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PRIORITY 1: A productive, competitive and sustainable timber industry

Download the PDF version of this document: Timber Industry Strategy public consultation draft - Priority 1: Facilitate productive, competitive and sustainable timber industries 

A productive, competitive and sustainable timber industry maximises economic value from timber production and processing, and ensures regional Victorian businesses, communities and families share in the benefits of a strong economy.

The Victorian Government will provide the policy framework to ensure an ongoing and environmentally sustainable supply of logs. This will encourage industry to invest in technology and processes to improve productivity and competitiveness. This will also support communities that make a living from sustainable timber production, and the ongoing production of forest products for all Victorians.

We are only beginning to understand some of the potential impacts of climate change on our forests. The timber industry must be prepared for the impacts of climate change. The Victorian Government will assist the timber industry to anticipate and manage the impacts of climate change.

Action 1

Provide greater certainty of access to public native forest timber resources

1.1 We will continue to maintain and enhance Victoria’s world-class sustainable forest management framework so that it meets the highest possible environmental standards.

1.2 We will clearly and transparently identify and map the areas of State forest in eastern Victoria available for timber production. These areas will be designated as Working Forest Areas.

1.3. We will develop 40-year Working Forest Plans that clearly define how Working Forest Areas will be managed.

1.4 We will enable VicForests to maximise the long-term economic returns to Victoria from the harvesting of timber in Working Forest Areas in a socially and environmentally sustainable manner.

1.5 We will provide VicForests with a secure basis to harvest and sell timber for periods of up to 20 years at auction, to allow industry to realise a competitive return on investments, support capital upgrades, and drive innovation.

1.6 We will strengthen industry confidence by ensuring that changes in Victorian Government policy that affect timber supply are not unduly afforded force majeure status.

Action 2

Improve estimation and communication of sustainable harvest levels from public native forests

2.1 VicForests will implement improvements to the methodology used to estimate sustainable harvest levels from public native forests in eastern Victoria, and hold annual ‘Resource Outlook’ briefings.

2.2 Each year, VicForests will provide industry with details on the amount, type and location of timber that is to be available for sale in the coming years.

Action 3

Improve the sales system for native hardwood logs from public native forests

3.1 We will continuously improve the VicForests Price Allocation Model.

3.2 We will seek national consistency in the adoption of market-based mechanisms for log sales, governance and cost recovery for timber from public native forests.

Action 4

Sustainably develop timber plantations

4.1 We will continue to recognise timber plantations as an ‘as of right’ crop-raising activity in the farming and rural activity zones.

4.2 We will support training development to assist local government to monitor compliance with the Code of Practice for Timber Production on private land.

4.3 We will seek a national approach to market-based log sales, governance and cost recovery for timber plantations.

4.4 We will offer broad support for Australian Government taxation arrangements that support the comparative neutrality of timber plantations irrespective of rotation length.

Action 5

Assist the timber industry to adapt to climate change

5.1 We will implement agreed outcomes arising from Action 2.20 of Securing Our Water Future Together regarding the impact of land-use change, including timber plantations, on the water resource (quality and yield).

5.2 We will implement agreed outcomes arising from Action 2.21 of Securing Our Water Future Together regarding timber harvesting in Melbourne’s water catchments.

5.3 We will respond to major biophysical risks posed by climate change by improving forest management practices for public native forests, and prioritising research and development that aids climate change adaptation in the plantation sector.

5.4 We will continue to implement fire prevention strategies, and review these strategies in light of the outcomes of the Royal Commission into the 2009 bushfires.

Action 1: Provide greater certainty of access to public native forest timber resources

Victoria’s public native forests, including national parks and State forests, are managed to meet the current and future needs of all Victorians.

These needs are diverse and include the conservation of biodiversity and ecosystem services, sustainable timber production, clean water, carbon sequestration, recreation, education and scientific research.

Of Victoria’s 6.7 million hectares of public native forest, there are 3.2 million hectares of State forest that are managed for a range of values, including timber production, water supply, conservation, cultural heritage and recreation. The other 3.5 million hectares are formally reserved within extensive national parks and conservation reserves for conservation, cultural heritage and recreation.

Fig 1. Victoria’s forest resource by area

Management of Victoria’s State forests occurs through a flexible system of forest management zoning. Forest areas are designated as Special Protection Zone, Special Management Zone or General Management Zone. Timber harvesting is permitted in areas designated as General Management Zone and in Special Management Zone under certain conditions.

The local economies of many regional communities in eastern Victoria depend on timber harvesting in Victoria’s State forests. The level of timber production from Victoria’s public native forests is less than half what it was 10 years ago. Reductions in the area available for native timber harvesting have created industry uncertainty about the availability of timber resources to support businesses.

After a range of upgrades to national parks and conservation reserves since Our Forests Our Future in 2002, the Victorian Government has finalised the national parks agenda in eastern Victoria now that the new reserves have been created in East Gippsland in line with the Victorian Government’s 2006 election commitment. The size of the ‘harvestable’ area in this region will be maintained to provide security to industry and reliant communities over future timber supply.

Increasing competitiveness requires industry investment in technology, innovation and development of new product markets. Industry participants have indicated they are eager to make important investments, providing they have access to timber for sufficient time to realise a competitive return.

The Sustainable Forests (Timber) Act 2004 provides an important part of the framework for sustainable forest management in Victoria. It includes the requirement for a Sustainability Charter for State forests. This charter defines objectives for sustainable forest management and sets out criteria for assessing the performance of VicForests, the government’s commercial forestry business. The charter forms part of the comprehensive governance framework that recognises all social, environmental and economic forest values and uses.

