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4. Impact of incentives on the development of forest plantation resources in the Asia-Pacific region: Australian case study - Clive Catton, Adam Gerrand, Annie Josline and Robert Miller[11]


Most of Australia’s highly urbanized population of 19 million is concentrated in the southeast and southwest of the country. Less than five percent of the population is engaged in primary production. However, the sector is highly mechanized and efficient, and accounts for around 25 percent of Australia’s exports. After the Second World War, the economy relied mainly on agriculture and mining until manufacturing grew. The service sector has since led growth, rising to about 78 percent of the gross domestic product (GDP). Australia’s exports are important for its economy, contributing over 21 percent to the GDP.

Australia has a land area of 7.7 million km2. Accompanied by large seasonal variations, 80 percent of the continent has a rainfall of less than 600 mm per year. The northern part of the continent experiences wet tropical summers influenced by tropical monsoons with dry winters, while southern Australia generally has relatively dry summers and cool winters. Due to its extensive geographical isolation, Australia’s vegetation and animal species are unique, and have developed tolerance to Australia’s climate regime of lengthy droughts and fires. Only 6.5 percent of the land area is considered arable, and is concentrated mostly in a small band along the eastern coastline and the southwest corner of the continent. Australia has substantial areas of natural forests, with eucalyptus and acacia being the most dominant and wide-ranging genera. Forest[12] covers around 20 percent of the country or 164 million ha, most of it occurring as open savannah woodland. The large area of native forests has long been a source of wood and other forest products but plantations are rapidly increasing in proportion.

Plantations make up less than one percent of the forest area but contribute 60 percent to the timber production each year. Most of Australia’s plantations are located in areas with reliable rainfall of more than 700 mm a year and suitable soils for tree growth, and are within reasonable transport distance to a major market or processor. These locations generally correspond to the more habitable parts of the country. The plantations have been divided into 15 National Plantation Inventory (NPI) regions to facilitate quantitative regional and national management, decision-making and strategic-planning by government and industry (Figure 1). The regions reflect wood supply demarcations rather than political boundaries.

Figure 1: National Plantation Inventory regions of Australia

Table 1: Forest, plantation and population data for Australia, 2001

Total land area in ‘000 ha*

768 203

Total forest area in ‘000 ha** (% of total land area)

165 896 (22%)

Total plantation area in ha** (% of total land area)

1 568 900 (0.2%)

Total softwood plantation area in ha** (% of total plantation)

979 633 (62%)

Total hardwood plantation area in ha** (% of total plantation)

587 856 (37%)

Total unknown type plantation area in ha** (% of total plantation)

1 411 (1%)

Population total (million)*


GDP per person*

A$32 539

Sources: *Australian Bureau of Statistics 2001; **Wood et al. 2002

Role of the forestry sector in the economy

Australia’s wood and paper industries (based on plantations and native forests) presently turn over A$14 billion, and include sawmilling, plywood and panel products, pulp and paper and woodchip exports. Exports are valued at A$1.8 billion. Woodchips, representing 41 percent by value of total forest product exports, remain the most valuable export product (Table 2). This has steadily fallen in recent years as outputs of other export wood products including paperboard, paper, sawntimber and wood panels have increased. In addition, Australia now produces 82 percent of its sawntimber needs of which softwood plantations provide about 66 percent, with the balance derived from native forests.

Australia remains a net importer of forest products in value terms, mainly due to high imports of paper products. In 2000 and 2001, Australia imported forest products valued at A$3.83 billion, accounting for three percent of total merchandise imports. Imports for sawntimber, paper and paperboard accounted for 67 percent of the total value of forest product imports (54 percent of paper and paperboard products and 12 percent of sawntimber, mostly coniferous). Most of the imported sawntimber comes from New Zealand, Canada and the U.S.A. with radiata pine, Douglas fir and western red cedar forming the bulk. Malaysia is the main source of imported hardwood timber.

Consumption of sawntimber in Australia generally varies between four and 4.5 million m3 per annum and is closely linked to the level of constructing activity (Table 3). Recent increases in new homes raised sawntimber consumption to almost 4.8 million m3. However, as existing plantations come to maturity, Australia is expected to become a net exporter of forest products by 2010 (ABARE-Jaakko Poyry 1999).

The forest and wood product industries, based on native and plantation forests, account for about one percent of the GDP and employment of about 75 000 people. There were 942 sawmills in Australia (674 hardwood and 268 softwood) in 1999 and 2000. The hardwood mills are generally small-scale and scattered, while the softwood mills are large and integrated with other processing facilities. There are also 22 pulp and paper mills and 30 veneer and panel-board mills. The number of sawmills has been declining as the average size increased. Further mechanization and productivity have reduced total employment in processing over time. The greater area of plantations has a significant potential to reverse this trend by creating new processing industries and employment opportunities in rural areas (Ministerial Council on Forestry et al. 1997).

Table 2: Australian export of woodchips


Financial year






Hardwood volume* (kt)

2 470.9

3 270.4

2 851.8

3 582.2

3 904.0

Hardwood value (A$’000)

400 191

495 719

43 3561

502 818

572 015

Softwood volume* (kt)


1 044.7

1 033.2

1 046.2

1 114.8

Softwood value (A$’000)

118 109

150 620

152 432

143 345

173 461

Total volume* (kt)

3 323.2

4 315.0

3 885.0

4 628.4

5 018.8

Total value (A$’000)

518 310

646 275

585 934

646 099

745 402

* bone-dry tonnes

Table 3: Apparent consumption of sawntimber in Australia (‘000 m3)


Financial year






Domestic production

Plantation logs

1 954

2 221

2 331

2 528

2 346

Native forest logs

1 430

1 436

1 274

1 455

1 314


3 385

3 657

3 605

3 983

3 660













Apparent consumption

4 090

4 403

4 281

4 863

4 291

Source: ABARE (2001)

The contribution of softwood plantation sawntimber to the total Australian sawntimber consumption grew from 33 percent in 1990 and 1991 to 56 percent in 2000 and 2001. This increase has been primarily through import. To a lesser extent, it has filled a potential gap resulting from decreased harvesting in native forests. This expansion has only been achieved with very significant investments in processing capacity, illustrating the success of the policies and industry investment in the 1960s and 1970s.

Role of Commonwealth (national), state, territory and local governments in Australian forestry

The Commonwealth of Australia is a federation of six states and two territories, each with its own regional and local government infrastructures, as defined under the Australian Constitution. The national government is broadly responsible for taxation, defence, foreign policy, customs and telecommunications, and the states are responsible for education, health, transport and land administration. While the prime responsibility for land use, forestry and conservation matters rests with the state governments, each level of government has specific interests in, and responsibilities for, forest management.

The national government retains certain powers and interests, which can have significant implications for land use and management practices. It is responsible for coordinating a national approach to both industrial development and environmental issues including forest, land and water management. It also has an interest in achieving efficient and effective natural resource management, including a national approach to forest issues.

State governments have primary responsibility for forest management, in recognition of their constitutional responsibility for land use. The states have enacted legislation that allocates forestland tenure and specifies the administrative framework and policies for managing public and private forests. All Australian forest services are run by state forestry agencies, reflecting the constitutional demarcation of responsibilities. For this reason there is no national forest agency. The history of state forest agencies in Australia has been well documented by Carron (1990) and Dargavel (1995). Local governments are responsible for local land-use planning within the limitations set by their respective state governments, which affect public and private forest management and use. In practice, responsibility for policies affecting land use and the environment is shared among national, state and local governments.

Role of public and private sectors in forestry

Australia’s State of the Forests Report has identified that approximately 70 percent of the nation’s forest resources are privately owned or managed (National Forest Inventory 1997). This is a significant milestone as state forestry agencies held the majority until the early 1990s. This shift is due to the privatization of former state-owned pine plantations in several states and the expansion of private plantings.

