Australia S Role in Asia Pacific Forestry

AUSTRALIA’S ROLE IN ASIA–PACIFIC FORESTRY

KAH LOW, PHILIP TOWNSEND, SINNIAH MAHENDRARAJAH AND DAVID CUNNINGHAM

OUTLOOK 2011 1-2 MARCH 11.13 ABARE Outlook conference paper 11.13

Abstract

The mounting challenges for Australia’s forest and wood product industry have become increasingly apparent over the past two years. A range of domestic and global market pressures are behind them, affecting producers and exporters of forest products. There are challenges for native forest resources as well as broadleaved and coniferous plantation estate. In addition, the strong Australian dollar since 2008 has attracted increased imports of products such as sawn timber, putting additional competitive pressures on domestic wood processors.

An analysis of trade specialisation in forest products of economies in the Asia–Pacific region shows that Australia has revealed comparative advantage in the production and export of woodchips, but not in other products, in comparison to other Asia–Pacific economies. This is projected to continue to 2030. Australia is a net importer in manufactured wood products and its trade deficit in those products is also projected to continue. China and other Asian economies are expected to have an increased capacity to manufacture and export wood products by 2030.

The policy framework and institutions developed over the past two decades will provide the platform for the next stage of forest industry development in Australia. The future direction of industry will be influenced by changes in both the domestic and global market for wood products. Acknowledgements

Discussion with Helal Ahammad and his detailed comments on the draft paper have been particularly helpful. The paper has also benefited from discussion with Tim Clancy.

1 ABARE Outlook conference paper 11.13

1. Introduction

Australia is endowed with a large native forest area of over 147 million hectares; a significant forest plantation estate, which now stands at over 2 million hectares; and a mature forest processing industry with low tariff barriers. Of the native forest, 40 million hectares are considered to be of commercial quality available for log production (Davidson et al. 2008). The past two decades have seen significant changes in Australia’s forest policy and industry structure, with a commitment to sustainable forest management and increased investment in plantations and wood processing to support the production and trade of wood products. Australia’s value of trade of forest products, exports plus imports, was $6.5 billion in 2009–10, with a trade deficit in forest products of $2 billion. However, it is important to note that the nominal trade deficit in $2 billion in forest products has not changed in nominal terms over the past decade.

Whereas the public sector was the dominant player in the forestry sector in the past, the private sector now plays an increasingly important role—covering growing, harvesting and processing activities. A significant trend is the purchase of the rights to standing timber established by state forestry agencies and managed investment scheme companies by foreign investment companies and pension funds. This investment is assisted by the ability to separate the rights for trees from the land where they stand. Some of the pressing questions that require consideration are:

 How will industry seek to maximise the value of the existing coniferous and broadleaved resource?

 How might industry utilise the large broadleaved plantation estate built over the past decade? Will industry continue to export woodchips or undertake domestic processing? What are the markets for Australia’s broadleaved plantation sawlogs?

 The Japanese paper industry has contracted since 2008. Given the poor prospects of recovery, where will be the new export markets for Australian wood products?

 What are the information and data needs for targeted government policies?

The difficulty in answering these questions reiterates the need for ongoing research. An understanding of the key issues presented in this paper is important to stimulate discussion and debate on the future direction of the Australian forest and wood product industry.

The purpose of this paper is threefold. The first aim is to present the current issues concerning Australian forests and wood products, and markets that warrant discussion and debate. Broadly, the issues encompass declining access to native forest resource, separate challenges in the broadleaved and coniferous plantation sector, and changes in the domestic and international markets. It is important to have clarification on the future direction of the industry in order to identify key policy priorities, as they relate to trade and industry activities.

The second aim is to examine Australia’s present trade specialisation through its revealed comparative advantage in various forest products within the Asian–Pacific region with a view to frame its current and future positions in wood products trade in the region. For this purpose, Revealed Symmetric Comparative Advantage (RSCA) indices are computed for various wood products for economies in the Asia–Pacific. Then, growth projections of

2 ABARE Outlook conference paper 11.13 wood product trade from Jonsson and Whiteman (2008) of the Food and Agriculture Organization (FAO) are used to project the changes in the balance of trade for Australia and other Asia–Pacific economies to 2030.

The third aim is to provide a review of Australia’s forest policies and institutions over the past two decades with a view to highlight possible leadership that it could provide in this area, especially to the emerging economies in the Asia–Pacific region. 2. Issues facing the Australian forestry industry

This section discusses several domestic and international issues relating to the Australian forestry industry that warrant further investigation and debate. These issues include declining access to native forest resources, the rapid expansion in broadleaved plantations, the limited capacity to increase the supply of softwood timbers from the coniferous plantation estate, and changes in the Australian domestic and international market settings.