In addition to the Sustainability Charter, robust protection is provided for all native forest uses and values through enforceable legislation such as the Flora and Fauna Guarantee Act 1988, the Forests Act 1958, the Conservation, Forest and Lands Act 1987, and other legislative instruments such as the Code of Practice for Timber Production 2007.

The Victorian Government is committed to maximising economic value to Victoria from the production and processing of timber within a world-class sustainable forest management framework. This framework balances a variety of uses and values of Victoria’s forests, including sustainable timber and water production, biodiversity conservation, recreation, tourism and carbon sequestration.

VicForests works with the timber industry to find high value uses for residual logs, and has a long-term contract to provide pulp logs to Australian Paper’s Maryvale mill.

This strategy will not change the existing framework for sustainable forest management in Victoria. Nevertheless, within this framework, there is scope to further improve legislative and other regulatory settings. These improvements will provide VicForests and industry participants with greater certainty about the areas of timber resource that are available for harvest into the future, and the approximate time period over which this will occur.

Enough time has passed since Our Forests Our Future to consider how effectively we are achieving one of the significant aims of that policy statement: achieving greater separation between government’s policy, regulatory, and land management functions, recognising that forests are used for commercial and non-commercial purposes.

The closely linked elements of Victoria’s commercial public native timber resource framework promote commercial outcomes for VicForests and the native hardwood industry. They also ensure timber harvesting in State forests continues to provide jobs and income for local economies, communities and families within a robust, sustainable forest management framework.

Through defined and secure harvestable areas, these actions address resource availability at the first stage of production to provide benefits along the value chain for harvest and haulage operators, initial processing, and further manufacturing, such as Victoria’s furniture industry.

Working Forest Area: The area of State forest in eastern Victoria available and potentially suitable for ongoing timber production.

Fig.2 Victoria’s commercial public native timber resource framework

Working Forest Plans: Agreements between the Secretary to the Department of Sustainability and Environment and VicForests, about how to manage Working Forest Areas to maximise long-term social and economic value.

Allocation Order: The first three periods (five years each) of the Working Forest Plan, identifying the amount of each forest stand in the Working Forest Area that is available and suitable for commercial harvest by VicForests over that period.

Timber Release Plan: A five-year plan that is consistent with the Allocation Order. It identifies the location and timing of harvesting operations in the Working Forest Area to meet obligations in Timber Sales Agreements.

Timber Sales Agreement: A contract offered by VicForests at auction to supply timber resources from the Working Forest Area. Change in Victorian Government policy will not be unduly afforded force majeure status in Timber Sales Agreements.

What the Victorian Government will do

1.1 We will continue to maintain and enhance Victoria’s world-class sustainable forest management framework so that it meets the highest possible environmental standards.

The Victorian Government manages State forests in the public interest. This occurs through a world-class sustainable forest management framework that balances a variety of uses and values of Victoria’s forests, including sustainable timber and water production, biodiversity conservation, recreation, tourism and carbon sequestration.

The Department of Sustainability and Environment (DSE) will ensure that this framework remains world-class and that timber industry operations comply with standards established as part of Victoria’s policy and legislative framework.

To achieve these outcomes DSE will:

• review the Sustainability Charter for Victoria’s State Forests every five years to ensure it reflects new issues, developments and opportunities for the management of Victoria’s State forests
• ensure key regulatory instruments such as the Code of Practice for Timber Production are contemporary and complied with consistently
• monitor and report on the status of Victoria’s State forest estate in the five-yearly Victoria’s State of the Forests report
• consider options for streamlining the legislative basis for State forests
• maintain responsibility for Victoria’s five regional forest agreements, including their review
• prepare the Allocation Order and Working Forest Areas
• prepare 40-year Working Forest Plans with VicForests.

1.2 We will clearly and transparently identify and map the areas of State forest in eastern Victoria available for timber production. These areas will be designated Working Forest Areas.

In eastern Victoria, approximately 730,000 hectares of State forest are available and potentially suitable for timber production. These areas will be designated as Working Forest Areas, and will include the merchantable and potentially merchantable areas of the General Management Zone and Special Management Zone. Working Forest Areas will integrate with other existing forest management zones such as the Special Protection Zone, the Code of Practice for Timber Production exclusions and other environmental protection measures.

A map identifying the Working Forest Areas will be included in the Allocation Order for eastern Victoria, prepared by the Department of Sustainability and Environment and approved by the Minister for Environment and Climate Change in accordance with the Sustainable Forests (Timber) Act 2004.

Clearly identifying the areas of State forest available for ongoing timber production will assist the government to streamline and strengthen its operational, regulatory and policy arrangements for the management of public native forest. Changes to these arrangements are outlined below and in Action 9.

1.3 We will develop 40-year Working Forest Plans that clearly define how Working Forest Areas will be managed.

The management arrangements for Working Forest Areas will be determined through legislatively supported 40-year Working Forest Plans. Working Forest Plans will be agreed between the Secretary to the Department of Sustainability and Environment (DSE) and VicForests. The Minister for Environment and Climate Change and the minister responsible for VicForests will approve Working Forest Plans.

Working Forest Plans will describe how Working Forest Areas will be managed to maximise long-term social and economic value in accordance with the sustainable forest management framework.

Working Forest Plans will be reviewed as required and varied only by ministerial agreement. Unless otherwise agreed, reviews will focus on implementation and whether Working Forest Plans are delivering on their intent.

Working Forest Plans will provide greater certainty about future access to timber resources from State forests. VicForests will have an agreed right to sustainably harvest timber resources from Working Forest Areas, in accordance with the approved Allocation Order and Timber Release Plans, over a 40 year period.

