PULP MILL

 Gunn's Pulp Mill 

Sacrificing Regional Economies

By R Le Lievre

Government in Tasmania is not especially well known for demonstrating any great regard for transparency in matters of governance. However, the recent Lennon government had come to demonstrate, albeit unwittingly, some considerable transparency in regard to one particular characteristic of contemporary governance: our society is no longer as democratic as it is corporatist. Corporatist, rather than democratic, in that corporations have more influence on government than the electorate - and corporations are not democratic institutions

Corporate influence aims at economic homogeny, best achieved through concentration of resources into fewer and fewer hands. Usually, in more sophisticated societies, some discretion is exercised in pursuit of this agenda: not in Tasmania . The Labour government stands shoulder to shoulder with the corporate CEO, spending millions of taxpayers dollars vigorously promoting the corporate agenda and subsidizing the industry’s operations, all the while assuring the electorate that the corporate interest is the state’s interest.

The current pulp mill debate makes too little, much too little, of the consequences for regional Tasmania of the Gunns Ltd pulp mill.  Gunns Ltd is winning against food producers in the competition for soil, water and government support. Across Tasmania , timber plantations are replacing food production as a result of the corporate capitalization of managed investment schemes (MIS). Food producers will struggle to keep their farms unless the playing field against Gunns Ltd is leveled.

In Tasmania , the plantation estate is already over 650,000 hectares (6,500 sq kms) comprising over 400,000 ha of private timber reserves and 250,000 ha of public and other plantations, totaling nearly 10% of Tasmania ’s land mass. While this could be beneficial, somehow, plantation forestry has come to be classified as agriculture and, consequently, there are no restrictions to using our best soils for trees. Since trees grow much better on high quality land, plantation operators are very happy to buy up farms whenever possible.

Interestingly the Federal Government made a clear distinction that forestry is not an agricultural crop when it removed tax exemption status on agricultural MIS’s and not on forestry MIS’s. On this we should be demanding an explanation as to why the production of food doesn’t rate as highly as plantation forestry for special tax treatment.

When there is a competition for scarce resources, as there is for Tasmania ’s 107,000 ha of crop lands (Class 1, 2 & 3), then plantation operators can always dominate that competition mainly thanks to the federal tax schemes. So there is a progressive shift in land use from food production to tree production, and that shift is threatening serious consequences.

The plantation forestry 2020 Vision program places quite some emphasis on the ‘investors’ in the plantations, while, in fact, most of the investment is made by taxpayers who are allowed 100% tax deduction for investing in trees - financial impediments having been removed by highly favoured tax treatments.

The amounts paid to plantation operators for plantation development were also generous, given that the actual cost per hectare is around $3,500 while the deduction has been around $9,000. The difference of $5,500 has meant that plantation operators make enough to purchase more land after putting the money through their books. The result has been described by farmers as a tax fuelled land grab because plantation operators are able to offer higher prices for land since they have such a huge economic advantage provided by the tax payer. It is the huge advantage provided to one industry by the tax subsidies that is distorting the free market and exacting a growing penalty on rural Tasmania (Bolan, 2007).

Since 1997, when the 2020 vision was launched, about 20% of Tasmania ’s farms, mainly in higher rainfall areas, have been purchased by MIS corporations. Of the approx. 4552 farms in the state at that time, around 1000 are now owned and controlled by MIS plantation forestry corporations. Private Forest Tasmania (PFT) figures state that, in 2003, 1158 hectares of our farmland was turned into forestry plantations. In 2004 it was 3,563 hectares, an increase of 205%. In 2005 it was 6,266 hectares: a further increase of 75.8%. In 2006 the amount of farmland lost to plantations increased by a huge 163.5% to 16,518 hectares (PFT). David Byard puts the figure at 23,000ha for 2006 (Tasmanian Country, 10-8-07).

The threat to agriculture is that the distortions of the free market that occur with tax subsidised operations will overtake the nation’s food production capacities. A crop of trees takes 10 - 15 years to mature while food production produces crops each year. Furthermore most foods tend to produce a higher dollar return per hectare than trees and generate more employment. Shifting land use from food to tree production cuts overall revenues, reduces job opportunities and cuts the cash flow to rural communities, all undesired consequences of subsidising one industry in the competition for prime land.

Food production and its downstream processing activities are employment rich and productive activities, that contribute significantly to the nation’s economy, particularly as so much of the money passes through rural centres and stimulates local economies. When tree plantations take over from food production, the process is largely irreversible, and therein lies the greatest threat of all. It is the conversion of vibrant existing rural centres into depressed areas surrounded by trees coupled with an increased failure to be able to feed ourselves from our own lands. We will lose control over the quality, variety and cost of foods available to Australians.

Water. Water is quite an issue in regards the pulp mill proposal. The concern in regards to water supply is that Hydro Tasmania confirmed a contract to sell Gunns Ltd. 26 gigalitres (Gl) a year with allowance to increase to 40 Gl. For reference, Launceston uses 29 Gl. It seems Gunns will be guaranteed water supply when existing irrigation farmers can not get the same guarantee. (Note: 1 gigalitre = 1000 megalitres = 1 thousand million litres.)

An enterprise with such a huge thirst does seem somewhat inappropriate in current circumstances: last year the catchment experienced algae problems as a result of lack of flow and the state was importing power from Victoria because there wasn’t enough flow to meet our requirements. Annual rainfall has already dropped by 7-10% in the north and east since 1975. In the St Patricks and North Esk catchments, autumn rains have typically failed (L’ton City Council, 2002). Global warming is expected to lower annual rainfall by a further 8% by 2030 (Tas govt draft climate change strategy, 2006).

