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Monday, 18 June 2001
Page: 24422

Senator BROWN (12:40 PM) —As Senator Forshaw said, the Primary Industries and Energy Research and Development Amendment Bill 2001 gives an extra $1.6 million out of the taxpayers' purse into the forest industries. On the face of it, it is meant to help real research and development of that industry. When it was established, the fund, which is the basis of the legislation we are dealing with, was to have as its primary focus the rural side of that industry. The explanation given during the debates on the bill which introduced this provision in 1993 stated:

Commonwealth funding is intended to match the rural half of the industry contribution, consistent with arrangements for research and development in other rural industries.

Now that is being matched by a component which is for the manufacturing oriented component of the forest products industry. That in itself might not have been so bad if in fact it were being specifically tailored to go to innovative plantation based aspects of the industry with downstream processing, but it is not. This is simply a means of moving more funds into the arena of native forest logging in Australia and also propping up what looks to be a plantation industry with real problems. I will be asking the government about that industry in the committee stage of the bill.

However, looking at the use of the existing fund, I have real concerns. Some of the current projects that are being funded could hardly be described as research and development. For example, one from Melbourne University was called `promoting the science of sustainable management of native forests', and the objectives included `to form an association of scientists who understand and have contributed to sustainable management of Australia's native forests'. That effectively, if you ask me, means to fund a lobby group who are involved in the destruction of native forests, and I will be asking the government representative in the committee stage what has been the outcome there in terms of research and development—exactly where the research and development of that industry organisation has been developed and to what end.

Another example is a quest to be involved in `dyeing eucalypt veneer to increase its value and marketability'. The objectives here include `to investigate the profitability of establishing a veneer dyeing plant in Tasmania'. That request came from Cassino Timbers, but it appears on the face of it to be a direct request for a subsidy for a commercial venture. One has to ask the government exactly what is the intent here, who is leading whom, to what degree is fashion—in terms of veneer colouring and dyeing—being addressed in that particular quest for a subsidy and what has been the outcome.

Mr Acting Deputy President, because this does affect the logging industry right across the board, it is a very important opportunity to question the government about protecting people from a potential collapse of their investment in the plantation sector. You and I and everybody else here are aware that there has been prodigious advertising to get people to invest—sometimes with a primary motive being tax breaks—in the plantation industry in recent years. However, a recent Ausnewz study showed that `there is bound to be ongoing downward pressure on price' for hardwood pulpwood. Studies by Judy Clark at the ANU and others have indicated that the much vaunted shortfall in wood supply in the near future around the globe and in the region is simply not going to eventuate. I am very concerned about that. In fact, Christine Milne, consulting from my office, wrote to ASIC in Melbourne earlier this month, on 8 June. That letter states:

Dear Sir,

I write with regard to Australia's listed plantation sector and what appears to be a grave situation for investors. Earlier this year the Timber Investment Managers Association hired a public relations firm and launched a major advertising campaign to try to portray the industry as a sound, long term investment delivering benefits to regional economies. This public campaign was in response to the collapse in investor confidence in their stocks.

At the same time industry analyst Ausnewz released a study suggesting that prices for hardwood pulpwood are likely only to go down in the future as increased plantation supplies in Australia, Chile, China, Vietnam and South Africa outpace the lift in demand after 2010. Its conclusion was that “there is bound to be ongoing downward pressure on price.”

The letter from Christine Milne goes on:

In spite of the public relations effort and the taxation benefits of investment in plantations, it has been clear from media reports that the sales and profits forecasts for several tree companies will not be met.

In view of the collapse of HIH and One Tel in recent weeks, I write to draw your attention to developments within the plantation sector and to request that you:

a) investigate whether there have been any breaches of the law, especially with respect to share trading by directors and trading whilst insolvent,

b) consider taking action as a matter of urgency to warn potential investors of the risks, especially given the approaching end of the financial year and the 100% tax deductibility of the investment, and the implicit support given to the sector through the government's endorsement of the “2020 Vision” to treble Australia's plantation estate.

These are very serious matters.

Let us look at some specifics in the industry with which this bill deals. Firstly, with Great Southern Plantations Ltd, we find that Helen Sewell cashed in most of her holding of 25 million shares, or about 18 per cent of the company, in March-April this year. Company founding director John Young said that the fact that the stock had been picked up by institutions, including the Commonwealth Bank, reflected the stock's strong investment case, which included another forecast big lift in bluegum woodlot sales this financial year from $76 million to $90 million. He basically said, `Things have never looked as good.' Although he said that he had sold none of his shares, a more recent report indicates that both he and Ms Sewell sold down their personal stakes to institutions, including Colonial First State. On 1 June, John Young issued a profit warning, admitting that the 2001 result would be below forecast and that the company was unlikely to meet its full year's sales target of $90 million. The share price thereupon tumbled 29.7 per cent.