The number of large-scale private investors is small. Of the plantation estate, 95 percent is considered industrial with only five percent actually held by small-scale landholders and communities (i.e. owners of estates that are less than 1 000 ha) until the early 1990s. Figures 2, 3 and 4 show plantation areas by age class, species and ownership.

# The 2000/2001 period was derived from only two years of data and may be higher than the long-term plantation expansion rate.

Figure 2: Australian forest plantation development by tree ownership#

Figure 3: Average increase in Australian forest plantation area by tree ownership, showing four developmental phases

Figure 4: Australian forest plantation development

Data for the three figures were derived from the Commonwealth Forest and Timber Bureau (pre-1975), Australian Bureau of Agricultural and Resource Economics (ABARE) (1976 to 1991) and Bureau of Rural Sciences’ National Plantation Inventory (since 1994). As the methodology for collection of information has changed over time, gaps are seen in certain years (for example, early 1990s in Figures 2 and 4). The data were averaged over five-year periods to minimize annual variability. Records before 1950 are incomplete except for 1939 and 1947. Therefore, early planting rates and trends cannot be quantified, but in general the planting rate was low and probably less than a few thousand hectares per year. Furthermore, ownership other than “public” is classified as “private” - this includes all joint ventures, annuities and unknown ownership. Large areas of plantation land were transferred from public to private in the late 1990s, through privatization/corporatization of state (public) plantations.

Key forest production and conservation policies

The principal national policy documents establishing priority actions for the sustainable management and use of Australian forests, relevant to plantations, are:

In addition, a range of initiatives at state and national government levels further these policies, including programmes promoting farm forestry, revegetation and removal of government impediments to investment in growing and processing forest products. Numerous state acts cover conservation issues with implications for forestry, including Codes of Logging Practice, land-use planning, and flora and fauna protection. Other acts or legislation also cover the establishment and administration of National Parks, and regulate water rights and use.

National Forest Policy Statement

In 1992, the national and state governments developed a common policy position on forests, known as the National Forest Policy Statement (NFPS). As the primary means for integrating environmental sustainability and commercial production, it sets out objectives concerning conservation, wood production and timber industry development, private native forest use, plantation development, water supply and catchment area management, tourism development, employment, workforce education, public awareness and involvement, research and development (R&D), and the further development of intergovernmental arrangements and decision-making processes.[13]

Plantations for Australia: The 2020 Vision

In 1997, the industry and government developed a partnership called “Plantations for Australia: The 2020 Vision” to develop plantations and processing industries that are commercially oriented, internationally competitive and sustainable. The Vision aims to treble the plantation estate to 3 million ha by 2020. It also seeks to boost the availability of suitable land for plantations and improve the tree-growing skills of farmers through farm forestry. Achieving the target will require more than A$3 billion additional investment (mainly private capital investment) and annual plantings of 80 000-90 000 ha.[14]

Forest and wood products action agenda

Action agendas generally encourage industries to achieve best practice and to work together to realize international markets. The Forest and Wood Products Action Agenda of 2000 provides a framework for industries to pursue competitive advantages. Its market-driven focus is a natural progression from previous initiatives, which mainly concentrated on fundamental “supply-side” issues. “Demand-side” initiatives, encompassing issues such as value adding, expanding non-traditional forest and wood uses, and market and investment development, are further developed to take advantage of opportunities emerging from earlier initiatives.[15]

Research, extension and training

R&D will underpin the global competitiveness of Australia’s forestry, wood and paper industries over the next 20 years. It will assist resource development and sustainable management, improve wood and fibre performance, increase efficiency and environmental performance of wood and paper processing and increase value adding in wood and paper products.

There are three main Commonwealth research bodies, namely:

State governments have similar organizations working on forestry research issues, alongside forestry and associated research departments within Australia’s universities, in particular the Australian National University, Melbourne University and Southern Cross University. In addition, Cooperative Research Centres (CRCs)[19] bring together researchers from universities, CSIRO and other government laboratories, private industry and public sector agencies in long-term collaborative arrangements to support R&D and education activities.


Overview of plantation development

Efforts to establish plantations began with the state forest agencies in the early 1900s and are well described by Carron (1990) and Dargavel (1995). State governments established most of the initial plantations to offset Australia’s limited endowment of native softwoods. The State of South Australia took the lead in the 1870s establishing integrated operations based on Pinus radiata plantations, state-owned sawmills and later private panel board and paper mills. Other states followed by establishing softwood plantations so that by 1940, more than 90 percent of the plantations were state-owned.

It was not until 1950 that private planting grew in importance when large industrial companies commenced planting to supply pine (Pinus radiata) and eucalypt pulpwood to complement state resources. These plantations gradually supplied increasing quantities of sawlogs and pulpwood. Between 1936 and 1941 three pulp and paper mills were built in Tasmania and Victoria to use eucalypts and one mill was established in South Australia to use wood from softwood plantations. The mills expanded rapidly, and the new ones, built during the 1950s and 1960s, were supplied with a combination of softwood from pine plantations and hardwood predominantly from native forests.

Various schemes to encourage smaller-scale or woodlot planting on farms and other private lands were undertaken from the 1920s. The rate of planting on farms increased in the 1990s, aided by incentives often associated with achieving broader environmental benefits.

The widening gap between forecasts of demand and domestic supply became clear after the Second World War. Native forests could not sustain high harvesting rates in the long term, let alone meet rising demands. Plantations were seen as the solution to increase timber supply and reduce imports. Commonwealth and state governments jointly advocated a significant proliferation of Pinus radiata plantations. The states aimed to raise their planting rate from 16 000 to 28 000 ha per year, so that Australia would be largely self-sufficient through its 1.2 million ha of plantations by 2000. In 1966, the Commonwealth provided generous, low-interest “Softwood Loans” to the states to increase their planting by 26 000 ha per year. In addition, private growers were encouraged to plant 4 000 ha annually. The scheme succeeded in increasing the rate of planting and was extended to 1982.

Pinus radiata dominated softwood plantings until the 1980s, occupying over two-thirds of the area. However, the plantation sector has shifted from softwood to hardwood, focusing mainly on Eucalyptus globulus. About 87 percent of the total standing hardwood plantations have been established since 1990.

The Australian plantation industry exhibits a diverse range of ownership arrangements, including joint venture and annuity schemes between public and private parties. Since the 1990s, private plantations have increased dramatically; 89 percent of newly planted areas were on private land in 2001 (Wood et al. 2002). About 54 percent of the country’s 1.57 million ha of standing plantations are now privately owned.

The development of Australia’s forest plantations can be traced over a four-phase period since 1900. Particularly noteworthy is the 1.26 million ha increase in plantations (513 percent) since 1965/1966 when planting began to flourish. This reflects the transition from the goal of self-sufficiency underpinned by commercial development with direct incentives, to ecological sustainable development supported by broader micro- and macroeconomic reforms. In line with this change, indirect incentives are replacing direct incentives, with the private sector progressively taking over plantation management and investments from the governments.

Phase 1: “Softwood import replacement” plantations - 1900 to 1960

A “softwood import replacement policy” served as the driving force for early plantation establishment in Australia. Even though the country had a surplus of native hardwood species, softwoods were perceived as more desirable for a wide range of uses including construction. Consequently, forest agencies sought to establish softwood plantations to meet demands and reduce softwood imports.

General investment climate

Dargavel (1995) notes that relief work during the Depression period had increased the plantation area to 90 000 ha by 1939; almost all of this land was planted with softwood, predominantly Pinus radiata, and over 40 percent occurred in South Australia. Since a number of these early schemes were experimental in nature, as suitability and species selection were being refined, poor growth or even failures resulted on some sandy land that was initially thought to be suitable.