David Leaman (hydrologist) makes the point that forest plantations are shaping up to use a lot more water than agriculture and demand is likely to exceed supply. The problem is that, in many areas, trees get the water first. In most of our river catchments the state forest has been converted to plantations. Vast areas of uniform young eucalypts suck the catchments dry. Consequently, water becomes scarce and more expensive for the farmer.

Growing 7 million tonnes/yr of wood for the pulp mill as well as the chip export market comes at a cost of around 1100Gl/yr of water.  
One megalitre of irrigation water conservatively adds $500 to the value of crops at the farm gate (DPIW). Over 15 years, the potential value of 1100Gl/yr of irrigation water used to grow food crops is about $8 billion. Over the same period, the total value from the same area growing trees and sold as pulpwood, is around $2 billion. On good soils food crops deliver four times more value for our water investment.

Forestry.  Every poll conducted to date has demonstrated the people of Tasmania do not want the Gunns Ltd. pulp mill, however both major parties in the state parliament support the proposal. Consequently, the party members, our representatives, are not permitted to represent us - their constituents. Ben Quin resigned from the Liberal party before the last election as a consequence of the lack of scope to represent his constituency. In his words: “They just want to know that there’s an avenue for them to voice their concerns and opposition and that’s totally been taken away. “As a Liberal candidate – I find that totally unacceptable; they’ve got no avenue at all open to them as members of the public.”

In resigning Ben Quin made the point that “most significantly it (the pulp mill) will cause long-term loss of flexibility in the timber industry”.  It would appear Ben’s concern is not unfounded. Dr Chris Beadle asks the question: Having observed the pulp mill debate in the media I am concerned that a very key issue is being neglected.  Can Tasmania 's production forests produce enough wood to supply a world-scale pulp mill for the next few decades?

His answer: I have come to the conclusion that projected wood flows may not meet the requirements of the mill over its lifetime, and that supplying large amounts of wood to a pulp mill neglects consideration of existing and new opportunities to add greater value to wood.

We’ve just witnessed the closure of a high return veneer mill in the Derwent valley because the resource has already been exhausted by the low return woodchip industry. Our parliament would now have the great bulk of all remaining public resource locked into a supply deal for a private sector entity, Gunns Ltd., to pulp.

Tamar Valley . The type of regional enterprise that has stimulated economic growth in recent years is being ignored and jeopardized, if not deliberately undermined, in the drive for economic homogeny. Diversified regional economies grown by the type of enterprises that have developed on the state’s clean, green and clever image are in the balance.

Every year some 150,000 tourists travel the Tamar Valley Wine Route. The region has become a showcase for the state’s best produce and leading restaurants. The businesses dotted throughout the valley are the kind of “clean, green and clever” small operations that have driven jobs and economic growth in recent years. Now, the vignerons and chefs, fish producers and small agribusiness operators who have exploited the states “clean, green and clever” brand are threatened with having their enterprise undermined by a pulp mill: the diversified regional economy sacrificed to the corporate agenda.

A vineyard in the Tamar valley can be expected to yield 5 tonnes of grapes per hectare per annum. The return from the sale of grapes is $3000 per tonne, or $15,000 per hectare per annum. The return from cellar door wine sales is $8000 per tonne, or $40,000 per hectare per annum. Then there might be restaurants, cafes, functions and catering services incorporated in the business plan of the vineyard. Yet the Tamar valley wine industry is to be sacrificed for a forestry industry being subsidized to return (optimistically) $1600 ha/pa, plus Pulp mill.

Conclusion. Returning Tasmania to a dependency on energy-intensive commodity processing mega projects is not regarded as sound economic logic by several senior economists. Graeme Wells, associate professor of economics at the University of Tasmania , is critical of the focus on mega-projects. “All the modeling says the pulp mill is marginally positive for Tasmania – it’s about the equivalent of six to eight decent-sized hotels in terms of economic impact. Wells’ main finding is that Gunns’ impact study ignores considerable risks: “if world pulp prices fall and the Australian dollar continues to rise, then Tasmanian taxpayers will end up footing the bill,” he says. “Gunns will find ways of getting subsidies. In practice, if timber industry mills are in trouble, then politically there is a way found to keep them going and it costs taxpayers money. Whereas if it were six to eight tourist hotels - then certainly they would be on their own".

Saul Eslake, an economist with the ANZ bank, is critical of Lennon’s decision to conduct a narrow “benefits study”. “If you’re going to make a decision then you need to know about the costs as well as the benefits,” he says (Denholm, 2007).  

Tasmania is experiencing a particular urgency as regards these matters, being faced with the approval of the giant Gunns Ltd pulp mill to be situated in the Tamar valley. Precariously, the Lennon government has tied the state’s future with Gunns Ltd and its tree plantations, leaving the farmer, fishing industry, forestry and tourism well and truly out in the cold.

References:

Australian Bureau of Statistics. Yearbook 2007.

Belcher, R (2006). Review of Taxation Arrangements for Plantation Forestry. Submission to the federal government regarding plantation forestry. Sustainable Agricultural Communities (SACS) Ltd.

Bolan, M. (2007) You Can’t Eat Trees http://tasmaniantimes.com

Denholm, M. (2007) Pulp Friction. The Weekend Australian Magazine, May 12-13, 2007

Hopper, N. & Anderson, F. (2006). Perspective: The tax schemes that ate . Financial Review, July 1-2, 2006, pp17-19

Plantations 2020 (2005). The 2020 Vision: why expand plantations in ? www.plantations2020.com.au

Private Forests Tasmania (2007). Private property plantations in the landscape in Tasmania , as at 31 December, 2006. Information paper no.1, 2007 www.privateforests.tas.gov.au