Declining native forest access

Since 1996–97, there has been a gradual shift away from native forests towards forest plantations. This shift is, in part, a consequence of policies aimed at protecting native forests, such as the Australian Regional Forest Agreements (RFAs) and promoting the expansion of plantations for wood (2020 Vision). In total volume terms, the declining access to native forests has largely been offset in recent times by increased log removals from broadleaved plantations (figure 1). Following the global financial crisis, native log removals fell from a total 8.9 million cubic metres in 2007–08 to 7.7 million cubic metres in 2008–09.

1. Logs harvested in Australia, 1996-2009

Source: ABARE–BRS (2010) and historical ABARES datasets.

3 ABARE Outlook conference paper 11.13 Challenges in the plantation estate

Between 2003 and 2009, the average establishment rate of broadleaved plantations was around 56 500 hectares a year. By comparison, the average establishment rate of coniferous plantations was 8400 hectares a year (ABARE–BRS 2010). A large proportion of forestry managed investment schemes (MIS) were aimed at expanding the short- rotation broadleaved estate. Hence, long-term projections in Australia’s domestic plantation wood supply indicate that there is an expected convergence in coniferous and broadleaved fibre availability over the medium term (figure 2).

2. Australia plantation log supply 2005-2049, five year average

Source: Parsons (2007).

However, the expansion of the broadleaved estate has begun to decelerate following the collapse of a significant proportion of the MIS in 2009 and 2010. There is uncertainty surrounding investment in new plantations and the replanting of existing sites once they are harvested. The decision to replant will largely be determined by returns to investment that could be influenced by a number of factors. These could include, but are not limited to, the productivity of the current plantation sites, changes in domestic demand from the opening of new pulp mills, shifts in international demand, particularly from China and Japan, and competition from other suppliers, including Chile, South Africa and Vietnam. Of particular interest is the recent growth in the global trade of wood pulp. With new pulp mills being located close to the emerging resources in South America in particular, the global trend has been to manufacture and export pulp rather than woodchips. For Australia, there is interest in building at least one pulp mill. If an increased proportion of Australia’s woodchip resources are processed domestically, it will have significant flow-on effects for woodchip trade in the Asia–Pacific region.

Changes in the domestic and export markets

The global financial crisis has had an adverse effect on the Australian forest and wood product industry in both domestic and international markets. In the domestic market, detached housing construction activity has been on gradual decline, and this is forecast to continue to 2011–12 (figure 3). There was a slight rebound in housing starts following

4 ABARE Outlook conference paper 11.13 renewed investor confidence after the global financial crisis, despite a number of interest rate rises over the past year. However, HIA Economics (2010) forecasts that this rebound will be short-lived and that there will be a return to the long-term downward trend soon. It may be noted that the fall in the construction of detached housing units, the main user of structural timber, was slightly larger than the decrease in the construction of multi-units dwellings.

3. Housing starts, 2003-04 to 2011-12

Source: HIA Economics (2010).

Australian consumers have benefited from the weak global demand for both coniferous and broadleaved sawn wood, which has placed downward pressure on import prices (UNECE and FAO 2010). However, the reduction in imported prices for sawn wood has also meant that domestic saw millers are experiencing increased competitive pressures. Beyond this immediate challenge, as discussed earlier, Australia will have only limited capacity to increase its supply of wood from coniferous plantations between 2010 and 2050 (figure 2). Hence, if there is a significant increase in domestic demand for structural softwood timber products, this demand is expected to be met mostly from increasing imports of sawn wood. For the domestic softwood growing and processing sectors, one of the key challenges arising from this future resource constraint is identifying the potential avenues for maximising the value that can be derived from the existing resource base.

In the Asia–Pacific region, the fall in demand from Japanese paper and paperboard mills has led to a contraction in Australia’s woodchip exports (ABARE–BRS 2010). The United States and advanced economies in Europe experienced sharp declines in paper and paperboard consumption following the global financial crisis. The Japanese paper industry has been contracting since late 2008, with a number of mills permanently closing down and production capacity moving to economies that have lower labour cost (such those in South America), provide direct investment support or are in close proximity to wood fibre sources. Changes in market pulp prices reflected the changes in paper production over this period, with falling prices from late 2008 into mid-2009 before rising strongly in late

2009. A stable demand for wood pulp in Asia helped to somewhat moderate the decline in commodity prices in mid 2009 (UNECE and FAO 2010).

