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Plantation eucalypts for high value timber conference.

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Plantation Eucalypts for High Value Timber Conference

Speech by Senator the Hon Eric Abetz, Australian Government Minister for Fisheries, Forestry and Conservation:

Plantation Eucalypts for High Value Timber Conference

Moorabbin 10 October 2007

Thank you for that kind introduction.

In particular, can I thank John Lambert, chair of the organising committee - and the committee - for their hard work in bring the conference together.

The theme of this conference is a particularly timely one in my view.

We need to do more to gain greater value from our large - and growing - plantation eucalypt estate.

If plantation eucalypts are to substitute or replace - at least part - solid wood products from our native forests (bearing in mind I believe we will always maintain a sustainable native forest sector) we need to improve the tree genetic and processing technology to gain high-value sawtimber and veneers from plantations.

Australia has been very successful in growing short-rotation eucalypts to supply the rapidly growing south east Asian pulp and paper appetite, but we also need to turn our attention to producing higher-value solid-wood products from our plantations.

That is where investment - both Government and commercial - in research and development will be critical

It is also why it is critical that we have in place the right policy settings to ensure that plantation investment is spread across both short rotation and long rotation plantations.

Can I say, it is my view that on all of these fronts we have made some good decisions and are heading in the right direction.

But that is not to say that there is not more which should, and could, be done.

THE EXPANDING PLANTATION SECTOR - The past decade has seen steady growth in the plantation estate across Australia. This is largely the result of the policy settings established through Plantations for Australia: the 2020 Vision, which set the aspirations

target of expanding the plantation resource to 3 million hectares by 2020.

In support of the 2020 vision the Australian Government created the right environment, through certainty in the taxation arrangements, to attract the private sector investment necessary to drive the rate of plantation expansion required to achieve the 2020 Vision target.

Since 1997 when the 2020 Vision was released, the plantation estate has grown by 700,000 hectares to over 1.8 million hectares - growing by more than 70,000 ha per annum in recent years.

And the reason the Australian Government has been a strong supporter of the plantation sector?

Well, it’s twofold.

Import replacement; and to counter the reduced access to native-forests as a result of the expanding conservation reserves.

Currently, Australia runs a wood and wood products trade deficit of almost $2 billion per annum.

Replacing this import with local product is not so much a matter of becoming self-sufficient, but rather of encouraging and supporting jobs in regional Australia in a sustainable industry, where - given our large land resources - we are internationally competitive.

And secondly, it is to replace the large amount of native forest resource which has been “locked-up” in conservation reserves and which is no longer sustainably managed for wood production.

Indeed, Australia now has over 22.5 million hectares of forest set aside in conservation reserves, with roughly half of that reserved in the past 10 years.

And while we as a Government believe that the balance is now right and won’t be moving to “lock-up” more of our sustainable and renewable production forests, unfortunately the State Labor Governments continue to bow to Green pressure and continue to lock up more and more resource - and Federal Labor has indicated it too will increase the area of forest reserves if it wins the election later this year.

Hence the need to expand our plantation sector.

UPDATING MIS TO SUPPORT HIGH-VALUE TIMBER - The problem however - in terms of replacing the high-value solid wood products from our native forest and imported timber - is that, most eucalypt plantations established in recent years, have been for short rotation pulp wood.

Although it is forecast that timber supply from hardwood plantations will grow four-fold to almost 14 million m3 in 2010, very little of this will be used in high-value solid wood products.

On current projections, by 2040 Australia’s hardwood plantations will supply only about half of the volume of sawlogs currently harvested from our native forests.

That is, why, as a Government, we took a decision maintain the taxation arrangements for investors in plantation forestry while improving the transparency of the arrangement and

allowing trading of immature plantations in secondary markets. It is expected that these changes will encourage greater investment in high-value eucalypt plantations.

In May 2006 Treasury had proposed that investors in forestry MIS would be subject to a tax-deductibility cap of $6,500 on their investment.

While a well-intentioned move to try and eliminate any perceived over-pricing in the forestry MIS sector, what such a cap would have done was to discourage investment in the higher-value, longer-rotation forestry plantations.

So instead, after considerable public consultation and discussion, the Government took what I think was the sensible view of removing this proposed cap and replacing it with a requirement that a minimum of 70 percent of the cost of a forestry MIS project be directly related to plantation establishment, management and harvesting, in order to get tax deductibility.

Therefore achieving the goal of addressing any perceived over-pricing in forestry MIS while not discriminating against high-value forestry investments.

Secondly, and more importantly, we took the decision to enable MIS holders to on-sell their immature plantations - after a 4 year holding period. This is expected to encourage greater investment in longer-term plantations, by eliminating the investor bias, which favours, shorter-term, more liquid investments.

GROWING EUCALYPTS FOR SAWLOGS - Of course, growing long-rotation plantation eucalypts for sawlogs is not new in Australia, or indeed the world

It is currently being done successfully in South America, South Africa, Spain and Portugal.

