PARK WATCH Article September 2024 |

Michael Spencer’s obituary for VicForests is an instructive guide against those who want to restart logging

VicForests, the Victorian Government’s logging and wood sales ‘business’ closed its doors on 30 June ending a 20-year experiment with a market-based approach to logging of state forests.

VicForests knew it was out of wood more than a decade ago. Even as legislation to remove VicForests from the statute books was going through Parliament, MPs were still jumping to their feet proclaiming that logging state forests was ‘sustainable’; a victim of ‘treachery’ and caving-in to environmentalists.

As much as this argument suits protagonists, the reason was a failure of management by successive governments and the inability of public policy to withstand the pressure for private profit from public assets – a classic tragedy of the commons.

The idea that markets could manage forests better than government agencies was formed at the height of Australia’s love affair with neoliberalism at the turn of the century.

VicForests inherited a culture committed to industrial wood production and an arrogance toward other forest users; a technocratic culture of we, the experts, know best.

Public servants, who were supposed to be overseeing the forest assets, auditors who were supposed to audit the books, and the ministers who continually wound back controls and requirements also need to take responsibility.

Under attack from an emerging environmental movement in the 70s, foresters moved from being protectors of forests to protectors of wood production. In 1982, the Forest Commission was abolished due to lack of public confidence and government’s desire to pursue commercial principles.

Forestry operations were expected to be run as a business achieving commercial returns. Environmental controls were separated. Assistance was provided to reduce demand on overharvested forests.

The 1990s saw commercialisation accelerate, egged-on by the Victorian Auditor-General. Parliament approved a 30-year agreement with the Maryvale pulp mill to supply wood from state forests around the mill. The price benchmark was the price of office paper.

Concerns grew about overharvesting, impacts on water and biodiversity and whether commercial goals were leading to high grading rather than sustainable management.

In 1999, the Bracks Government accepted institutional arrangements had been captured by industry. It identified a 20 per cent over-commitment of logs and under-pricing.

‘There were cosy relationships when we came to government that were not being market-tested,’ Bracks said in 2020. These resulted ‘in over-commitment, subsidies and undervaluing of the forest estate’.

Bracks reduced harvest levels and introduced an independent process to monitor sustainable yield, VicForests was intended to separate commercial and regulatory functions and put the industry on a path to being efficient and competitive.

With logging and marketing under VicForests, the Department would focus on sustainable forest management through allocating areas for harvest, regulatory controls and reporting against sustainability criteria.

It was to sell logs to the highest bidder through an auction system to ensure prices reflected supply and demand and the wood would go to the highest value use. An annual review of logging against sustainable yield was an additional check.

Economist David Pollard was appointed VicForests CEO and saw the job as an opportunity to bring modern management to Victorian forestry; ‘to transform a clunky forest management system in the public sector to a modern market-based system.’

But the challenge of achieving commercial return was immense. This was an industry accustomed to subsidy. Bracks was aware that cosy relationships would attempt to reassert themselves but retired four years later.

Apart from the first few years, VicForests never got close to commercial success and by the end of the decade (that included three significant bushfires), the idea of a market-based system had all but disappeared.

First the four per cent annual rate of return was dropped, then subsidies returned as grants and payments, separation between the department and VicForests dissolved, the annual review of wood yield was cancelled and the auction system was jettisoned.

None of this could patch over falling wood supply from overharvesting and successive bushfires.

The decline had been there for all to see in the Annual Reports of the Department. But no one, including the Auditor-General, chose to look.

The reports tracked the value of standing timber from the mid 1990s. From 2000, it was calculated as net present value based on discounted future cash flow. Between 2003 and 2008, the value fell from $258 million to $32 million.

In 2013, the net present value of timber assets had fallen to $10 million and the entire timber estate was allocated to VicForests. Minister Walsh either didn’t understand the valuation, didn’t believe it or didn’t care. After this, the time series on standing timber value disappears. VicForests mixed accounting standards so the number was meaningless. The Auditor-General waved this through.

Creative accounting, huffing and puffing and regulatory changes did not create more wood. VicForests’ 2014 Resource Outlook showed the area available and commercially suitable for harvesting declining. By 2017, VicForests was unable to meet commitments to its largest sawlog customer.

Heyfield mill took two-thirds of VicForests’ sawlogs. It threatened to close if VicForests couldn’t meet commitments. Government knew the supply limitations but bought it anyway.

Reality finally hit in 2019. Government announced a $110 million plan to phase-out state forest logging by 2030 and a 30-year plan to transition to plantations. Similar announcements had been made before.

As VicForests tried to push on it was forced to harvest in more problematic areas – hotly contested forest areas of the state where other forest users were well-organised.

While the department had been weak in carrying out its regulatory role, environmentalists filled the gap and took civil proceeding against VicForests for harvesting that threatened endangered species.

Eventually, the government set up an Office of the Conservation Regulator. The litigation increased costs of doing business for VicForests and placed restrictions on where it could harvest. Those mourning the demise of logging believe the government should have outlawed civil cases against VicForests.

With Maryvale mill closing its office paper line – the main user of VicForests’ logs – and the costs of keeping VicForests going mounting, the Government decided to end logging on 1 January 2024.

Legislation to abolish VicForests received assent on 26 June and the doors closed on 1 July. Just over 20 years after it was launched.

Most people are in no doubt there will be efforts to reopen logging in the future. You can be sure the old team will try to get control. That is why all involved need to understand clearly what happened and how the crew that want to reopen forestry mucked up.

Michael Spencer is a writer, researcher and part time academic at Monash Business School.

This is an abridged version of an article published in The Fifth Estate, 16 July 24.