Overall, the Australian forest and wood product industry is faced with a number of pressing challenges. The slowing down of many advanced economies in the region since 2008, combined with the strong Australian dollar, has weakened the prospects of expanding forest product sales overseas. Clear signals from the industry of its intended development direction over the long term will be required to attract new investment and to assist the government identify and address the policy issues. 3. The Asia–Pacific timber trade and Australia’s competitiveness

The international market presents opportunities and risks for the Australian forest and wood product industry. Much of Australia’s new plantations established over the past 15 years have been geared towards supplying the international woodchip market. Australia also relies on imported forest and wood products with a trade deficit in forest and wood products of around $2 billion over the past few years. On average, the year-on-year growth in nominal value of exports of Australian forest products has grown by around 5.6 per cent a year between 1995–96 and 2009–10, compared with an annual growth rate in imports of 2.8 per cent.

Calculating the comparative advantage for each forest industry in the Asia–Pacific is data intensive. However, it is possible to provide an indication of each economy’s comparative advantage in terms of their trade specialisation. To assess Australia’s trade specialisation, the revealed symmetric comparative advantage (RSCA) is calculated. As a case study, Australia’s trade specialisation is assessed against other economies in the Asia–Pacific Economic Cooperation (APEC).

The RSCA is an index used to indicate an economy’s advantage in producing a particular good or service based on the relative export intensities of products. See Balassa (1965) for further details of the methodology. The index has a range from –1 to 1. If the index is greater than zero, it implies that the country has a revealed a comparative advantage in producing the commodity. A RSCA estimate of zero implies that the economy does not export any of the particular good. However, a zero RSCA estimate does not imply that there is no production of the good in the economy, since the good may be produced and consumed domestically. The prevailing RSCA index subsumes the effect of government policies, such as subsidies, taxation and protectionist trade barriers that can affect the comparative advantages of the economy. Accordingly, the RSCA represent the competitive advantage of an economy in the production and trade of a commodity.

The estimated RSCA in forest and wood products for the Asia–Pacific economies are presented in table 1. Australia’s large share of woodchip export in the Asia–Pacific is reflected in a positive RSCA estimate (+0.91). The other RSCA estimates indicate that Australia does not have a revealed comparative advantage in any of the other forest products listed.

Table 1: Revealed symmetric comparative advantage of Asia–Pacific economies in wood products, 2009

Round Chips and Sawn Sawn Paper and Wood Wood- wood particles wood wood paperboard pulp based (C) (NC) panels

Australia 0.00 0.91 -0.47 -0.26 -0.20 -0.91 -0.38

Brunei 0.31 -1.00 -1.00 0.75 -0.37 -0.76 0.42

Canada -0.63 -0.84 0.32 -0.59 0.02 0.16 -0.33

Chile -0.99 0.53 0.05 -0.95 -0.56 0.50 -0.02

China -0.90 -0.99 -0.70 -0.06 0.04 -0.96 0.50

Indonesia -0.99 -0.61 -1.00 -0.73 0.10 0.17 0.15

Japan -0.89 -0.95 -0.82 -0.86 0.36 -0.58 -0.82

Republic of -1.00 -1.00 -0.96 -0.96 0.38 -0.77 -0.87 Korea

Malaysia 0.42 -0.60 -0.97 0.67 -0.66 -0.99 0.55

Mexico -0.87 -1.00 -0.47 -0.60 0.33 -0.67 -0.51

New Zealand 0.63 -0.23 0.38 -0.97 -0.52 0.01 -0.08

Papua New 0.85 0.28 -0.97 0.45 -0.99 -1.00 -0.62 Guinea

Peru -0.52 -1.00 -0.56 0.88 -0.15 -1.00 -0.82

The Philippines -0.61 -1.00 -1.00 0.36 0.24 -0.99 0.12

Russian 0.56 0.02 0.52 -0.53 -0.37 -0.32 -0.20 Federation

Singapore -0.30 -1.00 -0.89 0.66 0.16 -0.72 -0.03

Thailand -0.97 0.41 -0.99 0.70 -0.02 -0.77 0.30

United States 0.07 -0.38 -0.51 0.18 0.11 0.14 -0.55

Vietnam -0.64 0.93 -0.56 0.46 -0.59 -1.00 -0.16

Source: Data sourced from FAO (2011) authors’ calculations.