The question arises: on what basis were investors persuaded to invest when the founder or founders were selling out? Ms Sewell claimed that her retirement as an executive at Great Southern coincided with a `full circle', signing a heads of agreement with two major Japanese companies, Daio Paper Company and Nichimen Company, to buy and process all the woodchips it could produce. This implies contractual and attractive pricing arrangements—presumably, the big lift in bluegum woodlot sales to which John Young was referring in April. However, it is now apparent from the end of year forecasts that this just is not the case. The question is: was it ever the case that the heads of agreement included the pricing and contractual arrangements that would have guaranteed markets and financial returns and, as such, influenced investment decisions?

A second case is Forest Enterprises Australia, which has been very active in my home state of Tasmania. Not only is the managing director currently charged with being knowingly concerned in an unregistered managed investment scheme and offering for subscription securities without a registered prospectus, but the company has so far failed to secure the $17½ million lifeline that it said it needed to end its cash crisis. In fact, the American potential assurers there have withdrawn. Already the company has stalled in finalising contracts with farmers who in some cases had begun to remove infrastructure in preparation for sale to the company. Forest Enterprises Australia is seeking to raise $20 million through its 2001 woodlot project, and it has an extension until the end of this month in a bid to gain more investors.

Timbercorp, a third company, applied for tax office permission to extend product rulings over its eucalypt, olive and almond projects until the end of June. Fourthly, Australian Plantation Timber extended its 2001 eucalypt project until 16 June and was forced to issue a supplementary prospectus clarifying assumptions about future timber prices. In the case of Forestry Tasmania, Forestry Tasmania Trees Trust is a matter about which ASIC had been advised previously. The minister or ASIC has advised that this trust is immune from Corporations Law because it is operated by the Crown in Tasmania.

In view of the general concerns that I have just enumerated in respect of the plantation sector, in my opinion it is an obvious job for ASIC to take action to warn prospective investors of the risk. Forestry Tasmania is forecasting real returns after 10 years equivalent to 10½ to 12.9 per cent per year, which appears to be very much contrary to experience of the sector as a whole. I am very worried about investors in this once prodigious plantation industry. I refer you, Mr Acting Deputy President, to the government's own consultants, Jaakko Poyry, who earlier this year reported:

With [a] background of oversupply and under-utilisation in many regions (eg. Bombala, North Queensland, Oberon, Tumut, Latrobe, Green Triangle), the concept of trebling Australia's plantation area under Vision 2020—

that is Minister Tuckey's program—

is confounding particularly for small private growers trying to access the market.

Many private growers can correctly ask: why is the government supporting expansion when they cannot sell what they now have? That is a very serious situation. Yet the prospectuses are still going out inveigling people to invest in this plantation industry to get the tax breaks on the basis that there is a looming wood shortage somewhere around the world or the region, when it is patently obvious from the facts that that is not the case. That promotion requires a very rapid answer from the government, indeed from the Prime Minister, as well as from the Australian Securities and Investments Commission.

In this legislation to promote research and development in this area, the funds that are involved should be confined to research and development in the plantation sector—not in the native forest industries, where the majority of Australians want the chainsaws withdrawn. If we are going to do research and development in that area, then we should follow the exemplary example of the new Western Australian government: it should be into the job reach and investment reach industries of hospitality, accommodation, tourism and recreation which, along with other ancillary industries, give a much better return when we keep our forests standing instead of putting them on a truck and sending them off to a woodchip mill where the jobs are created overseas.

To that end, I want to flag to the Senate an amendment which would effectively mean that the research and development funds which are being put aside or extended through this piece of legislation would go to plantations established before 1990—that is, the mature plantation sector that was put there without the loss of forest coverage which has gone on at a great rate since 1990—and exclude the awesome amount of plantations which have replaced native forests since 1990, which has been a phenomenal injustice to the Australian environment, a plundering of Australia's heritage and of course a stupid policy if you look at global warming. Replacing the biggest carbon banks in the Southern Hemisphere, our natural forests, with plantations is a detrimental thing to do if you are looking at trying to keep carbon out of the atmosphere. It will increase the impost on future generations as they try to handle the great economic, environmental and social dislocation and damage that is to come out of global warming. These are important questions. I know that the government will want to answer the questions that I have put up. I will be pursuing them in the committee stage. I also ask senators to look very carefully at the amendment I have framed, which makes some sense out of extending another $1.6 million into research and development in the forest industries.