Greetings all,
The author of the following missive has given me permission to distribute it
to the group. I believe that the issues raised within it are germane to the
forestry profession as a whole, compactly summarising as they do some of the
more coherent economic arguments against logging native forests.
I propose that we construct a response and am happy to coordinate such an
effort, but lack the data and forestry background. There are some obvious
points to be made, such as the confusion of the cost of harvesting vs. the
cost of forest management, or the existance of a ready market for $65
million of water, but I have no figures. I am certain that parallel data
would be informative.
I have taken the liberty of adding a few clarifying points in curly
brackets. I assume that all figures are in Australian dollars, equivalent
to about 0.77 US dollars.
FORESTRY SUBSIDISATION IN VICTORIA
By
Andrew K. Dragun
LaTrobe University
Melbourne, Victoria, Australia
This note summmarises the results of my study on the subsidisation of
Native Hardwood Forest operations in Victoria, Australia. The comments
are particularly focussed on the subsidisation of Native Hardwood forests
in Victoria, but similar situations exist in the other Australian states.
In the other States with which this writer is directly familiar --
Tasmania exhibits a situation similar to Victoria and the subsidy
situation may be worse in NSW.
THE SUBSIDISATION OF LOGGING IN VICTORIA
The Department of Conservation and Natural Resources manages the forests
for the State government and has a good deal of information to attribute
cost to function. But this information is not used very well and a range
of vital economic issues are not addressed. Despite FOI {Freedom of
Information} requests, the Department will not release relevant account
information and financial data.
The subsidy to logging in Victoria can be identified in a range of
$50 Million to $385 Million, in several parts;
(1) The direct Departmental subsidy of $50 Million per year - where only $41
Million of revenue is earned by the Department on at least $91 Million of
expenditure.
(2) Expenditures which are deferred to the general Victorian Treasury of $10
Million per year in continuing salary redundancy liability and a liability
for $100 Million per year in Loans Council provision for forest investment.
(3) Revenues foregone from the loss of about $65 Million of water.
(4) Conservation value of $160 Million.
(5) Recreation amenity lost by the general public as well as a diminution in
agricultural and fishery productivity.
According to the information available, the Department:
(1) Underestimates the costs of logging.
(2) defines some expenditures as revenues, because they have been funded from
some other sector of government.
(3) Ignores capital and inventory charges.
(4) Defines reafforestation as new investment when it is really maintenance of
an established stock.
(5) Transfers some expenditures to other sectors of government [employment
redundancy liability and Loans Council liability];
(6) Foregoes some revenues [diminished water yield in the forests which could
be used & paid for by agriculture & urban users].
RESULTS OF THE SUBSIDY
1. The State Government is spending $2.25 to get each dollar of timber royalty.
2. Each dollar of exports is costing more than a dollar to produce, thus
exacerbating Australia's continuing capital account woes.
SUBSIDISATION AND WOODCHIPPING
With woodchipping licenses being the subject of considerable political
discussion recently, a precise picture on the subsidisation of woodchipping
is difficult to establish from the available DCNR financial data. But some
trends can be identified relative to timber cutting.
1. Woodchipping means less royalty for the same amount of forest being cut; thus
implying a greater subsidy since the forest management costs should at least
be the same in the short run [costs may be more in the longer run with
shorter rotations].
2. The greater subsidy to woodchipping coincides with a diminution in
employment as woodchipping is more capital intensive and uses less labour.
Thus, secondary regional benefits of the type alluded to by the industry
will diminish.
3. But woodchipping, which is amenable to a forest of shorter rotation means
that more forest will be cut sooner, requiring more management and more
public expenditure. Thus, forest management costs will rise from the medium
term as royalties per unit of forest decline -- implying that the subsidy
to logging will increase as the industry moves towards woodchipping.
4. The general apparent decline in timber management expenditures appears to
coincide with a decline in reafforestation and regeneration. And this at a
time when the actual timber output and area cut has increased. Thus,
it appears that the DCNR is deferring or simply not carrying out sustainable
timber management expenditures. This might improve their cost efficiency
picture in the short run but imposes a massive liability in the longer run.
5. In relation to NEW FOREST INVESTMENT, and the accounting of this cost
as a revenue -- it should be noted that in the DCNR Annual Reports that such
expenditure is described in terms of REGENERATION and REAFFORESTATION of
areas previously cut for timber. Thus the "investment" is rehabilitatory
rather than an investment in NEW forest.
ISSUES FOR THE STATE GOVERNMENT
1. To put the accounts of the DCNR into the public arena.
2. Require the logging industry to provide details of their profitability in the
State's Native Hardwood Forests.
This will establish the exact nature of the subsidy and identify how much of a
drain on the capital account the export of timber products is.
FAILURE BY THE STATE GOVERNMENT TO RELEASE THE ACCOUNTS
AND LOGGING PROFITABILITY HAS THE FOLLOWING IMPLICATIONS
1. A desire to hide the extent of the logging subsidy
2. The subsidy estimates identified here are too low.
3 A desire to hide an incapacity of the DCNR to analyse the cost data
relevant to the management of the valuable forests of Victoria.
4. A desire to hide problems with logging industry profitability because either;
- profitability is too low and the subsidy is greater than net profits, so
that the industry should have been shut down. In this case the value of
export revenue is less than the cost of production and the national
capital account deficit is exacerbated.
- the profitability of the logging industry is very high. The focus must
then be on why the royalty and license rates returned to the State
Government are so low?
ISSUE FOR THE FEDERAL GOVERNMENT
Why are export permits provided for timber products which are heavily
subsidised by the State Governments and where there is every likelihood that
the export revenue to the nation is LESS than the cost of production of those
timber products? Financing such inefficient production must surely exacerbate
the nation's capital account deficit where funds must be brought in from
overseas to fund the exports.
Is the Capital Account deficit to be sacrificed in favour of the profits of
a few large exporting companies and the welfare of rich consumers living in
countries whose substantial foreign surpluses end up financing our deficit?
Copies of the study [askii or snail] are available by contacting me on my
email direct.
+++++++++++++++++++++++++++++++++++++++++++
+ Andrew K. Dragun +
+ LaTrobe University - Bundoora +
+ Melbourne, Victoria, 3083 +
+ Australia +
+ email: a.dragun@latrobe.edu.au +
+ Ph 61-3-479-2320 Fax 61-3-479-1607 +
+++++++++++++++++++++++++++++++++++++++++++
Please CC any comments or discussion to the author.
Andrew
Andrew Robinson Phone : +1 612 625 5765 (work)
Graduate Student : +1 612 649 0347 (home)
Dept. of Forest Resources FAX : +1 612 625 5212
University of Minnesota,
115 Green Hall "I'll see it
1530 North Cleveland Ave. when I believe it."
St. Paul, Mn., 55108-6112 USA
No statements above may be inferred to have the necessary support
of my employer.
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