The analysis offers some insight into the revealed comparative (that is, competitive) advantage and trade specialisation of other economies in the Asia–Pacific region. Brunei, Malaysia, New Zealand, Papua New Guinea, the Russian Federation and the United States have a revealed comparative advantage in round wood supply. New Zealand has also been historically considered to have a competitive advantage in softwood log production, but low export sales in 2009 meant that this is not reflected in the calculated RSCA. However, round wood exports from New Zealand to China rebounded strongly during 2010. The United States has also been increasing their broadleaved wood exports to China, which accounted for around 27 per cent of the total USA broadleaved wood exports from January to August 2010 (ITTO 2010). On woodchips, the positive RSCA estimate for Vietnam reflects their rapid growth in wood chip trade.

Canada, Chile, New Zealand and the Russian Federation are all estimated to have a revealed comparative advantage in the production of coniferous sawn wood. In comparison, Brunei, Malaysia, Papua New Guinea, Peru, the Philippines, Thailand, the

United States and Vietnam are considered to have a revealed comparative advantage in the production of non-coniferous sawn wood. The results are not surprising given the natural forest and plantation wood resources available within these economies. Singapore, which has virtually no forest estate, also has a positive RSCA estimate for sawn wood. This is possibly due to re-exported sawn wood being captured in the analysis.

While providing a useful insight, the RSCA index should be interpreted with caution. Importantly, the RSCA is a point estimate and can identify trends if estimated for various years. It cannot differentiate the current trading regimes, including regulations and barriers of the countries, and does not account for domestic production. Further, the RSCA index presented in table 1 has relied on aggregated 2009 data, and therefore does not describe variations in the value of different forest and wood products within each category. For example, Australia has specialised in exports of largely-low value (pallet grade) coniferous sawn wood, and imports higher value coniferous structural sawn wood products. 4. Long-term trends in the Asia–Pacific wood product market

Asia–Pacific economies are a major producer of wood products, contributing between 54 to 66 per cent of the global output of various wood products in 2008 (table 2). Contribution of Asia–Pacific economies to the wood product sector may be significantly larger if further processed goods such as wooden furniture, ornaments and other products are included.

Table 2: Wood product output in Asia–Pacific economies, 2009

Wood fibre Wood pulp Paper and Wood-based Sawn wood 000 CUM 000 MT board panels 000 CUM 000 MT 000 CUM

Australia 43 369 1 226 3 312 1 821 4 730

China 105 987 5 410 90 150 94 451 32 783

Japan 22 276 8 576 24 416 4 000 9 291

USA 310 398 47 702 72 084 29 097 61 998

Other APEC 462 888 37 849 58 094 43 494 85 555

Rest of world 695 400 59 150 128 702 87 081 168 079

Total 1 640 318 159 913 376 757 259 944 362 437

APEC 58% 63% 66% 66% 54% contribution

Source: FAO (2011).

Over the past few years, the production of many wood products has slowed or declined in North America and Europe and increased in emerging economies such as China (FAO 2010). For example, paper and paperboard production has been increasing most rapidly in emerging economies such as China (figure 4). In contrast, paper and paperboard production in the United States and Japan has been gradually falling since 1999. This relative shift in production toward emerging economies is associated with locating mills

8 ABARE Outlook conference paper 11.13 close to the emerging markets for paper, access to resources and/or policy and financial support for new processing capacity investment.

4. Paper and paperboard production, 1999-2009

Source: FAO (2011).

A similar trend is observed in the production of wood-based panels (figure 5). The Chinese wood-based panel industry has been expanding rapidly since 2002, and is regarded as the largest producer in the world. Other economies, including the United States, have gradually reduced the production of wood-based panels over the past decade.

5. Wood based panel production, 1999-2009

Source: FAO (2011).

Based on the product cycle theory presented in Vernon (1966), and the Ownership, Location and Internalisation framework for foreign direct investment presented in Dunning (1971), it may be argued that advanced economies have an incentive to shift low-value wood product manufacturing to countries that have key location advantages, such as labour or natural resources. According to the product cycle theory, the manufacturing of goods that are technologically mature will be transferred to recipient countries as a means of minimising costs. The capacity of the investment recipient country to produce such wood products will then increase.

Consumption patterns in the Asia–Pacific

The slowing of many advanced economies in the Asia–Pacific has had an impact on global wood product demand. Housing starts in Japan have slowed from more than 1 million units each year prior to the global economic downturn to fewer than 800 000 units a year since 2008 (Butzelaar 2010). However, there are prospects for the Japanese housing market to recover slightly in 2011, with an expected to increase in sawnwood demand from 11.1 million cubic metres in 2010 to 11.5 million cubic metres by the end of 2011 (ITTO 2011b).