Working Forest Plans will clarify the roles of DSE and VicForests and provide greater resource security. For example, they will:

• confirm DSE as the land manager, responsible for allocating State forest areas to VicForests for sustainable timber production; and the regulator of commercial forestry activities in Working Forest Areas
• confirm VicForests as responsible for identifying harvesting units, or coupes, in Working Forest Areas; determining the volume of timber that can be sustainably harvested from Working Forest Areas in accordance with the sustainable forest management framework; and harvesting and sale of all commercial timber resources in eastern Victoria
• deliver sufficient certainty for VicForests to enter into commercial contracts of up to 20 years for wood supply (linked to Action 1.6)
• recognise that Working Forest Areas are available for long-term timber production and the provision of other values
• provide a basis for the development of the Allocation Order made under the Sustainable Forests (Timber) Act 2004
• provide an estimate of the expected output of log types which VicForests will be able to generate from Working Forest Areas
• identify actions and responsibilities for managing the risk associated with bushfires and planned burns and their impact on management activities, timber quality and short and long-term supply
• identify the type and broad timing of forest stand management activities VicForests will undertake in Working Forest Areas to maximise economic returns to the state and deliver sustainable forest management, in accordance with its commercial charter and Victoria’s sustainable forest management framework respectively
• identify the corresponding land management activities DSE will undertake in Working Forest Areas consistent with Victoria’s sustainable forest management framework
• identify any associated or agreed additional management services that DSE will engage VicForests to perform.

Working Forest Plans will be an important addition to Victoria’s world-class sustainable forest management framework, providing the timber industry and communities with greater certainty of the resource base to underpin investment in innovation and value-adding.

1.4 We will enable VicForests to maximise the long-term economic returns to Victoria from the harvesting of timber in Working Forest Areas in a socially and environmentally sustainable manner.

The responsibility of VicForests for the sustainable harvesting of timber from Working Forest Areas will include the following activities:

• tending forest stands to produce high value timber resources in line with Victoria’s sustainable forest management framework (allowing VicForests to realise a return on its investment in the form of an increased sustainable harvest level)
• extracting and selling timber resources (including thinnings) on a commercial basis
• regenerating and rehabilitating harvested areas, prior to returning these to the Department of Sustainability and Environment for long-term stewardship and management until the next harvesting date.

Designating Working Forest Areas within state forest clearly defines where the government’s commercial forest management objectives apply. To maximise economic value from timber production, while also maintaining appropriate separation between the government’s commercial and regulatory functions in eastern Victoria, 40-year Working Forest Plans will recognise VicForests’ long-term economic interest in commercial timber resources in the Working Forest Area. VicForests will have the ability and incentive to invest in forest productivity improvements in the short-term, such as thinning, with the security of realising commercial and other benefits of such investments in the long-term.

To achieve this, and to encourage industry investment in innovation and value-adding, it will be important for VicForests to have a strong customer and stakeholder focus.

As outlined in Action 1.5, increased certainty of access to timber resources by VicForests will transfer to customers in the form of more secure and bankable timber sales agreements.

1.5 We will provide VicForests with a secure basis to harvest and sell timber for periods of up to 20 years at auction to allow industry to realise a competitive return on investments, support capital upgrades, and drive innovation.

The native hardwood industry has called for longer access to timber resources to realise a competitive return on investments, allow capital upgrades and drive innovation. To allow this to occur, the Allocation Order and 40-year Working Forest Plans will provide VicForests with the scope to increase the period of its industry timber sales agreements, offered at auction, to up to 20 years.

This will increase industry confidence in future log supply and drive long-term investments in processing infrastructure, value-adding, product and market development, and staff training. It will also increase the confidence of timber families and communities about the long-term future of this important industry.

VicForests will still be required to manage its ongoing timber sales in line with prudent commercial practice and appropriate risk management. VicForests will continue to offer a variety of resource supply tenures to its customers reflecting the risk profile of its timber supply and the nature and scale of industry investments.

These improvements seek to stimulate new investment, recognising that new entrants or existing players who wish to make substantial investments will have longer payback periods than mills securing supply to meet installed capacity.

1.6 We will strengthen industry confidence by ensuring that changes in Victorian Government policy that affect timber supply are not unduly afforded force majeure status.

VicForests’ timber supply contracts currently include a force majeure event clause that covers any event or occurrence that is beyond the control of the party affected by it and that is not directly or indirectly caused or contributed to by that party. In the past, the native hardwood industry has raised concerns that VicForests could claim changes in Victorian Government policy that affect timber supply, as force majeure events.

The Victorian Government is keen to maintain a balance between providing long-term certainty to the timber industry and ensuring that events that are outside VicForests’ control do not compromise its commercial independence and viability.

In the event that any changes in Victorian Government policy relating to native forests restrict or limit the supply or availability of timber resources, VicForests will use its best endeavours to comply with its contractual obligations on equivalent commercial terms. VicForests will only avail itself of the force majeure provision as a last resort.

Where changes in Victorian Government policy relating to native forests prevent VicForests from complying with its contractual obligations in respect to the supply of timber resources, the state will indemnify VicForests against any claims arising from its failure to comply with those obligations.

Actions 1.1 to 1.6 provide VicForests and its customers with more secure access to public native forest timber, and allow VicForests to make key business and investment decisions with greater confidence. While force majeure clauses are normal commercial practice, they are not intended here to shield the government from the consequences of its own actions.

