).
The main costs involved in plantation timber are the cost to purchase
or rent the land, the costs to initially establish the plantation,
thinning and pruning over the life of the plantation to increase
the timber quality and quantity, insurance, and the maintenance
of access roads. The harvest rotation - or time involved between
planting and harvesting a plantation is often between 25 and 40
years, with the common Pinus Radiata / radiata pine, having a rotation
of 30 years (Noble, 1996, page 4).
Many small plantations have been established in Victoria over
the past three or four decades and contribute to a sixth of the
State's plantations, while the three large companies of Amcor, Auspine
and CSR hold a third, with public holdings of plantations making
up the remaining half (Clark, July 1995, page 160). Australia in
total has over 1 million hectares of plantations - softwood 86 %,
and hardwoods making up the remaining 14 %; and three quarters of
this amount is managed by the States, or the Federal Government
(Clark, July 1995, page xi, and page 9).
Plantations currently supply about 10 million m3 of wood products
per year, 80% of which is processed in Australia for pulp, paper,
wood panels and sawn timber, employing some 30 000 people in the
industry (Clark, October 1995, page 6). The industry already has
55 % of the domestic sawntimber market, and 64 % of the market of
raw wood fibre for use in paper production (Clark, October 1995,
page 2). Growth in the plantation industry has been steady and strong
at about 2% annually since the seventies, at which time it surpassed
timber production from native forests (Traill, 1995, page 22). Recent
growth has been even stronger, with an 8% growth in sawntimber from
plantations occurring over the year ending June 1995 (Clark, October
1995, page 6). The prospects for the plantation industry - for production
and employment, are very good, with the industry expecting to supply
16 million m3 of wood annually by the year 2000, and 18.5 million
m3 by 2005. (Clark, October 1995, page 6) (Clark, July 1995, page
xi).
88,000 hectares, or 24 million m3, or 10.5% of the total area
of soft wood plantations is ready for harvesting now and are not
utilised by their owners - which are the respective managing Governments
for the most part (Clark, October 1995, page 6). Utilisation of
this resource would generate around $3 billion in total revenue,
with from $475 to $830 million going to plantation owners, and would
help develop the softwood industry, and could replace the total
native forest sawlog cut for six years (Clark, October 1995, page
6).
Applying economics to plantation logging
Forestry economics can easily be applied to plantations, as the
relevant conditions such as: value and timing of costs, applicable
discount rate, value of timber, future values of the land and alternative
practices, and values of non timber uses can all be relatively easily
obtained, leading one to think that optimal economic decisions regarding
the plantation management can occur in the Victorian plantation
industry. This ease exists because of the primarily commercial and
sole purpose focus of the plantation.
Native Forest Logging
DNRE Victoria overseas the harvesting of timber form Victoria's
public land (Dragun, 1995, page 5). One private company is given
permission by DNRE to harvest set quotas of timber from designated
areas and subcontracts the total harvest out to other logging firms
(Simon Birrell, private communication). The logging firms then pay
royalties to DNRE for this right. DNRE themselves, and not the logging
firms, are responsible for re-establishing the logged areas, or
coupes, which range from 10 to 100 hectares in size (Traill, 1995,
page 9).
The coupes are often left by DNRE to regenerate naturally, however
across Victoria more than 10% of coupes fail to regenerate eucalypts
adequately, such that a 1994 DCNR report identified some 25 000
hectares of nonregenerated 'forest' (Traill, 1995, page 10). Such
failures require substantial expense by DNRE to artificially replant
the coupes at a cost of $300 per hectare, resulting in a total of
$7.5 million to regenerate Victorian failed coupes in 1994 (Traill,
1995, page 10). In addition to regeneration costs, DNRE is responsible
for constructing and maintaining the roads that provide access for
the logging equipment, and fire prevention.
Native forests are harvested for their 'hardwoods', and are done
so on a rotation between 50 to 80 years (Traill, 1995, page 11).
Native forest logging occurs in areas which are public domain, and
are used for a number of uses (Dragun, 1995, page 5). As such, DNRE
cannot decide to allocate areas solely for timber production as
could be done in commercial plantations, and has an obligation to
ensure the continuance of non - logging values in such areas that
are logged.
Applying economics to native forest logging It is much harder to obtain or determine the information required
to correctly apply a forestry economic analysis to logging in native
forests. Logging and management of the forest is performed by two
separate entities - firstly the logging companies who pay DNRE royalties
for the timber they harvest, and DNRE who regenerates the logged
coupes and provides ongoing management of the forest, as well as
management for alternative, and often competing uses of the native
forests. Because of the separation between logging companies and
the DNRE, is it harder to collate information about the whole logging
process from native forests. To date, analysis has focused on the
operations of DNRE.
Andrew Dragun found in his 1995 paper that the then DCNR (now
the DNRE) were reluctant to provide economic and financial information
regarding logging operations in native forests, withholding information
from requests through the Freedom of Information provisions (Dragun,
1995, page 7). He further found that due to the range of operations
pursued by the Department, expenses and revenues could be arbitrarily
attributed to logging, which again makes it difficult to economically
analyse logging operations (Dragun, 1995, page 12).