During this phase, private sector involvement in plantations was limited. Practically all industrial wood was sourced from Australia’s extensive native eucalypt forests. Despite South Australia’s success in growing Pinus radiata, some sawmillers were reluctant to process the wood.[20]

Phase 2: “Self-sufficiency in timber” plantations - 1960 to 1980

Similar to Phase 1, this period focused on softwood plantings but reflected a national goal of achieving “self-sufficiency in timber,” recognizing that softwood plantations could replace softwood imports and much of the hardwood production from native forests. Considerable concerns about the native forests’ capacity to sustain large production increases, triggered by mechanization and rapid development in the postwar years, led to the conclusion that softwood plantations were the solution.

General investment climate

Although the plantations were mainly state establishments in the initial stages, 25 percent of the national total plantation area of 600 000 ha was privately owned by 1977. About 90 percent of this area was planted with conifers and ten percent with native species and poplars (Carron 1990). By the late 1970s, the private sector was planting over 10 000 ha per year mainly for industrial uses (predominantly for pulp and paper). Notable was the Australian Paper Manufacturers (APM), which established significant areas around their mill in Victoria. The Victoria Government set up an early system of leasing land to APM through a special Act of Parliament in the 1930s (Carron 1990). Both the New South Wales and Victoria governments provided low-interest loans for farm woodlots. Consumption of wood products during this phase was a factor of both population growth and rising living standards after the Second World War.[21]

By the 1980s, Australia had developed a strong reputation in plantation forest research, focusing mainly on exotic softwoods, notably Pinus radiata. Research was able to create a highly successful and profitable wood-based industry from a “fairly ordinary” species. The strength and importance of Australia’s research capability was well demonstrated by the resolving of a problem that first appeared in the 1960s when the plantation industry was “profoundly shaken” by decreased productivity in the second and subsequent rotations of Pinus radiata in South Australia (Shepherd 1986; Keeves 1966). Shepherd notes the issue received substantial research effort in both Victoria and South Australia and that the two states’ research agencies came up with quite different solutions. Opting for a highly technical approach, South Australia developed a “maximum growth sequence” using machinery, chemical fertilizers and herbicides (Woods 1976). In contrast, Victoria focused on conserving nutrients through retention of slash and aiming at water conservation for the seedlings (Squire et al. 1979). Over time, with the publication of the research results and sharing of information, the two states combined their methodologies to ensure continued productivity.

By comparison, surprisingly little work was done on Australia’s native eucalypts until the late 1980s and 1990s. Researchers’ negative views of eucalypts’ potential at that time did little to instil public or private sector confidence in investing in eucalypts during this period.

Incentives in Phase 2

Types of direct incentives offered

The policy of attaining self-sufficiency in softwoods by 2000 was formalized under the Softwood Forestry Agreements Acts of 1967, 1972 and 1976. These committed the Commonwealth to provide favourable loans to the states for establishing and maintaining softwood plantations. The agreements, commencing in 1966, aimed to help the state governments increase their planting rate to 26 000 ha per year, with an additional 4 000 ha per year from private growers (Dargavel 1995). Under these Acts, loans made on an annual basis from 1967 to 1982 enabled purchases of land as well as the establishment and tending of (approximately) an additional 100 000 ha of new softwood plantations. The Commonwealth paid A$78.1 million under these arrangements, which expired at the end of 1982 following a review of Commonwealth functions.

The loans were attractive to the states because of the ten-year interest free period. Financed from the Commonwealth’s Consolidated Revenue Fund, they were repayable over 20 years with payments commencing 15 years after the date of each advance. This “grace” period of 35 years matched the planned rotation, based on sawlog production patterns at the time. The agreements also provided for interest to be either capitalized over the deferment period, or paid when due at the prevailing long-term bond rates.

Under the agreements, the states carried out efficient planting and tending in accordance with sound forestry, financial and environmental practices. The Commonwealth also required the states to keep full accounts, books, vouchers, plans, documents and other records relating to planting and tending under the agreements. Programmes were monitored by the then Australian Forestry Council, which was made up of state ministers and chaired by the Commonwealth Minister responsible for forestry.

While large-scale incentive schemes for private investors were absent at this stage, this initiative was instrumental in enabling the state governments to dramatically increase plantations during the 1960s and 1970s. These plantations became the basis for Australia’s extensive wood-processing industry. Victoria and Tasmania continue to progressively privatize their softwood plantations, parts of which were established under these loans. The establishment of small-scale forestry operations was insignificant during this phase. Companies were still largely Australian enterprises, as foreign investment in forestry had not yet begun to make its mark.

Impacts of incentives

The Softwood Loans were successful in establishing large-scale softwood plantations, especially of Pinus radiata, by state forest agencies across Australia. These agencies established the majority of plantations during this phase. Given their already overstretched budgets which serviced plantation expansion, their least expensive option was to use existing native forest land. New markets for woodchip exports also encouraged the clearance of native forest for planting in some areas. This enabled moderate-quality eucalypt forests to be clear-felled and sold for timber and woodchips to fund the Pinus radiata planting programme. However, this coincided with a rise in conservation and environmental awareness and the states were criticized and attacked by opponents (Dargavel 1995). This marked the start of a long campaign of protests against forest agencies.

Characteristics of established plantations

State agencies used the Softwood Loans mainly to plant trees for sawlog production, seen at the time to be the dominant timber need of the future. Species included Pinus elliottii, Pinus pinaster, Pinus caribaea, Araucaria spp., Eucalyptus pilularis, Eucalyptus grandis and Eucalyptus regnans. The species of choice was Pinus radiata, grown on rotations of 30 to 40 years depending on the silvicultural regime. These rotations were considered to be remarkably short compared to native forest rotations of 80 to 100 years or more.

Summary and lessons learned in Phase 2

The Softwood Loan Agreements were very successful, expanding the overall plantation estate from around 170 000 ha to nearly 900 000 ha. Without the agreements, the softwood plantation industry would not have reached its present scale. The plantations became the basis for a wide range of domestic wood-processing facilities that developed subsequently (for example, pulp mills). Over A$78 million was loaned to the states during the 16 years the Softwood Loan Agreements operated. In 2001/2002 dollar rates, this equates to approximately A$390 million.

Phase 3: “Transition from government softwood to private hardwood” plantations - 1980 to 1990

General investment climate

The 1980s represented a transition period for plantation development. Considerable changes occurred in the forest industry and government, business and Australian society. For plantations, Phase 3 marked a switch from the dominance of government to private ownership of softwood plantations and the expansion of eucalypt (hardwood) plantations for industrial purposes.

Other notable changes were increasing commercial and budgetary pressures on government and industry, influenced by high interest rates during the decade. Forestry was a relatively unattractive proposition for all but large processing industries with economies of scale and linkages to downstream processing of higher value products. The society was concerned about forestry activities and a number of high profile environmental battles were played out during the decade (notably the Franklin Dam dispute in Tasmania, which also raised community concerns about harvesting, especially of old-growth native forests). Such unease was significant enough for governments to try to address the problems - over 30 enquiries into forestry were held around this time. Every state agency facilitated an active R&D programme to help resolve many of the technical issues facing the emerging industry.

Large-scale private sector forestry investment occurred during the 1980s. Exporting woodchips became an important business in most states. This enabled some companies to convert significant areas - mostly non-native forests - to plantations. Tibbits (1986) notes the large increases of eucalypt plantations in Tasmania from 20 ha per year in the 1970s up to an average of 1 500 ha per year from 1982 to 1984.