Action 2: Improve estimation and communication of sustainable harvest levels from public native forests

Maintaining a reliable supply of logs of known quality allows industry to plan investments, retain workers and build markets with confidence and security.

Harvest forecasts determine the volume of timber that industry can access. Forecasting sustainable harvest levels is a highly complex process based on a range of information and assumptions. It is important to use the best resource information and modelling methodology. Forecasts also need to take into account changes to the timber industry’s operating environment.

The confidence of the native forest timber industry is directly related to future resource availability. The following changes aim to inspire business confidence and maximise the economic potential of sustainably harvesting Victoria’s Working Forest Areas.

What the Victorian Government will do

2.1 VicForests will implement improvements to the methodology used to estimate sustainable harvest levels from public native forests in eastern Victoria, and hold annual ‘Resource Outlook’ briefings.

As previously outlined in Actions 1.2 and 1.3, the Department of Sustainability and Environment (DSE) determines the gross area of State forest in eastern Victoria allocated to VicForests for harvesting and selling timber resources (Working Forest Areas).

VicForests will become solely responsible for calculating the volume of timber that can be harvested sustainably from the Working Forest Areas. VicForests will also determine the location and timing of timber harvesting operations.

In estimating sustainable harvest levels, VicForests must comply with the sustainable forest management framework to ensure that the variety of uses and values of the State forest are maintained and enhanced, and the long-term productivity of these areas is preserved.

As the regulator, DSE monitors and enforces compliance with these requirements. DSE will reconcile the gross area of the coupes harvested by VicForests with the area allocated to it.

In 2008, DSE and VicForests undertook the Joint Sustainable Harvest Level (JoSHL) project to review the modelling approach for timber resource allocation. This project estimated that an average of 500,000 cubic metres of sawlog could be harvested in eastern Victoria each year for the next 15 years without compromising future sustainability.

VicForests will be required to refine this estimate following the fires that occurred in February and March 2009, which burnt approximately 56,000 hectares of State forest available and suitable for timber production. Of this, around 13,850 hectares of highly productive Ash forest was severely affected.

The JoSHL project demonstrated that a more flexible approach to estimating sustainable harvest levels - one that better reflects the timber industry’s operating environment - can be applied, while still maintaining all sustainability objectives. The findings of the JoSHL project informed the 2009 amendment to the Allocation Order.

As better information becomes available and the operating environment of the timber industry changes due to market forces and other factors, the methodology used to forecast long-term sustainable harvest levels must reflect these changes to continuously improve estimation accuracy.

• VicForests will determine future sustainable harvest levels in an open and transparent manner that reflects best-practice.
• In particular, the estimation process will take into account bushfire risks by incorporating methods to account for impacts on both quantity and quality of timber yields.
• DSE audits will ensure VicForests’ estimation process complies with the framework for sustainable forest management.

VicForests will also conduct an annual ‘Resource Outlook’ briefing for industry, government and community stakeholders, which will provide a forecast of resource availability by type and region for the next 20 years. This will build industry confidence for increased long-term investment.

The first ‘Resource Outlook’ briefing will occur after VicForests has refined its estimate of sustainable harvest levels following the 2009 bushfires.

2.2 Each year, VicForests will provide industry with details on the amount, type and location of timber that is to be available for sale in the coming years.

As a commercial enterprise, one of VicForests’ core values is to be responsive to customer requirements and needs.

In response to stakeholder feedback, we will work with the VicForests Board to ensure clear understanding of the future resource availability offered through the VicForests auction process.

Each year VicForests will release information showing indicative log releases over time. This information will include probable auction profiles for the coming year (e.g. log volumes by grade, species and general location), medium-term resource outlook issues, and implications for the timing and resource availability for future auctions.

Action 3: Improve the sales system for native hardwood logs from public native forests

The Victorian Government’s priority for an open, transparent and market-based system for the pricing and allocation of logs from public native forests resulted in the VicForests Price Allocation Model.

The VicForests Price Allocation Model is designed to:

• allocate timber efficiently by distributing it to the highest bidder
• ensure that public native forest resources are appropriately valued
• increase industry participation and ability to evaluate prices
• remove barriers to entry
• provide an open, equitable and transparent bidding process
• remove price distortions created under the previous administrative allocation arrangements.

The VicForests Price Allocation Model has led to market pricing of public native sawlogs, with an average price increase approximately 30 per cent above previous administered price levels. The model also attracts a wide range of bidders. Processors who have invested in value-adding equipment to target sawn timber markets with the highest end value are able to purchase the highest quality timber. It has also allowed a number of processors to expand in response to access to additional timber supplies.

The provisions outlined in Action 1 of this strategy strengthen the function of the model, as existing or new businesses will have access to longer-term supply contracts. This improves investor confidence at auction and encourages capital investment, while realising market prices for sawlogs.

While the model has achieved transparent market prices for Victoria’s public native forest sawlogs, Victoria is the only Australian state to fully adopt competitive allocation and pricing of sawlogs. Victoria’s market-based sales system supports a more efficient industry better equipped to compete in the international sawn timber market.

Sawlog sales systems that are not market-based can protect inefficient producers and reduce the competitiveness of Victoria’s hardwood sawmilling sector. If adopted nationally, market-based sales systems will lead to greater efficiencies. We will continue to seek national consistency in market-based log sales from public native forests.

In implementing the VicForests Price Allocation Model, the government acknowledges that VicForests continues to deliver on other important policy objectives, including key social and environmental outcomes. For this reason, the Order in Council that establishes VicForests as a State-business corporation, under the State Owned Enterprises Act 1992, states that VicForests must operate within a framework that is consistent with government policy settings.