Effects of Logging Native Forests
Clear felling within a coupe is the primary method of timber harvesting
in Victoria's native forests; though other methods such as selective
logging were used till the 1950s, when the chain saw and bulldozers
led to the use of less discriminative harvesting practices (Traill,
1995, page 5). During the process of clear felling, some mature trees
- the so called habitat trees - are left standing within the coupe
to provide habitat for animals, especially those that require tree
hollows (Traill, 1995, page 9). Tree hollows only start to develop
in native trees which are between the age of 120 & 200 years, and
given that the rotation within native forests is below this time,
it is important that habitat trees are left behind to support animal
life (Traill, 1995, page 18). Unfortunately, many of these habitat
trees have their roots damaged by the heavy logging equipment and
regeneration fires, and combined with the effects of exposure and
wind damage, often die (Traill, 1995, page 18).
The regenerating forest uses more water than a mature forest,
thus reducing the water produced by the logged area by 4 megalitres
per hectare over an 80 year logging rotation, which when applied
over the 800 000 hectares logged during such a rotation at $20 per
megalitre, equates to a loss of 3.2 million megalitres of water
costing $64 million per year (Dragun, 1995, page 17). The loss of
the forest releases much of the carbon dioxide which was previously
locked up in the standing mature forest, some 300 tonnes per hectare
of old growth forest (Traill, 1995, page 12). This carbon dioxide
release comes from the DNRE 'regeneration' fires that burn much
of the scraps left on the coupe floor, and from the burning of firewood
harvested from the coupe, and the decomposition of paper produced
from wood pulp (Traill, 1995, page 12).
Victorian Logging Economics
The DNRE reported a loss of $3 million for its Native Hardwood logging
operations for the 1992/93 financial year, and a loss of $10.5 million
for the previous year (Dragun, 1995, page 14). Dragun analysed DNRE's
reports and arrived at a loss of $60 and $72 million respectively
for these years, identifying an annual error of $60 million in DNRE's
accounting process (Dragun, 1995, page 14).
The Victorian Auditor General in a 1993 report calculated a loss
of $13 million for DNRE's 1991/92 financial year, and found that
'a degree of uncertainty surrounds the classification of certain
costs excluded from the commercial accounts prepared by the Department'
(Traill, 1995, page 23) (Victorian Auditor General, 1993, page 136
in Traill, 1995, page 23).
Dragun identified a direct annual DNRE subsidy of $50 million,
with DNRE receiving $41 million in revenue from logging operations,
while paying $91 million in expenses (Dragun, 1995, page 3). Dragun
included identified further annual expenses which can be attributed
to native hard wood logging : i) $10 million in continuing salary
redundancy, ii) $100 million liability in Loans Council provision
for forest investment, iii) foregone water production revenues of
$65 million, iv) and the loss of $160 million in conservation values,
v) as well as additional and unvalued losses of recreational use,
and agricultural and fishery production (Dragun, 1995, page 3).
Dragun states that the DNRE subsidises native timber logging from
between $50 million to $385 million dollars annually, which equates
to the Government spending at least $2.25 for every dollar it receives
in timber royalties (Dragun, 1995, page 3).
Economically the presence of a subsidy increases the amount of
logging that would otherwise take place in native forests. This
can be seen in figure 1, which illustrates a situation where subsidisation
occurs as the cost to society (& DNRE) is larger than the costs
incurred by the logging industry. Figure 1 shows that the quantity
arrived at by the intersection of the firm's marginal cost curve
(MC) and the marginal revenue curve (MR) is greater than that arrived
at by the intersection of the society's MC curve and the MR curve.
With this given, the presence of the subsidy increases the level
of timber that should economically be harvested, and reduces the
price charged for this wood. The subsidy causes a dead weight loss,
and Dragun feels, given that just the value of the direct subsidisation
is about the net value of the timber logged from the native forests
($60 million), that logging should be halted in native forests,
due to dead weight loss that is accruing to society from logging
operations (Dragun, 1995, page 18).
DNRE, in it's draft wood utilisation plan for 1996/97, states that
there will be a total of 42600 m3 net in license commitments in the
Otway Forest Management Area, broken down into the following amounts
by grade of wood (A is best, E is worst, followed by fire wood and
residual/ pulp wood): B+ 5280, C 26155, D 11 165, with an additional
1700 m3 of Blackwood committed; while a total of 60 000 gross tonnes
of residual wood is committed (where 1 m roughly equates to 1 tonne
of wood) (Otway FMA (07) Draft Wood Utilisation Plan 1996/97 - 1998/99).
DNRE has softwood plantations in the Otways, specifically in the
Aire river valley, from which in conjunction with private plantations
has produced 150 000 m3 of sawlog in 1994 (Clark, July 1995, page
167). Softwood availability from the Otways is set to greatly increase,
with 470 748 m3 of sawlogs available by 2005 (Clark, July 1995,
page 167). Table 1 below summarises the 1987/88 wood production
from DNRE Otway managed land (Brinkman & Farrell, 1990, page 94).
Table 1 : Wood production from and royalties received by the Department
of Conservation and Environment during 1987/88. (After Brinkman
& Farrell, 1990, page 94)
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