Incentives in Phase 3

Types of direct and indirect incentives offered[22]

a. National Afforestation Programme and associated programmes

Dargavel (1995) notes that the National Afforestation Programme (NAP) funded the establishment of 6 000 ha of hardwood plantations between 1987 and 1992, and supported research on growth. A summary of the NAP and a useful overview of the major incentives and activities in relation to farm forestry programmes is provided by Donaldson (2001). Much of the information in this section is drawn from his analysis.

The Commonwealth established the NAP in 1987 to stimulate an expansion of commercial hardwood timber, assist in land rehabilitation and control degradation through afforestation. Nearly A$15 million over three years was targeted for state and large private industrial growers. The programme was also the first production forestry initiative that directly sought to engage private landholders, but it was not really designed to address the needs of non-industrial forest managers. It lacked a supportive policy framework to deal with the underlying social, economic and institutional impediments to plantation development (Donaldson 2001).

In 1989, the NAP was expanded and replaced by the “One Billion Trees and Save the Bush” programmes, as promoted in the Prime Minister’s landmark statement on the environment “Our Country, Our Future”. These subsequent programmes had a clearer focus on biodiversity conservation and were later supplemented by initiatives such as the Corridors of Green Programme and the Wet Tropics Tree Planting Scheme in North Queensland. In 1997, these were all incorporated in the Bushcare Programme with the advent of the Natural Heritage Trust 1.

During this time, funding for programme delivery increased from about A$3 million over the first five years to over A$350 million between 1997 and 2002.

b. Joint venture arrangements

Joint venture arrangements first appeared in the mid- to late 1980s, often between state government forestry agencies and private landowners. With the Commonwealth Softwood Loan Scheme coming to a close, the states saw the arrangements as one option to continue the growth in commercial plantations and to promote small-scale farm forestry. Since then, joint venture arrangements have become an important tool in plantation development, especially as a mechanism to attract overseas investment.

Western Australia provides a good example of such an arrangement where foreign investors, mainly in the pulp and paper industry, sought to secure reliable high-quality supplies from eucalypt plantations. The first agreement in 1993 was made with the Japanese Oji Paper Company and Itochu, which expected to invest A$60 million over ten years (Dargavel 1995). This was sufficient to plant 20 000 ha of Eucalyptus globulus in small farm woodlots and shelterbelts of ten to 20 ha each. The trees are to be harvested at ten years of age and the woodchips exported to Japan. The trees are to be coppiced for the second rotation crop. In addition to the direct benefits anticipated for wood processors, there are environmental advantages gained through the lowering of water tables and addressing dryland salinity problems. The Western Australian Government subsequently made a similar agreement with the Korean Hansol Forest Products Company to establish 15 000 ha of plantations over a ten-year period.

A number of other private plantation companies have followed, with private investment now leading the industry (see Box 1 for the Western Australian experience).

Justification for providing incentives and intended target groups

Rising awareness of a range of environmental problems during the 1980s led to a change in emphasis, stemming from historical land clearing for agricultural uses. A notable example is Western Australia where dryland salinity had become a major issue. Governments targeted farmers and small-scale landholders (i.e. of less than 1 000 ha) rather than large companies with incentives, although the effectiveness of these incentives in attracting smaller investors was limited.

Impacts of incentives

Figures 2, 3 and 4 also show the rise in plantation areas and change in tree species during the 1980s. Plantations were increasingly being established on former farmland. Although this was a relief to the predominantly urban conservationists, it was beginning to raise concerns among the farming community that their traditional livelihoods would be altered. Large-scale industries still dominated plantation development, and state governments still used subsidies in the form of infrastructure grants to attract industries to their regions.

Summary and lessons learned in Phase 3

Plantations and timber production started to generate significant employment and income in regional centres, creating an incentive to current and potential investors. Once a critical mass of plantation resources was achieved, processing industries developed, such as in the Green Triangle in southeast South Australia and southwest Victoria, and the Murray Valley in northeast Victoria and the southwest slopes of New South Wales. Enterprises included sawmills, paper mills, fibreboard and particleboard mills, pole and post production, and treatment plants.

Box 1: Forest plantations in Western Australia

Western Australia’s Forest Products Commission (FPC) manages more than 112 000 ha of plantations and tree crops. By 2020, 800 000 ha of tree crops could be established on farms. Trials to find conifers suitable for local conditions began in 1896. The first softwood plantations, established in the 1920s were maritime pine (Pinus pinaster) grown on sandy areas north of Perth. Decades of tree breeding have produced trees that grow faster and straighter, producing more valuable timber. Significant areas of Monterey pine (Pinus radiata) were established south of Perth. The first hardwood plantations were mallet (Eucalyptus astringens), planted to support the tannin industry. Mallet plantations now support an industry making tool handles.

During the late 1980s, the focus changed from large plantations on Crown land to tree crops on agricultural land. The FPC developed the legal instruments and scientific foundations for integrating trees with traditional agricultural practices on farms.[23] The greatest environmental threat is dryland salinity, which stems from the use of annual crops and pasture in agricultural areas. Deep-rooted perennial plants are critical to redress the water balance in these areas. Scientists estimate that 30 percent of the 18 million ha of cleared farmland in the southwest needs to be returned to perennial vegetation if salinity is to be controlled. This provides an opportunity for new industries in rural areas and greenhouse sinks on a massive scale.

Only commercial tree planting can attract investments at the required scale and provide continuous income to make it viable for farmers to work the land. In 1988 and 1989, the FPC planted about 4 000 ha of Eucalyptus globulus on farms along the western and southern coasts, demonstrating the potential of bluegum to landowners and investors. Together with other incentive schemes, major overseas companies were persuaded to invest in the venture. The FPC was contracted to manage three projects costing more than A$150 million with a combined target of planting of at least 60 000 ha over ten years. Another A$200 million would be paid to landowners over the life of the projects. At the end of the 1999 planting season, the FPC had planted 25 000 ha.

By the end of 1998, the state government and private investors had established more than 100 000 ha of bluegum. Altogether, about 125 million tree seedlings have been planted - one of the fastest planting rates in Australia.

In 1996, the FPC launched the Maritime Pine Project - a programme to extend tree crop cultivation on farms into areas with lower rainfall and selected catchments on the coastal plain - as a component of the state’s Salinity Action Plan. The first 700 ha of maritime pine trees were planted in 1996.

Another 2 000 ha were planted in 1997 and nearly 2 500 ha in 1998. The FPC’s target is to plant 150 000 ha of maritime pine in partnership with private landowners within a decade. Another 15 000 ha of mainly native trees will be planted under the Maritime Pine Project. Landowners can choose from more than 20 commercial and non-commercial species to plant in areas too rocky or saline for pines, or where landowners prefer native trees for landscaping reasons. Extending the area planted beyond sites suitable for pines increases the Landcare benefits. It will also increase biodiversity and help create corridors of native vegetation, which in turn will benefit native wildlife.

In January 1999, the FPC signed an agreement with British Petroleum marking the beginning of the first pilot study in Australia to examine the potential for planting tree crops as carbon sinks to offset greenhouse gas emissions. The crops will be planted in partnership with farmers.

(Source: Western Australia Forest Products Commission (2002).

The structural impediments to the development of commercial plantations included:

Bhati et al. (1991) summarize the key findings of a number of reports during the 1980s. A case study on the eucalyptus woodlot scheme offered by APM forests in Victoria found that the scheme established only about half its target area. Farmers cited loss of productive land, initial cost of establishment and lack of information about forestry investments (uncertainty and risk) as reasons for their non-participation. In another review of the effectiveness of incentive schemes by Byron and Boutland (1987), farmers and other small-scale landowners did not accept the incentive schemes because they claimed that the schemes were designed with the interests and resources of the sponsors in mind, rather than the needs of the landholders. Reasons for lack of success of the schemes included:

The authors suggest future schemes, including joint ventures, may have more chance of succeeding, especially if others can gain from shared information and experiences. For example, Western Australia learnt valuable lessons from Tasmania’s experience in setting up the Tasmanian Private Forestry Division (after the Everett and Gently Inquiry of 1976/1977).