Through actions identified in the Timber Industry Strategy, including those relating to the VicForests Price Allocation Model, the government strengthens VicForests’ role in sustainably and profitably managing public native forests for a range of uses and values.

What the Victorian Government will do

3.1 We will continuously improve the VicForests Price Allocation Model.

The Victorian Government has determined that market mechanisms, such as the VicForests Price Allocation Model, are the most appropriate way to ensure open and competitive sales to maximise the value of harvested timber. We will continue to sell sawlogs from Victoria’s Working Forest Areas via the model for the foreseeable future.

Refinement of the model will focus on efficient allocation as the primary objective.

Supplementary model objectives include:

• maximising revenue
• achieving efficient investment levels in the industry
• mitigating bidders’ market power and their ability to collude
• minimising participation costs
• increasing transparency and equity

Constraints on the model will be made more explicit, including the fact that decisions about the total amount and location of timber to be harvested, and the quantities of timber to be auctioned are not made solely within the parameters of the VicForests Price Allocation Model.

VicForests will also continue to apply the following practices:

• continuous improvement to the auction design, including a number of more detailed elements relating to the VicForests Price Allocation Model
• releasing the auction catalogue well in advance of the auction event (currently at least eight weeks prior)
• non-disclosure of idder identity
• domestic processing of logs until 2015 (application thereafter to be subject to review)
• timber purchasers’ compliance with Victoria’s occupational health and safety policies and laws.

We will continue to offer timber resources through a range of competitive processes

While the Price Allocation Model is the key instrument in efficiently allocating sawlogs, VicForests can use other competitive processes for lower grade timber. These include competitive requests for tender and proposals that are consistent with Victoria’s sustainable forest management framework.

For example, in 2010 VicForests will conduct a request for proposal for up to 500,000m3 of lower grade hardwood logs that are a genuine by-product of sustainable sawlog harvesting. This resource, some of which otherwise may have been burnt at the harvest site or left to waste, could be used in alternative markets, such as bioenergy or biofuels, consistent with Action 7.3 of this strategy.

Further improvements to the mechanisms used by VicForests to offer logs for sale (including the Price Allocation Model) may be made during the life of this strategy. The nature and timing of any improvements will take into account the government’s sustainability, economic efficiency and competitiveness objectives.

3.2 We will seek national consistency in the adoption of market-based mechanisms for log sales, governance and cost recovery for timber from public native forests.

Victoria is the only state that has moved completely to a market-based approach for selling its public native hardwood logs. Administered or negotiated supply agreements used in some other states generally seek to replicate the market to derive processor capacity or willingness to pay.

The most accurate and efficient way to determine true market prices is to use the market itself. Allocation efficiency is maximised because the buyer that puts the logs to the most productive use will have the capacity to outbid others.

The Victorian Government will actively encourage other states (and the Australian Government) to increase market-based price discovery in their pricing of logs from public forests and end administered pricing. This will ensure that Victorian producers are not disadvantaged in the short-term through competing with businesses provided with logs at comparatively low administered prices. This will also ensure a more internationally competitive industry in the longer term.

Action 4: Sustainably develop timber plantations

Victoria has a large, dynamic and competitive plantation timber industry. At around 452,000 hectares, Victoria has the largest plantation estate in Australia. Of this area, around 51 per cent is hardwood and 49 per cent is softwood.

The vast majority of hardwood timber plantations are short-rotation plantations established for pulp production in the last 15 years, often under managed investment schemes.

Managed investment schemes are complex instruments that require a sound understanding of the product market and prudent governance and administration. The rules, regulation and governance of companies offering managed investment schemes, and the associated tax implications for investors, are the responsibility of the Australian Government.

While managed investment scheme plantations draw significantly on funds from outside the region, they inject capital at the local level to generate employment and economic value that can revitalise regional communities. As harvesting of these plantations increases over the coming years, the benefits to local communities through increased employment and infrastructure should continue to increase.

Historically, the bulk of Victoria’s (and Australia’s) timber supply needs have been met from public native forests. This proportion has been gradually declining as production from timber plantations expands and the community’s desire to achieve environmental sustainability for the future has led to further removal of public native forest from timber production.

Victoria sources approximately 60 per cent of its current sawlog production from predominantly softwood timber plantations on private land and land under long-term lease from the state. Victoria also uses significant quantities of imported timber and wood-based products. As demand for these products increases, it is important that Victorian produced timber remains competitive compared to imported product.

Traditionally, establishment of long-rotation hardwood sawlog timber plantations has been limited in Victoria. This is largely a consequence of the ready availability and superior timber quality of hardwood sawlogs from public native forests and the difficulties in growing suitable hardwood trees in timber plantations.

Establishment of long-rotation, softwood, sawlog timber plantations has been more successful. Plantation softwood sawlog production now exceeds sawlog production from public native hardwood forests. However, large processing facilities in Victoria that rely on plantation grown softwood logs have identified that there may be a future shortfall of these logs due to declining planting rates in recent years. This decline in planting is due to a range of economic and social factors. Many people in the plantation processing sector see this as limiting economies of scale required to maintain competitiveness within the softwood processing sector.

Given the rapidly changing physical and economic climate around the globe, the Victorian Government will ensure that policy and other settings for the timber industry are appropriate and effective to maintain and improve competitiveness at an international scale.

Achieving diversity in Victoria’s timber supply is an important risk management strategy. This diversity enables the Victorian timber industry to generate products that can compete with imports and timber substitutes. In addition, the risks and consequences of climate change on future timber availability demands a flexible approach to timber supply. This requires the market being able to source timber from public native forests, privately-owned native forests and timber plantations.