High foreclosure rates on dwellings in the United States have resulted in a large supply of unsold homes. The housing starts declined from a long-term average of more than 1.6 million units a year prior to the global financial crisis to fewer than 700 000 units in 2008 (Butzelaar 2010). Further, both Japan and the United States have had sharp declines in demand for other wood products since mid-2008. However, some recovery in the United States home renovation market, along with strong log and sawn wood demand from China, appears to have partially offset the US domestic decline in demand for structural wood products (ITTO 2010; 2011a).

In contrast, the Chinese demand for wood products has continued to grow strongly, with significant expansion in the production and importation of wood products over the past decade (Butzelaar 2010). Although manufactured wood product output has increased, domestic log removals from China have not grown strongly over the past decade. Hence, a significant proportion of China’s wood fibre requirements are being imported from international suppliers.

Paper and paperboard consumption per capita has remained either constant or declined throughout the Asia–Pacific region with the exception of China (figure 6). In general, advanced economies have higher consumption rates of paper than emerging economies, but these have been falling since 1999. China has had marked increases in their consumption of paper products, doubling over the time period.

6. Paper and paperboard consumption per capita, 1999-2009

Note: Estimates of production, exports and imports from FAO (2011), population estimates from APEC (2011).

Sawn wood consumption per capita has been exhibiting similar but slightly more erratic growth patterns as paper and paperboard consumption (figure 7). The United States and Japan have exhibited the greatest decline in per capita sawn wood consumption, falling by nearly half in 2009 relative to 1999.

7. Sawn wood consumption per capita, 1999-2009

Wood-based panel consumption per capita has varied across the region. China has quadrupled its per capita consumption since 1999 (figure 8). As with all other manufactured wood products, Japan and the United States have shown a downward trend in wood-based panel consumption per capita, falling by nearly half relative to 1999.

8. Wood based panel consumption per capita, 1999-2009

The wood consumption estimates for the 1999 to 2009 period suggest a convergence in consumption rates across the Asia–Pacific region. Advanced economies that have high consumption rates have been declining, whereas consumption in emerging economies, especially China, has been increasing. If these trends continue, new market opportunities for the Australian forest and wood product industry may arise in the emerging economies over the long term. However, these market opportunities will depend on the future production locations and trade patterns. 5. Outlook for forest product output and trade in the Asia–Pacific

This section presents future balance of trade projections for five wood products—wood fibre, wood pulp, paper and paperboard, wood-based panels and sawnwood. A projected negative balance of trade of an economy implies that the value of imported wood products exceeds the value of wood product exports. The projected balance of trade figures are presented for Australia, China, Japan, the United States and the rest of the Asia–Pacific economies in APEC as a group.

In deriving the balance of trade projections, various assumptions from Jonsson and Whiteman (2008) regarding the future volume of import and export demand from Asia– Pacific economies are applied. The estimates are also based on the assumption that the Australian wood product sectors retain access to the existing native forest and plantation resources. The industry structure, investment rates and trade policy settings are all assumed to remain constant. Hence, the projections should be used only to gain a broad view of changing production and trade patterns across the Asia–Pacific.

Both the export and import prices have been derived using trade value and quantity data from the FAO. The trade unit price is calculated by averaging the total reported free on board (fob) value of the trade by their quantity. These price assumptions for 2009 are applied to the trade volume projections from 2015 onwards using forecast assumptions from Jonsson and Whiteman (2008). No assumptions are made regarding nominal unit price changes in traded wood products between 2009 and 2030. Further, the estimated changes in both export and trade values are calculated as changes relative to 2009 trade value data published in the FAO ForesSTAT database (FAO 2011). Export price assumptions are presented in (table 4).

Table 3: Export price assumptions, 1999-2009 average

Wood pulp Paper and paperboard Wood-based panels Sawn wood USD/MT USD/MT USD/CUM USD/CUM

Australia 465 501 252 339

Brunei Darussalam 885 356 581 799

Canada 505 665 276 207

Chile 489 637 299 175

China 522 649 364 489

Indonesia 417 681 381 445

Japan 480 1 157 726 774

Malaysia 504 706 298 279

Mexico 651 739 260 337

New Zealand 394 528 310 259

Papua New Guinea 0 472 306 343

Peru 2 133 738 564 630

Philippines 817 495 389 95

Republic of Korea 516 600 483 596

The Russian Federation 387 473 291 129

Singapore 543 1 393 408 407

Thailand 481 580 168 297

United States 543 766 405 433

Vietnam 403 956 594 293

Note: Export price estimates for each economy in the Asia–Pacific, expressed in terms of free on board (fob) values. The prices may include the price of re-exported shipments. Source: Derived using trade quantity and values from FAO (2011).