Phase 4: “Private plantation boom” - 1990 to present

General investment climate

This phase is built on lessons learnt during the preceding 30 years, leading to what is presently the highest sustained growth in Australia’s plantation development. A number of factors are driving this growth, largely underpinned by:

The broader farming and urban communities have also acknowledged the biodiversity and environmental benefits that plantations can provide when integrated into traditional agricultural areas or, in some instances, replacing them.

Incentives in Phase 4

Types of direct and indirect incentives offered

a. Tax policy

The Australian Taxation Office (ATO) is the Commonwealth government’s main revenue collector. The ATO has offered a range of direct and indirect incentives to support primary production generally, including plantations.[24] These incentives include tax equity, recognizing the unique challenges of plantation establishment as against other primary productions that are annual or have shorter rotations. This aims to directly assist plantations as a competitive alternative to other primary productions. Related tax incentives that can be applied to forest plantations are listed hereunder.

b. The National Forest Policy Statement (NFPS)

The Commonwealth and state governments jointly released the NFPS in 1992 in response to three major reports on forest issues in Australia - those of the Ecologically Sustainable Development Working Group on Forest Use, the National Plantations Advisory Committee and the Resource Assessment Commission’s Forest and Timber Inquiry. The NFPS outlined objectives and policies for the future of Australia’s public and private forests, and contained specific commitments to improve the management of commercial plantations. Primarily, the policy stated that decisions to establish plantations for wood production should rest on their economic viability. Recognizing the protracted nature of plantation investments, governments saw the importance of secure long-term policies including the need to enable trading of capital, the establishment of “pooled development funds” with concessional taxation rates and simplified planning procedures.

In many ways, the NFPS became (and remains) the basis for all subsequent forestry policies and programmes for the Commonwealth, and for the states to a lesser degree.

c. The National Landcare Programme

The National Landcare Programme, established in 1992, incorporated elements of the former Federal (Commonwealth) Water Resources Assistance Programme, but had a much broader focus on natural resource management, including whole farm or property management planning.

The National Landcare Programme coordinated government and community activities across whole catchments. It encouraged community involvement in mitigating rural land degradation and emphasized a self-help approach (SCARM 1995). In essence, the concept of Landcare provided a way to integrate several strands of natural resource management policy within the context of community development.

d. Collection and dissemination of quantitative plantation information

Quantitative information on the national plantation resource is an essential ingredient for decision-making and strategic planning, nationally and regionally, by all stakeholders. The provision of data by growers and their representatives ensures that governments and industry use correct information and that a realistic picture of the industry is portrayed nationally and internationally. The National Forest Inventory (NFI) therefore established the National Plantation Inventory (NPI) in 1993 to provide up-to-date quantitative reporting of Australia’s plantation resources and to monitor plantation expansion. This included regional plantation wood-flow estimates critical to business plans, attracting new investment and marketing. The NPI focused on collecting data from growers whose total estate was greater than 1 000 ha each. The National Farm Forest Inventory (NFFI), another NFI programme, was developed in 1998 to collect and collate information on plantations of less than 1 000 ha (generally those within the National Farm Forestry Programme [NFFP]). The first coordinated findings of these two inventories were published in the Plantations of Australia 2001 report (Woods et al. 2001).

Collectively, the NPI and NFFI provided a reliable and transparent data series to assist regional and national resource planning, and guided investment in plantations and associated downstream industries.

e. Wood and Paper Industry Strategy (WAPIS)

In December 1995, the Commonwealth launched the four-year WAPIS, aimed at developing the wood and paper industries while protecting native forests for future generations. It focused on industrial development, value adding and new investment.

WAPIS activities promoted greater investment, research and downstream processing in Australian forest industries, expansion of farm forestry and the plantation sector, a skilled and flexible workforce and improved regional job opportunities. Improved information on plantation areas and wood flows was one of the key achievements of this strategy, significantly aided by the 1997 NPI.

f. National Farm Forestry Programme (NFFP)

The NFFP operated from 1996 to 2001, funded from the National Heritage Trust. Its aim was to encourage the integration of commercial tree growing and management into farming systems for wood and non-wood production, increasing agricultural productivity and managing natural resources sustainably. This was aided at the regional level by establishing Regional Plantation Committees (RPCs) to promote information networks, increase the skill base, initiate demonstration projects and design regional strategies. The adoption of farm forestry was assisted by farmers wanting to diversify and enter new markets as a risk management strategy, investors establishing plantations on farmland through joint ventures or annuity schemes, agricultural gains (for example, increased agricultural yields) and provision of environmental services (for example, soil and water conservation). This mitigated, to some extent, the preliminary establishment costs and long lag-time for returns, future market uncertainty and initial lack of information and support networks.

More than one-third of the current total farm forest resources has been planted since 1995 (Figure 5). This period has seen a major shift from softwood to hardwood establishment. At the programme’s conclusion, farm forestry had contributed approximately five percent to the total plantation resource and 12 percent to the total privately owned resource. Approximately another 11 percent of industrial plantations came from leased or joint venture arrangements of farmland.[27]

Source: Wood et al. (2001).

Figure 5: Farm forestry plantation establishment rates

g. Regional Forest Agreements

The Regional Forest Agreements (RFAs), developed jointly by national and state governments, emerged from the NFPS and are a long-term plan for Australia’s native forests. Beginning with the first agreement in 1997, each RFA operates for 20 years to be reviewed every five years. The RFAs are designed to create jobs and protect forests through:

Important changes for the plantation industry followed the RFAs, for example allowing the Commonwealth government to remove the requirement for export woodchip licences because special values, such as rare species, now have agreed management frameworks through the RFA process. The Commonwealth’s export controls on roundlogs from plantations have gradually been lifted over the last five years, removing what the industry considered a deterrent to plantation investment. This signals the Commonwealth government’s endorsement of the plantation industry’s full participation in global wood markets and gives potential growers access to a greater range of markets.[29]

h. Plantations for Australia: The 2020 Vision

Released in 1997, the “Plantations for Australia: The 2020 Vision” is the most important strategic policy setting the current direction of plantation development in Australia, with many of the present incentives being a direct result of this policy.

It is a framework designed to achieve an internationally competitive plantation-growing and processing industry that is commercially focused, market-driven and market-oriented. It aims to develop a significant, long-term and environmentally sustainable plantation resource through major private sector investment, which will enhance the growth of Australia’s forest industries and the contribution made by plantations to the Australian economy, rural and regional communities and the environment.

The 2020 Vision details the main actions to encourage plantation establishment to meet the target of trebling the plantation area from 1.1 to 3.3 million ha by 2020. The Vision partners (the National Association of Forest Industries, Plantation Timber Association of Australia, Australian Forest Growers and the Commonwealth/state governments) are working jointly to implement these actions. Recent trends indicate that the current expansion in plantations is on track to meet this target. The focus is on boosting the availability of suitable land, getting incentives right, establishing a culture of commercial plantations and improving information flows. The government partners recognize their roles in:

In the initial phase, emphasis had been on increasing awareness of the Vision - particularly at the regional level, involving local government and seeking commitment from state governments to provide a regulatory environment that did not discriminate against plantation growing - and focused on overcoming obstacles to the development of plantation forestry.

A revised 2020 Vision stresses the need to remove some remaining impediments (such as the question of property rights) and to maximize the benefits from plantation expansion. It also highlights the potential for tree plantings to help maintain and improve the environment, while being productive at the same time, to stakeholders. It is expected that the social issues of water and land degradation, fire management and competing land uses will be increasingly addressed as a result.