Australia’s trade deficit in forest products was $2.2 billion in 2008-09. Maintaining domestic timber processing capacity is critical to reducing this deficit. In 2008-09, 64 per cent of Australia’s forest product imports were paper and paper board (relatively high value) and 43 per cent of Australia’s forest product exports were woodchips (relatively low value). Most of the hardwood pulp resource in Victoria’s south-west is for export. There is an opportunity through value-adding to generate higher returns from this resource before export.

There are many competing land-uses in Victoria. The government’s aim through the Timber Industry Strategy is not to ‘pick winners’ for the use of that land, but to remove barriers to sustainable investment and to ensure that Victorian timber plantations are treated as a legitimate, ‘as of right’, land-use. The following actions assist the timber industry to compete on equal terms for land and other resources, and allow the market to determine the most efficient scale of production.

The government also recognises that Victoria’s farm forestry sector has the potential to expand and provide commercial returns for a range of values. Gaining community acceptance and understanding of farm forestry as a valuable farming activity is important in realising this potential. Together with the actions below, action 13.2 of this strategy outlines the government’s support for this sector through developing a farm forestry plan in close consultation with industry and the community.

What the Victorian Government will do

4.1 We will continue to recognise timber plantations as an ‘as of right’ crop-raising activity in the farming and rural activity zones.

The 2005 Victorian Competition and Efficiency Commission inquiry into regulatory barriers to regional economic development identified numerous timber plantation stakeholder concerns.

These concerns relate to:

• the complexity of the regulatory framework, such as for native vegetation, planning and environmental regulation
• the cost, complexity and delays of the planning approvals process for new plantation developments
• unclear, inconsistent and slow decision-making processes in many areas, which increases the cost of regulation without improving industry standards.

The commission agreed that complexity, delays and inconsistency meant the planning processes currently applied by local government are imposing costs on the plantation sector.

The Victorian Government has reviewed the commission’s findings in consultation with key stakeholders. The government considers the planning system remains the appropriate legal mechanism for regulating timber production on private land. However, the government recognises that improvements can be made to the Victoria Planning Provisions. Such improvements would clarify timber plantations as a legitimate use of land in Victoria’s key agricultural zones.

Timber plantations are just one of the many legitimate activities that compete for land-use in Victoria. Subject to sustainability requirements, rural landowners are best placed to determine the most valuable agricultural use of their land. This approach aligns with the Victorian Government’s Future Farming strategy.

Timber plantation operations that comply with the Code of Practice for Timber Production 2007 should be able to be established without a planning permit in the Farming and Rural Activity Zones (clauses 35.07 and 35.08 of the Victoria Planning Provisions), consistent with other crop types. The code is a key regulatory instrument for commercial timber production in Victoria, and compliance is required under the Victoria Planning Provisions. No other broad-scale agricultural activity operates under a legislated code.

The code articulates legal requirements for plantation establishment concerning strategic firebreaks; minimum setbacks from power lines, dwellings and residential, business or industrial zones; roading; and various environmental conditions, including protection of water and soil. As an incorporated document in all planning schemes, the code is the Victorian Government’s principal science-based framework for ensuring the environmental performance of timber production.

As such, we will make the following amendments to the Victoria Planning Provisions, including the State Planning Policy Framework:

• We will amend clauses 35.07 and 35.08 of the Victoria Planning Provisions and any zone schedules in local planning schemes to remove the ability for planning authorities to require a planning permit to use and develop land for timber production in the Farming and Rural Activity Zones (e.g. for plantations greater than 40 hectares). This will achieve equitable regulatory arrangements consistent with other ‘as of right’ crops in these zones and recognises the code’s role in addressing environmental sustainability requirements.
• We will amend the Victoria Planning Provisions to ensure that ‘ploughing, ripping and mounding works associated with establishing a timber production plantation’ are exempt from the permit requirements of overlays. As the code establishes the environmental standard for timber plantations, permit requirements triggered by overlays for works in preparation for tree planting will, in most circumstances, no longer be necessary. We will continually monitor the requirements of relevant overlays to ensure no duplication or conflict.
• We will update the existing Victoria Planning Provision Practice Note for ‘Timber Production in the Rural Zone’, as necessary, to provide further statutory and strategic advice.
• As the code establishes the environmental standard for timber plantations, we will review the planning permit decision guidelines at clause 52.18-4 to ensure no duplication or conflict.
• We will amend the State Planning Policy Framework of the Victoria Planning Provisions (in particular clauses 17.07-1 and 17.07-2) to clarify current policy settings and remove ambiguity and duplication. Recent government policies relevant to agriculture and land-use will form the basis for providing this clarity e.g. the Future Farming strategy, the Moving Forward statement and this new Timber Industry Strategy.
• We will amend clause 66.02-7 of the Victoria Planning Provisions, to remove the mandatory requirement to refer all permit applications for timber plantations to the Secretary of the Department of Sustainability and Environment. Other existing parts of the Victoria Planning Provisions are adequate to determine when a referral may be required.

These changes confirm that timber plantations are an ‘as of right’ crop in Victoria’s key agricultural zones.

4.2 We will support training development to assist local government to monitor compliance with the Code of Practice for Timber Production on private land.

The Victorian Government seeks neutral application of the code on both public and private land and streamlined audit arrangements.

While local government is responsible for ensuring industry compliance with the code, this requires specialised skill and understanding of timber industry operations to make informed assessments. Local government has not necessarily been well equipped to do this in the past, resulting in inconsistent application of the code across different municipalities.

