VicForests – An Ongoing Concern
What to make of VicForests as a business operation? Well, this is how Mathew Dunckley at the Australian Financial Review summarised it in March 2014:
In Victoria, state-owned “business” VicForests demolishes state-owned native forests and sells the logs to a handful of mills, who struggle to profit from flogging the resulting product. This is done almost solely to preserve native timber jobs. It is too generous to even call it a make-work scheme. At least when such schemes were used after World War I and in the Great Depression, Victoria created assets such as the Great Ocean Road. This system consumes a state asset. (1)
Once you accept that it is not a business but more of a very inefficient scheme to create jobs in rural Victoria, its lack of financial return starts to make sense.
Financial returns
The table below shows VicForests’ operating profit for the last 6 years. Data is from VicForests’ annual reports.
Bearing in mind that:
the resource it exploits (public forests) are given to it for free; and
its turnover is over $100 million a year; and
it has access to cheap loans from the government; and
its customers receive subsidies, such as the Maryvale Pulp Mill ($10 million for an upgrade) and a hardwood mill at Heyfield ($650,000) as well as logs and cartage rates charged at less than market value:
We are left to ask: WTF? These profits are miniscule…
It gets worse.
It always does with VicForests. They also get paid an enormous amount of money from Treasury to NOT log the habitat of the endangered Leadbeater’s Possum.
Without these payments – from one government agency to another to NOT DO THEIR ACTUAL JOB – VicForests would be loss making every year since 2016.
Excuses, excuses…
How do VicForests respond to this factual observation about its poor financial performance? It blames:
Increased expenditure on legal cases, owing to litigation by environmental groups. This was blamed for poor profits in 2016, 2018 and 2019.
The 2017 financial loss was blamed on ‘decrease of high-grade ash sawlog available for sale’.
They’re not a real business anyway.
Not a real business.
Following a fairly negative report about VicForests by the Auditor General in 2013, it came up with the following claim: (2)
VicForests is not about maximising short term commercial profits. Our role is to act in a sustainable and commercially prudent manner while ensuring long-term economic returns to the State.
In performing this role, VicForests has generated more than $1 billion in revenue, almost all of which has been injected back into regional communities over the last nine and a half years. This activity creates employment and stimulates billions of dollars worth of downstream timber processing – something that can’t be forgotten.
So, by their own admission, a job creation scheme in rural Victoria.
Is there a better way?
As Mathew Dunckley noted in 2014, VicForests is a loss making business that doesn’t construct an asset, like school buildings, but consumes an asset – our beloved forests.
Or, the ‘biological asset’ in VicForests speak.
And it does so with endless subsidies from taxpayers. A Pricewaterhouse Coopers report in 2016 concluded that $5 million of investment in roads, machinery and equipment is required to create a single timber job. This is about 12 times more than the average level of investment required to create a job in every other industry. (3)
Another recent report from the Parliamentary Budget Office states that ending logging immediately, rather than phasing it out before 2030, could save taxpayers $192 million. (4)
With deforestation contributing to both the climate and extinction crisis, we would say: yes, of course there is a better way.
End native forest logging immediately and devote all the resources and personnel it consumes into both plantations and forest restoration.