Economic incentives for private softwood plantations in Victoria

More than 90 per cent of the privately-owned softwood plantations in Victoria are owned by a small number of companies involved in the further processing of softwood timber. This study examines the economic factors influencing the establishment of softwood plantations by other private landholders (i.e. those that do not own softwood processing facilities) and evaluates the economic incentives currently offered to encourage these landholders to establish their own plantations. A number of economic factors contribute to the current low level of planting by private landholders that are not directly involved in the further processing of softwood. These include the structure of the market for softwood in Victoria, the price private growers can expect to receive for their wood, and the long term nature of the investment. The current taxation arrangements for private forestry offer a number of incentives for the establishment of softwood plantations. However they also contain a number of anomalies and disincentives to private forest investment. Various proposals to reform the income tax legislation have been put forward by private grower organizations and by the Commonwealth Government and this study critically evaluates these proposals. The Farm Forestry Agreement Scheme is an incentive scheme that has been offered by the Victorian Government since 1967 to encourage the establishment of private plantations. It offers low-interest loans with repayments deferred for the first 12 years. After more than 15 years operation the total plantings under the Scheme are approximately 8,300 hectares or less than four per cent of the total Victorian softwood resource. Inflation has seriously eroded the incentive value of the Scheme and it is also a very costly and cumbersome scheme to administer. Many Agreement holders are experiencing difficulties in selling wood from their plantations to meet loan repayments and interest in the Scheme has steadily declined in recent years. A number of softwood processing companies operating in Victoria also offer assistance schemes to encourage private landholders to establish their own plantations. The schemes offered by Softwood Holdings Ltd. and APM Forests Ltd. provide private growers with an assured outlet for their timber and have assisted a number of private growers in marketing wood from their plantations. In addition Australian Newsprint Mills Ltd. have recently introduced a scheme known as the Joint Venture Agreement Scheme which offers assistance in the establishment, management and marketing of wood from plantations established jointly by the company and private landholders. The formation of co-operatives of private forest growers offers a number of potential benefits to the owners of private plantations. Of these increased bargaining strength in the marketing of wood and a mechanism for better communication between private growers and softwood processing companies appear to be the most important. The existing incentives and assistance schemes offered by the Government have not been particularly successful in encouraging the establishment of softwood plantations by private landholders. New economic incentives are therefore required if these landholders are to supply an increased proportion of Victoria's future softwood requirements