Besides building an internationally competitive and environmentally sustainable plantation sector, other expected benefits of the 2020 Vision are reducing Australia’s net greenhouse gas emissions, turning around the wood and wood product trade deficit, rural development (including creation of up to 40 000 jobs) and improved land management outcomes.

In line with the increasing production of softwood, the hardwood sawmillers have begun diversifying their mills to produce kiln-dried timber for furniture, flooring, mouldings and other value-added products. The increased domestic production will see a surplus of sawntimber in the next five years accompanied by a decline in imports. A similar trend is projected for wood panel products, including particleboard and plywood.

i. Action Agenda for Forest and Wood Products

Launched in 2000 by Commonwealth/state governments and industry, the Action Agenda’s vision is maximizing sustainable and profitable activities for tree growing, value adding and marketing of Australian forest and wood products. In committing to this goal, industry and other stakeholders recognize:

The Action Agenda has been designed to provide an enabling environment, within which industry can seek sustainable competitive advantages. It identifies six broad themes considered vital in dealing with those impediments and in pursuing emerging opportunities:

Impacts of incentives

Following the settlement of European immigrants in Australia, most forest land had been cleared for agriculture. Since the 1980s, however, the establishment of plantations on former agricultural land has reversed the trend. Most states now prohibit clearance of native forest for establishing plantations.

Increasing numbers of small-scale plantings were undertaken, notably in Western Australia. In other areas, in what became known as the “Green Triangle”, the plantings were larger in size and often in contiguous blocks.

Investment companies, sometimes driven by tax advantages of various schemes, established many of the plantations during this period. Often they had no direct links to processors at the outset, but once sufficient critical mass was obtained, they negotiated sales agreements usually for woodchip exports to Japan or Korea. The largest plantation companies are closely tied to foreign companies, especially Japanese pulp and paper enterprises.

Summary and lessons learned in Phase 4

During the 1990s, Australia’s economy opened up and moved to a freer market-based approach. This is reflected in the incentives now employed and has led to the highest sustained growth and total area in Australia’s plantation development. At the state level, incentives are predominantly direct mechanisms and include those offered by large private companies targeting small-scale private landowners, while the Commonwealth has moved towards indirect mechanisms. Overall, governments have increasingly distanced themselves from hands-on participation and are focusing on removing impediments, supporting existing investors and attracting new ones.

Table 4 sets out a comparison of factors constraining the effective use of incentives in plantation forestry in the early 1990s and how these have been reduced or overcome by 2002.

Table 4: Comparison of effectiveness for forest plantation incentives between 1991 and 2002

1991 constraints

2002 situation

Taxation provisions

Long lead-time between establishment costs and revenues from harvesting made forestry unattractive, compared with agricultural crops.

Tax policy changes, including tax averaging, 12-month rule and farm management deposits scheme.

Lack of competitive neutrality between state forest agencies and private growers affecting (depressing) log pricing and log allocation.

By 2002, many of the largest state forest agencies corporatized during the preceding ten years (New South Wales state forests, Tasmanian and Victorian pine plantations, privatized agencies) now pay some taxes, putting them on a more level playing field than in the late 1980s/early 1990s.

Trade interventions

Export approvals required for unprocessed wood and woodchips.

For RFA regions, export controls for woodchips have been removed, with no ceilings in place for private plantation wood.

Protection from imports of forest products.

By 2002, tariffs had been reduced to between zero and five percent, to open up markets.

Land-use interventions through government policies (e.g. assistance to other land-using industries such as dairying or sugar cane).

By 2002, many of these subsidies had been reduced or eliminated.

Much uncertainty in the supply of forest resources and hence in forest investment overall.

The RFA process was finalized in 2001, with ten agreements in effect. The agreements provide a 20-year certainty to forest industries as well as setting out extensive reserve systems for

Marketing for logs from commercial plantations

Other impediments are associated with problems of imperfect knowledge.

By 2002, market intelligence reports are produced by several firms (e.g. the comprehensive but expensive AUSNEWZby URS Forestry aimed at large industrial growers and processors, and the free Australian National University [ANU] Forestry Market Report which is primarily aimed at Australia’s small forest growers [see Bhati 2002]).

The reliability and availability of information on the full nature and extent of Australia’s forests and plantations were limited as it was compiled individually by the states and not reported consistently.

The Commonwealth government initiated the NFI programme in 1995. This grew to include statistics on plantations and culminated in the first comprehensive statistics on the plantation estate through the initial NPI reports of 1997 and the more comprehensive report of 2001 (Wood et al. 2001).

This important resource information is vital for government policy-makers, industrial processors and investors to make better informed decisions. This reduction in uncertainty over the information and consequent reduction in risk is very important for investor confidence.

Limited bargaining power of small growers in the log market.

By 2002, several cooperative schemes for private forest owners have developed (e.g. in Tasmania) and these are assisting small-scale growers to collectively market their wood with regular and increasing sales even into the international markets (e.g. Korea).

Source for 1991 constraints outlined: Bhati et al. (1990). 2002 analysis is preliminary only.

Collectively the incentives have proven highly effective. Combined with an eager pulp market and the easing of the export and foreign investment restrictions, they have produced a steep increase in planting rates (see Figures 2, 3 and 4; Table 4). Since the 1980s, most plantations have been established on former agricultural land. Planning approval processes in many states now prohibit clearance of native forests for establishing plantations. Plantation growers actively compete for land with other sectors on a commercial basis.


Through international competitiveness and value adding, Australia’s native forest and wood product sector is targeting niche markets utilizing the unique characteristics of these timbers. Nevertheless, Australia has substantial plantation resources and is increasingly using them as a primary source of wood products, both for export and domestic use. Plantations cover just one percent of the total forest area but contribute 54 percent to all roundwood and 66 percent to all sawlog production.

Plantation incentives in Australia were initially offered to achieve self-sufficiency. Over time, this narrow focus broadened to encompass the strategic goal of creating an internationally competitive plantation-growing and processing industry by developing a long-term and environmentally sustainable plantation resource through major private sector investments. Although plantations are established for numerous reasons, wood production is now the most significant (Figure 6).

Figure 6: Australia’s forest plantation continuum: from environmental to industrial plantations

Incentives have been changed over time, reflecting the evolution of government, industry and community expectations of forestry. The Commonwealth government, most state governments and industry have provided a range of direct and indirect incentives with varying success. Specific plantation incentives now focus on creating an environment attractive to investors in commercial plantations and processing facilities. They include:

R&D and an associated strong extension programme to distribute research findings to stakeholders have contributed also to the successful provision of incentives.

Non-plantation specific incentives arising from broader national agendas and institutional changes over the last ten years have also benefited plantation development. These include:

A summary of the more significant direct and indirect incentives is provided in Annex 1.

The result has been a sustained increase in total plantation area since the 1950s, particularly in the 1960s and early 1970s with the Softwood Loans, and more so since the early 1990s following national agreement of a secure strategic policy framework through the NFPS and 2020 Vision, and broader macro-economic reforms. In 2001, the total plantation area increased by six percent, the majority of plantations was privately owned (54 percent) and growing, with 89 percent of new areas being on private land (Wood et al. 2002). Ownership and partnership arrangements are diverse and reflect the success of recent initiatives to attract private investors. This includes a variety of joint venture and annuity agreements for tree ownership, where both public and private parties add some equity in the tree crop. Farm forestry is a growing area for such arrangements.