The estimated import price for each of the wood product is constrained by similar caveats as those applied to the export price estimates (table 5). Further, the import prices would most likely include insurance and freight charges (cif), in addition to any ‘iceberg costs’ (losses in both the quantity and quality of the shipment during transit).

Table 4: Import price assumptions, 1999–2009 average Wood pulp Paper and paperboard Wood-based panels Sawn wood USD/MT USD/MT USD/CUM USD/CUM

Australia 491 820 420 405

Brunei Darussalam 1 187 818 526 415

Canada 491 807 340 299

Chile 545 768 351 444

China 529 698 272 259

Indonesia 600 1 073 331 363

Japan 552 922 400 322

Malaysia 598 579 335 182

Mexico 520 724 326 147

New Zealand 591 838 655 770

Papua New Guinea 3 000 563 288 182

Peru 598 814 302 283

Philippines 578 618 319 335

Republic of Korea 515 983 288 319

The Russian Federation 625 1 005 269 399

Singapore 480 557 258 272

Thailand 560 1 020 473 378

United States of America 481 745 303 196

Viet Nam 423 636 308 257

Source: Derived using trade quantity and values from FAO (2011).

The categories of the forest and wood products presented in this section follow FAO classifications. The classifications for sawn wood and paper and paperboard are different from those used by ABARES in the Australian forest and wood products statistics (AFWPS) publication. Unlike the latter, the FAO data exclude packaging and industrial products in the ‘paper and paperboard’ estimates. Further, FAO data include other wood products, such as wood-based floorings and coniferous mouldings, separately from sawn wood and wood based panels. Further, the trade values for 2009 presented in this paper are expressed in US dollars and in constant prices

The estimated balance of trade for processed wood products, such as wood pulp, paper and paperboard, wood-based panels, and sawnwood is presented in US dollars. A commensurable measure allows easy comparison of the trade of these different processed wood products. However, the projections for wood fibres trade have been presented in terms of volume (thousand cubic metres) to better identify contributions of the expected suppliers of wood fibres to 2030.

Wood fibres

Based on the estimates from Jonsson and Whiteman (2008), China and Japan are projected to have a large dependence on imported wood fibre relative to other Asia– Pacific economies in 2030 (table 5). Australia is projected to have a positive balance of trade in raw wood fibre over the long term, as a result of its expanding hardwood plantation base. It should also be noted that the majority of raw wood fibre from Australia is exported as woodchips and particles. It is not possible to include the export of woodchips in the balance of trade projections for economies other than Australia using estimates from Jonsson and Whiteman (2008).

Table 5: Expected annual balance of trade in wood fibre, 2009–2030, thousand cubic metres

2009 2015 2020 2025 2030

Australia a 7 613 8 949 9 183 8 707 8 239

China -33 511 -39 050 -42 223 -44 226 -46 253

Japan -22 594 -22 302 -21 884 -21 329 -21 001

USA 13 065 11 862 10 587 9 467 8 509

Other APEC 35 634 38 484 41 487 44 492 48 116

Note: Based on 1999–2009 average prices, balance of trade is estimated by subtracting the economy’s annual imports from its exports; sourced from FAO (2011); trade forecast assumptions are based on Jonsson and Whiteman (2008); a Includes exports of woodchips and particles; estimates for China includes Chinese Taipei and Hong Kong. Source: FAO (2011); trade forecast assumptions is sourced from Jonsson and Whiteman (2008).

The positive balance of trade estimate for ‘Other APEC’ is based on the assumption that major suppliers of timber, namely the Russian Federation, the United States, Canada, Malaysia and New Zealand, will maintain their comparative advantage in log production.

Another issue is whether changes in the rate of economic growth for Asia–Pacific economies will affect the volume of products consumed domestically and the volume left available for trade. A rise in income may increase the domestic demand for both timber products and agricultural goods. These drivers of economic growth may potentially add pressure to deforest to produce timber.

Wood pulp

Trade in wood pulp is projected to increase throughout the Asia–Pacific economies between 2009 and 2030 (table 6). Major net exporters of wood pulp are projected to be the United States and economies listed under ‘other APEC’, although their trade surplus slowly decreases over time. For the United States, most of the exports are expected to be from chemical wood pulp, which currently constitute roughly 98 per cent of US wood pulp exports each year.