To assist the consistent application of the code, the government, through Skills Victoria, will work with Registered Training Organisations to facilitate training courses. Any such courses will train and accredit people to assess code compliance on private land in Victoria.

This will allow forest companies, local government and individuals to access demand driven training, recognised by the Department of Sustainability and Environment as appropriate for assessing compliance with the code.

Such training, would allow environment and forestry professionals to provide code implementation services to industry.

ForestWorks will be consulted in developing course material and identifying potential training organisations.

Actions 4.1 and 4.2 aim to place timber plantations on an equal footing with other agricultural land uses. They will assist the industry to develop and respond competitively to market signals.

4.3 We will seek a national approach to market-based log sales, governance and cost recovery for timber plantations.

The commercial competitiveness of softwood plantation development in Victoria is challenged by the domestic market around Australia. This national market does not provide a level playing field. While Victoria’s softwood timber plantations are owned privately, ownership and management arrangements in other states include:

• joint government–private ownership with a contracted third-party manager
• corporatised or commercialised government-owned entity
• government agency operating under a state government department.

Victoria’s private softwood plantation owners are driven by commercial objectives alone and aim to maximise returns to investors or shareholders. On the other hand, government entities are often influenced by non-commercial drivers and are not focused on competitive outcomes. This can insulate customers from market signals that traditionally serve to allocate timber to the highest-value use.

Public ownership of softwood timber plantations in other states may affect the level of private investment in Victoria by depressing returns for the entire sector. While there has been an increase in the volume of resources sold through competitive sale processes, softwood plantation log pricing is generally determined through non-competitive sale processes, including negotiations based on estimations of resource value and processor capacity to pay.

In the Australian market, where there are relatively few log buyers, the competitiveness of Victorian timber plantations may be constrained by the need to match the price of logs available from government-owned timber plantations.

Through national processes, such as updating Australia’s national forest policy objectives, Victoria will actively encourage other jurisdictions to correct the market distortions created by this situation, and seek a national approach to market-based log sales, governance and cost recovery for timber plantations.

We will help create a more level playing field for Victoria’s timber plantation sector to compete nationally and improve the long-term viability and international competitiveness of Australia’s timber industry.

4.4 We will offer broad support for Australian Government taxation arrangements that support the comparative neutrality of timber plantations irrespective of rotation length.

Recent Australian Government taxation arrangements encouraging third-party investment in the forestry sector have seen large areas of private plantation forest established in Victoria. Much of this investment is focused on the production of short-rotation hardwood pulpwood.

In response to limited long-rotation hardwood plantation establishment, the Australian Government made further amendments to tax laws to encourage long-rotation forestry plantations.

Given that taxation arrangements have been instrumental in supporting plantation forestry investment, we will support Australian Government policy settings aimed to encourage long-rotation timber plantation investments.

Action 5: Assist the timber industry to adapt to climate change

We are beginning to understand some of the potential impacts of climate change on the physiology of forests, especially for Victoria’s native tree species. The Victorian Government will help Victoria’s timber industry prepare for climate change impacts.

Sustainable management of our forest resources and the future of towns and communities that rely on them depend on our understanding of possible climate change effects on native and plantation forest estates, including future carbon storage capacity.

Water availability

The Our Water Our Future action plan set out regional water strategies to deliver long-term water security across Victoria. Each sustainable water strategy sets out a long-term regional plan to secure water for local growth, while maintaining the balance of the area’s water system and safeguarding the future of rivers and other natural water sources. These plans consider the forest industry as an important economic resource in many parts of regional Victoria.

Climate change is likely to lead to declining water availability and higher average temperatures. This may affect the productivity of both native forests and timber plantations and the viability of tree species traditionally utilised.

Concerns about water availability during times of drought have fuelled community interest in the impact of forestry on run-off from water catchments. Particular interest centres on timber harvesting in Melbourne’s water catchments and the impact of new timber plantations on water quality and yield.

Research into these complex issues is being carried out in line with the Victorian Government’s 2004 Water White Paper, Our Water Our Future, which aims to improve water management across all industries and areas of Victoria.

Fire

More frequent climatic extremes, combined with declining water availability and drier weather conditions, are likely to lead to greater frequency and intensity of bushfires. This poses a significant threat to Victoria’s native forest and timber plantation estates. Threats include increases in the cost of fire control and hazard-reduction activity, and risk of timber resource loss.

With the possibility of more frequent and intense bushfire events, the vital role that Victoria’s timber industry plays in assisting the Country Fire Authority and government in fire control must be acknowledged. The industry also plays an important role in helping to protect rural communities. Without the input of personnel and equipment from the public native and plantation timber industries, losses from recent fires could have been significantly greater.

The native timber industry provides equipment and personnel to fight fires as a condition for operating in State forests under long-standing arrangements with government agencies. Industry also:

• builds roads that provide access for fire-fighting vehicles
• provides fire management experience for government personnel through post-harvest prescribed burning
• provides variations in fuel load through forest thinning which may be part of the overall fire-suppression effort.

Timber plantation growers provide their own staffing and fire equipment as forest industry brigades registered by the Country Fire Authority. While forest industry brigades are only required to service the companies’ plantation assets for bushfire response and fire management planning, they can also operate outside their designated area. In emergencies, many forest industry brigades assist in fighting fires well removed from their area of interest in national parks and State forests, and to protect private and community assets.

Biosecurity

Knowledge is still relatively limited regarding the specific relationship between climate change and potential forest pests and diseases in Australia. Research in this area suggests that climate change is likely to present increased biosecurity risks for Victoria’s native forests and timber plantations. For example, generally warmer temperatures and increased frequency of extreme wet and dry periods could serve to extend the season and geographic distribution of forest pests and pathogens.