Based on Australia’s experiences, conditions in which forest management and plantation investments may prosper include:


Creating a favourable climate for plantation establishment and growth

Australia’s plantations largely began through the Commonwealth government’s investment loans to the states. The success of the states’ plantation developments in turn encouraged private investments. The increase in plantation area was sufficiently large to meet Australia’s concerns for self-sufficiency in timber and the sustainability of its native forests, allowing the Commonwealth government to then gradually wind down the Softwood Loans. Despite this decline in direct support, plantings increased, facilitated by the removal of a range of tax inequities and general impediments, and by introducing supportive Commonwealth and state government policies and programmes. This pattern is not limited to Australia. Other countries that previously used substantial subsidies to encourage plantation establishment (for example, New Zealand, Chile, Brazil and Uruguay) have experienced similar increases in plantings, despite reduction or elimination of direct support.

According to Adams and Castano (2000), preconditions for establishing plantations are similar to those required to manage natural forests sustainably, namely: security of tenure, effective planning, yield control and environmentally sound harvesting (Poore et al. 1989). As such, simply possessing large areas of natural forest is not sufficient to maintain wood production. The initial relative advantage of countries with substantial natural forests will ultimately decline, if the underlying infrastructure and support mechanisms are not maintained and developed (Durst and Brown 2000). As such, countries with initially small areas of natural forests but having a well-developed forestry infrastructure, access to capital and the ability to shift their wood production to plantations and grow trees quickly, are well placed to capture existing markets and create new products and markets.

However, growth rates are only part of the equation for financial competitiveness. Overall rates of return are of critical importance. Besides growth rates, they also depend on other factors such as initial investment costs, interest rates, transport costs and the final product’s price. Many developed temperate countries continue to have significant advantages in infrastructure, technology, labour and skills, and have lower interest rates compared with developing countries. Economic efficiencies arising from integrated processing are important. Likewise, having processing industries in close proximity is also important. The crucial point is that the ability to grow trees quickly is only one of a complex set of factors determining success in forestry.

Political will and policy stability

The Australian Government’s policies, refined over time, remain remarkably consistent in supporting plantation establishment over the decades. This stability provides confidence to investors that the government is not likely to suddenly change the ground rules.

The Commonwealth and state governments have a range of policy instruments to promote natural resource management for the public good. These include regulation, education and provision of information, and the provision of economic incentives such as tax deductions, subsidies, grants and market-based instruments. Increasingly, Australia is moving away from direct subsidies and incentives to a market-based investment approach. The Commonwealth government achieves this through enabling incentives based on an appropriate policy and legislative framework to remove impediments (disincentives) and provide a conducive environment for private industry and capital to set up sustainable and profitable plantations. The 2020 Vision is a good example of industry-specific policy at the micro-level.

State government plantation ownership was a critical factor in advancing Australia’s plantation industry. However, market distortion and a lack of competitive neutrality, caused by the continued dominance of some state-owned forest agencies as softwood suppliers, led to a monopoly in many regions. The Commonwealth government initiated the National Competition Policy (NCP) to inculcate public agencies’ competitive neutrality by separating their business and regulatory functions. As such, governments now apply full taxes or tax equivalent payments, debt guarantee fees and private sector equivalent regulations on public agencies. An essential element of the obligations is that government business activities, like their private sector counterparts, set prices to earn sufficient revenues to cover their costs. This ensures that public sector investments face the same costs and commercial pressures as their private sector competitors. Several state forest agencies have been corporatized with some states selling off most or all of their plantation estates. Most now pay taxes and adhere to price transparency, thereby creating a level playing field for timber sales.[30]

Tariffs and trade barriers

In recent years, tariff barriers have declined in most of the main timber import markets and tariffs worldwide will continue to fall through bilateral, regional and global trade negotiations (Adams and Castano 2000). Non-tariff measures can also influence trade. These include a wide variety of rules and procedures ranging from health and technical standards to measures influencing price. Restrictions on log exports have traditionally been used to support the domestic processing industry in timber-producing countries.

Bhati (2001) highlights the issue of tariff barriers facing Australia’s forest product exports. A further Commonwealth government economic study projects that Australia’s net exports of logs and wood-based panels will rise significantly within ten years, and the country should change from a net importer to a net exporter of sawntimber. Paper imports will fall as a percentage of total paper consumption. The Australian forest product industry will soon transform from largely a domestic market-oriented to an export-oriented industry.

Australia nevertheless imposes tariffs on imports of forest products, generally between zero and five percent. However, due to the policy of preferential tariffs for the developing countries, forest products from such countries are duty free. Bhati (2001) argues that for this reason and the fact that Japan and Korea (developed countries) impose higher and escalating tariffs on some products than Australia, it is in Australia’s interest to take the initiative to have tariffs on its exports in Asian markets removed (assuming it can retain and increase access to overseas markets).

Institutional changes supporting incentives

There is a clear and increasing trend in Australia to privatize many government-owned commercial ventures. This has ranged from telecommunications to banking and has occurred to some extent in two state-owned plantations. The State of Victoria has sold its pine plantation estate of several hundred thousand hectares to Hancocks Pty. Ltd., a subsidiary of the international firm Hancocks U.S.A. Likewise Tasmania has entered into a 50 percent joint venture of their pine plantations with the North American investment company GMO Renewable Resources.

Extension and dissemination of information

Commonwealth and state governments have extension and information dissemination systems actively providing information and advice to private industries and landholders. An example is the RPCs established by the Commonwealth government in 1996 in Australia’s main plantation regions. Their aim is to promote wood production on cleared agricultural land and integrate commercial tree growing for wood and non-wood products with other agricultural land uses, with an emphasis on developing commercial uses of native species, through the coordination of stakeholder activities and the development of strategies for industry development. Since then, RPCs have worked with local and regional stakeholders, including landholders, state and local governments and industry to:

The RPCs have the potential to further contribute to improving linkages at the national and regional levels.

Other projects that prepare and provide information to support the plantation industry include the ANU Market Report project that contributes towards creating more informed forest product and input markets in Australia, primarily for small-scale forest growers.[31]

Possible future drivers

The Kyoto Protocol, greenhouse gas and carbon credits

The inclusion of “sinks” in the Kyoto Protocol has created expectations of increased investment in forest plantation development for carbon storage. Grant and Keenan (2000) note that because the total area that might be converted to plantations is limited, increased carbon sequestration in forest plantations is generally regarded as part of a transitional strategy to reduce atmospheric concentrations of greenhouse gases over the next 50 years or so. However, before carbon-oriented forestry can become a significant factor in global plantation development, the Kyoto Protocol has to be ratified and come into effect internationally.

Even so, this has not prevented initial investments. In New South Wales, the Tokyo Electric Power Company has signed a contract to establish a forest estate for carbon sequestration and timber products over a ten-year period. The target area is between 10 000 and 40 000 ha, with 1 000 ha to be planted initially. The estate is expected to comprise half hardwoods and softwoods. The investment opportunity is attractive because the underlying forestry asset achieves a positive return over time, even assuming no value for carbon. Hence, if the Kyoto Protocol is not ratified, or if ultimately the value of carbon sequestration from the carbon sink is not realized, a valuable asset will still have been created.

Other commercial and market-driven activities are resulting in plantation investment for carbon offsets. Commonwealth and state governments have developed specific policy initiatives to facilitate carbon-related investments, including:

Still, a number of issues require resolution before carbon offsets can play a significant role in plantation development, for example:

Plantations as a financial investment

Plantation investments may provide portfolio diversification, long-term returns and improve risk management through reduced portfolio volatility. Experiences of large institutional investors in North America and Europe indicate that plantation returns are often counter-cyclical to the returns from financial assets such as stocks and bonds. As such, they may be worthwhile investments for superannuation funds because the long maturity periods match the fund’s rising long-term obligations.

