Is Victoria's native forestry industry worth it at $5 million a job?

27 June 2016

The viability of Victoria's government-owned native forestry business has been thrown into doubt by a high-level analysis concluding it takes more than $5 million of investment in roads, machinery and equipment to create a single timber job.

 A confidential report by accounting firm PricewaterhouseCoopers warns VicForests is "not generating an appropriate return" to meet its stated objectives, including maximising its contribution to the economy and well-being of Victoria.

Logging in the Orbost Forest District in East Gippsland in 2010.

The assessment, obtained by Fairfax Media, provides a sobering assessment of the long-term financial outlook for the agency, with the value of native hardwood production down 26 per cent over the past decade, the volume down 32 per cent, and VicForests' net profits 31 per cent lower than the average for the Australian forestry sector as a whole.

"This performance conflicts with community expectations," the report said.

Commissioned by an unknown business entity, the report found every native forestry job requires $5,041,000 worth of investment in machinery, equipment and infrastructure such as roads – about 12 times more than the average for other industries.

"From a regional development or employment perspective, the higher level of investment required to create one (full-time job) suggests that supporting native forestry would be less beneficial than supporting other industries, as it generates lower employment per dollar spent," it said.

The cost of a job graph

The report, which was completed earlier this month and is now being seriously considered by the Andrews government, comes as negotiations between the industry, unions and environment groups to create a new national park in the Central Highlands remain on a knife edge.

The PwC report suggested that continuing with native forestry could be an uneconomic exercise, with support for other industries, including plantation forestry, potentially generating greater returns.

It estimated that every $1 of investment in native forestry delivered 3 cents in direct and 11 cents in indirect benefits to the state economy, or 14 cents in total. That compares to $1.63 for the forestry sector as a whole, and $2.65 for the manufacturing sector.

But VicForests general manager of planning Nathan Trushell​ said the analysis appeared to ignore  $500 million dollars in revenue generated by the processing of native timber in Victoria, as well as the thousands of associated jobs. 

"VicForests has remained profitable over the long term while providing social, economic and environmental benefits to the state," Mr Trushell said in a statement. "The PwC report was drafted relying only on publicly available information and no further detail was sought from VicForests."

An alternative report by Deloitte Access Economics, commissioned by VicForests, concluded the native timber industry in the Central Highlands added $357 million to the state economy in 2013-14, and resulted in the equivalent of 2117 full-time jobs, including 281 employed directly by VicForests.

Behind the scenes, the issue has caused major divisions on both sides of politics. Those opposed question the wisdom of supporting an industry that many claim is imposing significant hidden costs on the state's water supply, regional tourism and agriculture. But others, including the CFMEU, have spruiked the native logging industry as crucial for jobs, particularly at businesses like Australian Paper, which is one of the largest employers in the Latrobe Valley.

A senior Liberal said it was becoming increasingly clear that the high level of government support provided to native forestry was "totally irrational" from a financial point of view. "The private sector wouldn't touch this with a 10-foot pole. Why are we investing taxpayers' money when there is a perfectly good alternative in private sector plantation timber."

Labor has spent weeks debating the idea of creating the national park as part of its policy review process before the November 2014 state election. The idea was thought to be a vote winner in marginals such as Monbulk and Eltham and more broadly an antidote to the Greens in the inner city. 

But it eventually shelved the idea after an intervention by the CFMEU, instead setting up a taskforce of environment groups, the industry and the union in an attempt to reach a consensus.

The idea of a creating a Great Forest National Park stretching from Kinglake to Mt Baw Baw and north-east up to Eildon was given added prominence just weeks before the 2014 state election after being strongly backed by naturalist and wildlife documentary maker Sir David Attenborough to protect the endangered Leadbeater possum.

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