Trees placed under increased stress due to declining water availability and a warmer and drier climate are likely to be less resilient to attack from pests and pathogens. Action 8 provides detail on how we will deal with biosecurity issues to maintain market access.

Declining water availability, fire and biosecurity risks all present challenges to the timber industry and require long-term planning and detailed consideration of the potential effects of climate change. An industry that operates on rotation lengths from 10 to 80 years needs to consider today the likely impact of changes predicted to occur in the longer term.

What the Victorian Government will do

5.1 We will implement agreed outcomes arising from Action 2.20 of Securing Our Water Future Together regarding the impact of land-use change, including timber plantations, on the water resource (quality and yield).

Victoria will develop an evidence-based, economically efficient and environmentally sustainable approach to address any significant impacts of land-use change on water resources under the Action 2.20 project, and the Western region and Gippsland region sustainable water strategies. The broader benefits and impacts of plantations will be taken into account when developing the management tools to reflect Victoria’s socio-economic and physical landscape.

The key elements of Action 2.20 are: firstly, to quantify the extent of potential impact from current and future timber plantations (and other forms of land-use change) on the sustainable water balance; and secondly, to assess potential policy options and responses for managing plantation water use at an acceptable level. Before developing policy options, the range of available policy instruments, and how their application may differ across the state require consideration.

In order to manage the impact of land-use change on water resources, through Action 2.20 and the Western region and Gippsland region sustainable water strategies, the Victorian Government will ensure that the following principles are applied:

• the benefits of government action to manage the impacts of land-use change must outweigh the associated costs
• any technical findings must be based on sound and reputable evidence and science
• the impacts of plantation water use must be considered in conjunction with its benefits to the community
• any proposed policy or other regulatory response must take into account the need for equitable and consistent treatment of timber plantations with other agricultural land-uses.

5.2 We will implement agreed outcomes arising from Action 2.21 of Securing Our Water Future Together regarding timber harvesting in Melbourne’s water catchments.

The key objective of Action 2.21 is to investigate the social, economic and environmental benefits and costs of alternative future management arrangements for Melbourne’s water supply catchments, where timber harvesting is a permitted activity.

The Department of Sustainability and Environment (DSE) has evaluated various forest management options within the water catchments of Melbourne. This included the impacts of various rotation ages, harvesting regimes and silvicultural practices on water yields and timber resources within the catchments. The 2009 fires have affected a large area of Melbourne’s water catchments and DSE and Melbourne Water are doing further work to explore the effects of these fires.

In order to develop improved management arrangements for these areas, the government will ensure that the following principles are applied:

• any technical findings must be based on sound and reputable evidence and science
• the impacts of alternative management scenarios will include assessment of the broader socio-economic benefits of such activity to the community (including financial cost)
• any proposals must recognise the joint and complementary nature of timber and water production from forests
• any changes to current arrangements will not undermine existing log supply commitments to the timber industry, in terms of either quantity or quality.

5.3 We will respond to major biophysical risks posed by climate change by improving forest management practices for public native forests and prioritising research and development that aids climate change adaptation in the plantation sector.

Climate change will affect Victoria’s native forests and timber plantations. Independent analysis reveals that the biophysical impacts of climate change likely to carry the greatest risk to both the native forest and timber plantation industries are:

• increased cost of bushfire control and hazard reduction activities
• timber resource loss through fire
• altered productivity of forests due to change in growing season

Reduced production through plant water stress is also a major concern for the plantation sector, while possible changes to the geographic distribution of commercial species could pose risks for the native forest timber industry.

As owner and manager of the public native forest estate, the Victorian Government will consider changes to its forest management practices to address areas of most pronounced risk.

Measures might include:

• enhanced fire protection and community resilience activities
• improving efficiency of salvage logging and developing markets for damaged timber
• replacing harvested species with alternative species or provenances from areas with climates more like the expected growing conditions
• thinning regimes to extend the time that species can viably occupy their habitable ranges.

Changes to practices will be undertaken when considered to be in the public good; that is they are environmentally sustainable, economically viable and operationally feasible.

Successful and profitable enterprises exercise long-term business planning for managing the risks of climate change. For some adaptive measures, further research and development is required. The government considers climate change a priority area for forestry research and development, and we will work with industry to facilitate this (see Action 10.1), including opportunities for collaboration with the private and tertiary education sectors.

5.4 We will continue to implement fire prevention strategies, and review these strategies in light
of the outcomes of the Royal Commission into the 2009 bushfires.

Catastrophic bushfires are the single greatest threat to future timber supplies from Victorian State forests and timber plantations. Major bushfires of 2002-03 and 2006-07 burnt approximately 2.3 million hectares of public land, including around 1.2 million hectares of State forest. An estimated 430,000 hectares of land was burnt by the 2009 bushfires, including around 56,000 hectares of State forest available for timber production. Of this, around 13,850 hectares of mature Ash forest in the Central Highlands region was severely affected. Predictions indicate that climate change will lead to increased frequency and intensity of adverse fire weather and bushfires.

To meet future bushfire challenges, the Department of Sustainability and Environment and its Networked Emergency Organisation partners, including VicForests, have been implementing Living with Fire: Victoria’s Bushfire Strategy. The strategy has introduced significant changes in the way government and Victorians manage fire.

The Royal Commission into the 2009 bushfires will make recommendations to government about the preparation and planning for future bushfire threats and risks, and existing fire prevention strategies will be reconsidered based on the Royal Commission outcomes.