China is estimated to have the largest growth in net imports of wood pulp relative to other Asia–Pacific economies. However, the growth rate of Chinese demand for imports is expected to decline slowly. This drop is attributed to the assumed slower growth rate in the Chinese economy over the long term, and also from the increase in domestic wood fibre availability as a result of the recent large-scale reforestation activities.

Table 6: Expected annual balance of trade in wood pulp, 2009–2030, million US dollars

2009 2015 2020 2025 2030

Australia - 127 -137 -170 -203 -239

China -7 237 -9 283 -10 802 -12 150 -13 468

Japan -906 -885 -859 -826 -800

USA 1 603 1 550 1 510 1 453 1 377

Other APEC 4 946 5 524 6 517 6 193 7 566

Note: Based on 1999–2009 average prices, balance of trade is estimated by subtracting the economy’s annual imports from its exports; includes both mechanical and chemical pulp; estimates for China includes Chinese Taipei and Hong Kong. Source: FAO (2011); trade forecast assumptions is sourced from Jonsson and Whiteman (2008).

Paper and paperboard

The United States and economies listed in ‘other APEC’ are projected to maintain their net export trade status to 2030 (table 7). In comparison, China is expected to have a large net import requirement on paper and paperboard, despite a projected threefold increase in Chinese production 2030 (Jonsson and Whiteman 2008). Australia is also expected to be a major net importer of paper and paperboard products to 2030. This continues a long-term trend in Australian imports of paper and paperboard

Table 7: Expected annual balance of trade in paper and paperboard, 2009–2030, million US dollars

2009 2015 2020 2025 2030

Australia -801 -945 -1 124 -1 307 -1 505

China -750 -1 038 -1 373 -1 640 -1 959

Japan -566 -553 -539 -494 -404

USA 221 299 888 1 662 2 399

Other APEC 3 687 3 641 3 851 4 176 4 324

Note: Based on 1999–2009 average price values, balance of trade is estimated by subtracting the economy’s annual imports from its exports; includes newsprint, printing and writing, household and sanitary, and packaging and industrial products; estimates for China includes Chinese Taipei and Hong Kong. Source: FAO (2011); trade forecast assumptions is sourced from Jonsson and Whiteman (2008).

Sawn wood

China, Japan and the United States are projected to maintain their net importer status for sawn wood (Table 8). Many of the world’s current major exporters of sawn wood, including Canada, Indonesia, New Zealand, Peru and the Russian Federation are projected to maintain their positive balance of trade to 2030. The high economic growth in many of the emerging Asian economies is projected to drive the trade in ‘other APEC’, with a tripling or balance of trade of sawn wood by 2030.

Table 8: Expected annual balance of trade in sawn wood, 2009–2030, million US dollars

2009 2015 2020 2025 2030

Australia -163 -167 -174 -183 -193

China -2 207 -2 216 - 2 234 -2 252 -2 273

Japan -1 864 -1 920 - 1 972 -2 025 -2 100

USA -1 125 -1 196 -1 319 -1 460 -1 604

Other APEC 6 295 9 301 12 584 15 919 19 702

Note: Based on 1999–2009 average price values, balance of trade is estimated by subtracting the economy’s annual imports from its exports; includes both coniferous and broadleaved sawn wood; estimates for China includes Chinese Taipei and Hong Kong. Source: FAO (2011); trade forecast assumptions is sourced from Jonsson and Whiteman (2008).

Wood-based panels

The United States is projected to be a major net importer of wood-based panels, with relatively small increases in net imports by Australia and Japan to 2030 (table 9). China, which has been rapidly expanding its capacity to produce wood panels, is estimated to become an important exporter to both the Asia–Pacific and other economies in the world. Many emerging economies in the ‘other Asia–Pacific’ group are also estimated to become major exporters of wood-based panels.

Table 9: Expected annual balance of trade in wood based panels, 2009–2030, million US dollars

2009 2015 2020 2025 2030

Australia -83 -93 -101 -107 -110

China 2 858 3 842 4 803 5 731 6 916

Japan -1 711 -1 755 -1 782 -1 819 -1 878

USA -1 858 -2 068 -2 343 -2 672 -3 004

Other APEC 3 428 3 672 4 280 5 032 5 825

Note: Based on 1999–2009 average price values, balance of trade is estimated by subtracting the economy’s annual imports from its exports; includes veneers, plywood, particleboard, hardboard, medium density fibreboard, soft board and other fibre boards; estimates for China includes Chinese Taipei and Hong Kong. Source: FAO (2011); trade forecast assumptions is sourced from Jonsson and Whiteman (2008). 6. Other roles for Australia in the Asia–Pacific

In addition to contributing to the trade of forest and wood products within the Asia– Pacific, Australia may also have a role in the region by providing leadership in the development of forest policy and natural resource management framework, particularly in areas of sustainable forest and natural resource management. This section provides an overview of Australia’s forestry policies and institutions.