Annex 1: Summary of forest plantation incentives used in Australia

Date started/ ended

Brief description of incentive

Initiated by Commonwealth, state, timber industry, private sector

Target group (e.g. state, timber industry, private landowners, others)

Direct/ indirect funding[32]



Infrastructure provision (e.g. roads and port facilities)

Commonwealth and state

Regional Australia and associated rural industries


Attracts and facilitates investment, reduced cost of production, opens new areas to forestry

2002 - present

Tax equity package


Timber industry


A range of tax measures for current and future investors in plantations. Removed impediments will ensure forest plantations are treated equally with other rural industries, especially agriculture.

2002 - present

Natural Heritage Trust 2 (restructure of Natural Heritage Trust 1 with additional funding)

Joint Commonwealth and state

States, timber industry, private and communities


More strategic focus on environmental services and improved natural resources management. Mainly assists farm forestry

2001 - present

Investor attractiveness frameworke.g. reduced interest rates, attractive exchange rate, incentives for large-scale processors


Timber industry


Attracts and facilitates investment, reduced cost of production, improved competitiveness of operations

2000 - present

Australian Forestry Standard

Joint Commonwealth, states and industry

Timber industry


Provides credibility of Australia’s sustainable forest management practices and improved sale of forest products to global markets

2000 - present

Action Agenda for Forest and Wood Products


Timber industry


Promotion of demand-side initiatives, encompassing such issues as value adding, expanding non-traditional forest and wood uses, and market and investment development

1998 - present

National Farm Forest Inventory

Joint Commonwealth, state and industry

Farm forestry


Support the development of farm forestry and plantations generally by the collection, interpretation and dissemination of data, and assist to monitor the outcomes of the NFFP

1997 - present

Plantations 2020 Vision strategy

Joint Commonwealth, state and industry

Timber industry


A trebling of Australia’s forest plantation area by 2020 through removing impediments, encouraging value adding and regional development, and contributing to environmental services and a market-driven timber industry

1997 - 2001

Natural Heritage Trust 1

Joint Commonwealth and state

Commonwealth, states, timber industry, private and communities


Assists farm forestry programmes and contributes to broader environmental services by, in part, community involvement and stimulating additional investment in the natural environment sustainably

1996 - present

Removal of Export Controls on wood from plantations


Timber industry


Increased access to export markets, creating additional demand for forest products

1995 - present

Regional Forest Agreements


State, timber industry and conservationists

Direct to state

Certainty of resource availability, comprehensive reserve system and sustainability

1995 - present

Establishment of networks to provide advice and streamline planning approvals (Regional Plantation Committees)


Timber industry and private landowners


Provide focal point in 17 regions to disseminate information and encourage plantation establishment and farm forestry

1995 - present

National Competition Policy

Joint Commonwealth and state

Timber industry


Removal of unfair competitive advantage of state-owned forest corporations

1995 - 1999



Timber industry and processors


Greater research and downstream processing, expansion of farm forestry and the plantation sector, and improved information on plantation areas and wood flows

1993 - present

Joint Venture Agroforestry Programme


Timber industry (including farm forestry)


Integrating sustainable and productive agroforestry within farming systems

1993 - present

National Plantation Inventory

Joint Commonwealth and state

Timber industry


Support the 2020 Vision, through provision of reliable and transparent quantitative data series to aid regional and national resource planning and guide investment in plantations and associated downstream industries

1992 - present

National Forest Policy Statement

Joint Commonwealth and state

Timber industry


Integrated environmental sustainability and commercial production for Australia’s public and private forests, with specific commitments to improve the management of commercial plantations

Early mid 1990s

Numerous development incentives designed to attract and encourage new investors to forest plantation, maintain and improve quality and quantity of existing plantations, incentives for large-scale processors

State and private (normally larger timber and paper companies)

Private landholders


Numerous - often specific according to who funded the incentive,e.g. encourage reforestation within reasonable distance of paper mills, establish private softwood and hardwood plantations, increase pulpwood supply, re-establish plantations on suitable lands after harvesting, farmers to grow trees commercially

1990 - present

Relaxation of foreign investment rules


International timber industry


Increased foreign investments in plantations with improved attractiveness to potential new investors

1990s - present

Dissemination of information for investors and landholders

Commonwealth, states and industry

Timber industry


Greater awareness of government programmes, superior decision-making, increased plantation rates and areas


Grants to downstream processors




Improved integrations and efficiency, value adding, greater market demand

1989 - present

Landcare: environmental issues an additional factor in planting trees

Joint Commonwealth and state

Timber industry and conservationists


Enhanced environmental gains arising from community participation and strategic targeting of national environmental issues, greater public awareness and acceptance of forest management practices

1987 - 1989

National Afforestation Programme


State and private forests


Contributed to a 6 000 ha increase in hardwood plantations

1980 - present

Taxation deductibility arrangements for plantation establishment, Managed Investment schemes, reduction of company tax rates


Timber industry


Improved attractiveness of plantations as investment vehicles and viable alternative options for diversification

1966 - 1982

Commonwealth Softwood Loan Agreement Act


State forest agencies


Large increase in softwood planting


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[11] This report was co-authored by (in alphabetical order): Clive Catton (Department of Agriculture, Fisheries and Forestry - Australia [AFFA]), Adam Gerrand (Forest and Vegetation Program of the Bureau of Rural Sciences - [BRS]), Annie Josline (AFFA) and Robert Miller (AFFA), with editorial input from Robert Miller. Michael Stephens (AFFA) provided initial guidance, with forest data provided by Mellissa Wood and Geoffrey Dunn (BRS). The authors would also like to thank the various state forest agencies and forest industry stakeholders for the provision of valuable information and reviews of earlier drafts.

This report does not represent professional advice given by the Commonwealth of Australia or any other person acting for the Commonwealth for any particular reason. While every effort has been made to ensure the accuracy and completeness of the information in this report, the Commonwealth of Australia makes no representation or warranty or accepts any liability in this regard. It should not be relied on as the basis for investment, development, planning or any other decision to take action on any matter that it covers. Readers should make their own enquiries and obtain professional advice, where appropriate, before making such decisions.
[12] Forests, as defined by Australia’s National Forest Inventory (NFI), include native and plantation trees, and areas of trees often described as woodland.
[13] A copy of the NFPS and further information is available at:
[14] Further information of the policy is available at:
[15] Further information of the Forest and Wood Products Action Agenda is available at:
[16] Further information of FWPRD is available at:
[17] Further information on the CSIRO is available at its Web site:
[18] Further information on ACIAR is available at:
[19] Further information on CRCs is available at:
[20] For information on areas planted for public and privately owned plantations, see Wilson (1969).
[21] For information on consumption of industrial wood and fuelwood, sources of supply from natural forests, public or private plantations, and imports, see Wilson (1969).
[22] Bhati et al. (1991) provide an excellent overview of the Australian plantation incentives during the 1980s. Apart from identifying economic research gaps and priorities, the authors include an annotated bibliography of relevant research and publications.
[23] See “Integrating tree crops and farming” at:
[24] Further information about the ATO is available at:
[25] Further information about the Review of Business Taxation is available at:
[26] Further information about the NTS is available at:
[27] For more information, refer to:
[28] For details, check the Janis criteria at
[29] For more information, see the RFA Web site:
[30] Further information on the NCP is available at:
[31] The project has produced 20 reports, available at:
[32] A quantitative assessment of each incentive and its costs was not possible, as many incentives were generic to the whole timber industry - not just plantations. They operated in conjunction with other incentives and cannot be isolated. Impacts have changed over time and with the development of different aspects (e.g. farm forestry). Individual costs were unavailable as many incentives were/are part of broader natural resource management, general government policies and programmes.
[33] A quantitative assessment of each incentive and its costs was not possible, as many incentives were generic to the whole timber industry - not just plantations. They operated in conjunction with other incentives and cannot be isolated. Impacts have changed over time and with the development of different aspects (e.g. farm forestry). Individual costs were unavailable as many incentives were/are part of broader natural resource management, general government policies and programmes.

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