And, I hope, more and more in Australia as a result of the new plantation taxation arrangements.

All that notwithstanding, the great thing about Australia and Australians is our ability to think outside the square to get the same outcome.

In particular, I am referring to two relatively new developments in this country which will enable plantation eucalypts, initially intended to be exported as woodchips, to be processed in Australia for high value structural products.

One company already achieving this outcome is Forest Enterprises Australia in my home state of Tasmania.

To maximise the value from its plantation resources, FEA established a small sawmill, with a Scandinavian HewSaw that is specially suited to small diameter sawlogs. Using short-rotation (14-15 years) plantation grown hardwood (Eucalyptus nitens), they produce structural (house frames and trusses) and flooring timber, branded “EcoAsh”.

This venture has been so successful, that FEA have recently begun the development of a new much larger sawmill in Georgetown, on the old Carter Holt Harvey MDF mill site. The new sawmill will use the same Hewsaw technology as the Bell Bay mill, but will have a processing capacity of 600,000 m3 per annum.

And in Western Australia, a new company - Lignor - is developing a new facility at Mirambeena, near Albany Western Australia, to produce Engineered Strand Lumber (ESL)

and Engineered Strand Board (ESB) from plantation eucalypts.

Engineered Strand Lumber and Engineered Strand Board are produced by slicing the logs into small flakes, which are then recombined with resins, aligning the fibres, to produce very strong structural beams or panels. Lignor will primarily use plantation blue gum timber but also plans to use some thinnings and residue from WA’s native forests.

The proposed plant will be the first in the world to apply Engineered Strand Lumber technology to eucalypts. Lignor has patented the technology in Australia and key international markets.

The facility is expected to open in 2008 and create 150 full-time equivalent jobs when it reaches full production in 2010. Development of the new facility is expected to cost an estimated $200 million.

I am proud that we as a Government have provided significant financial support to Lignor through a grant of $1.361 million under the Forestry Assistance Programme for Western Australia (FAPWA) in July 2004, and a further $3.85 million through the Commercial Ready Programme in 2006.

Unfortunately, while notable, these success stories are few and far between on the ground.

What we also need is more and better research to back them up.

GOVERNMENT RESEARCH FOR THE TIMBER INDUSTRY - As in any industry, research and development plays an important role. In this case it will be required to ensure:

• the right balance between short-rotation pulpwood plantations and long-rotation plantations for higher-value solid-wood products; • that plantations are grown in the right locations to support investment in further processing and under the right conditions to maximise wood yield and wood

qualities; • that the end products are innovative and well promoted; • that markets are well researched and developed; and • that information is shared within the industry.

The Howard Government has worked hard with industry over the past two years to secure the future of its research and development effort, and I was very pleased to be able to facilitate the creation of a new industry company, Forest and Wood Products Australia (FWPA), in August this year.

(this has now taken over the functions of the former Forest and Wood Products Research and Development Corporation (FWPRDC). This took effect on 3 September this year.)

FWPA will continue to support practical R&D work, as before.

The Commonwealth will continue to match industry levies spent on Research and Development.

But, more importantly, the levy base of FWPA will be expanded by increased levies on sawmills and new levies on forest growers, enabling the new company to undertake generic marketing and promotion of the forest industry.

The new private company structure will make FWPA much more accountable to the industry.

HIGH END R&D - FORESTRY CRC - But we also need high-end R& D - and that’s where the Government’s $26 million support for the Forestry Cooperative Research Centre at the University of Tasmania comes in.

The research of the Forestry CRC will drive further improvement in high value eucalypts in the future, through improvements in wood quality, growth rates, pest and disease resistance and adaptation to new sites and environments.

The Forestry CRC is at the leading edge of silvicultural improvement in eucalypt plantations.

Its programme to convert plantations from pulpwood to solid-wood silvicultural regimes will provide opportunities to gain a greater diversity of products from existing plantations.

And its work on the impact of silviculture on wood quality, with a focus on improving tree form and reducing defects which affect processing and drying, will further improve our ability to produce high-value products from plantations in the future.

CONCLUSION - So in conclusion, I think you will all agree that we are gradually taking the right steps in this country to maximise the value from our plantation eucalypt resource.

While we always have a native forest sector, and now have a substantial resource of plantation pulpwood, we also need to grow our high-value plantation eucalypt sector.

And through

• the new plantation taxation arrangement for forestry MIS which allow trading of immature plantations in secondary markets; • innovative investment from the business community; and • through Government and industry supported research via the new company Forest

and Wood Products Australia and the Forestry CRC, we are well on the path to achieving this goal.

But all that will, I’m sure, be examined in much greater depth over the course of the conference programme.

With that, can I officially declare open the Plantation Eucalypts for High Value Conference 2007.

I wish you all the best in your deliberations, and thank you for your time.