Australia’s National Forest Policy Statement (NFPS) of 1992 provided a catalyst for pursuing an integrated approach to sustainably manage its forests based on scientific information, and through consultation with respective state governments. The NFPS provided for bilateral negotiations of Regional Forest Agreements (RFAs) between the Australian Government and state governments to support the conservation and management of native forests in Australia. For areas outside RFA regions, the Australian Government introduced the Environment Protection and Biodiversity Conservation Act 1999 (amended in 2006 and in 2009 subject to a review known as the Hawke Review). This Act established a legal framework to protect and manage areas that are considered to have national or international significance. These areas include flora, fauna and ecological communities.

Australia has subscribed to the Montreal Process since the mid-1990s and has harmonised its criteria and indicators accordingly and reported on standards of sustainable forest management every five years. In 1998, the first State of the Forests Report was published and two reports have since been released. The assessments and reporting provide the community and processing industry with information regarding status of ecosystem and economic sustainability, and access to resources from native forest.

Plantation forests have been recognised as a significant element of the government forest policies. The NFPS also highlighted plantation development as providing a range of economic and environmental benefits to the community. Plantation wood has been accepted as supplementary to or as an alternative to many sources of wood from native forest. A strategic partnership between Australian, state and territory governments and the plantation timber growing and processing industry has been nurtured with the launch in 1997 of the ‘Plantations for Australia – Vision 2020. This aimed to enhance regional wealth creation and international competition through sustainable increase in plantation resources by trebling the 1997 area by 2020. A revision in 2004 recognised the need to

18 ABARE Outlook conference paper 11.13 meet the needs of changing circumstances and the role of local governments and communities. The Farm Forestry Program (FFP), established in 1993 under the NFPS, was another program designed to stimulate and to incorporate commercial tree growing on cleared agricultural land for wood production, as well as diversifying farm income and sustainable natural resource management at the farm level.

Overall, Australia’s policy and institutional environment has generally been supportive in pursuing an integrated approach to sustainably manage its forests. In addition, policies have been conducive to attract investment, both domestic and foreign, in industries including forest and wood products. Hence, Australia may have a role in the Asia–Pacific by providing leadership in the development of forest policy and natural resource management framework. 7. Summary and conclusions

This paper discussed key issues in Australia’s resource base and the present challenges for the Australian forest and wood product industry. They include a declining access to industry of native forest, increased availability of plantation broadleaved wood, and the limited increase in softwood plantation resources. The next phase in the development of Australia’s forest growing and wood processing will be guided by the available wood resources, which are a function of the outcome of Australia’s integrated policy for sustainable forest management.

This paper also provided some insight into the areas of specialisation for Australia and other Asia Pacific economies, based on each country’s current trade role in the Asia– Pacific region gleaned from the RSCA analysis. The RSCA index reflects Australia’s current specialisation in wood fibre trade. The projected balance of trade estimates suggest that this trend will continue to 2030. With regard to manufactured wood products, the trend in importing manufactured wood products, particularly paper, is expected to continue.

The demand for wood product imports is expected to increase across the Asia–Pacific economies. Per capita consumption of paper and paper board, wood-based panels and sawn wood has been rising throughout the emerging Asia–Pacific economies since 1999. Significant capacity building in several emerging economies signals the emergence of new major world exporters of manufactured wood products. Such major exporters may include China in wood-based panels and paper, and paperboard producers in the ‘other Asia–Pacific’ economies.

While exchange rate fluctuations, changing domestic resource availability and global economic growth can have a significant effect on patterns of trade, as evidenced by the increase in Australia’s sawn wood imports in recent times, a longer-term outlook is necessary when considering possible future directions for domestic industry growth, investment and trade. The potential forest product trade flow estimates for countries in the Asia–Pacific region, as described in this paper, provide an important perspective for guiding those considerations.

Australia may also have a role in the Asia–Pacific by providing leadership in the development of forest policy and natural resource management framework. Australia’s forestry policies and institutions are developed using scientific information and consultation with respective governments to pursue an integrated approach to manage its forests sustainably. Other economies within the Asia–Pacific can potentially learn from Australia to further develop their own domestic policies and institutions.

Future research should provide comprehensive information on expected future consumption and trade patterns across the range of forest products, and review the existing and emerging policies to inform investment in domestic wood growing and timber processing activities. References

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