From the very interesting piece by Angus Grigg in this mornings The Financial Review on the collapse of Great Southern Limited and Timbercorp, the largest of the “Managed Investment Scheme” (MIS) promoters:

The collapse of Great Southern and Timbercorp has only served to highlight the flaws in an industry that many believed was unsustainable from the beginning. “The original plan was to get city money into the bush,” says Liberal senator Bill Heffernan, a long-time critic of the MIS industry. “But it quickly grew into an industry of greed that relied on the generosity of the Australian taxpayer.”

And he might have added the venality of the promoters and the rank foolishness of the so-called investors.

Not long ago, just before Great Southern really went south, Michael Pascoe had this to say about the banks that have supported these rorts and the mug punters that invested in them:

So ANZ has a $500 million exposure to the failed Timbercorp tax deduction empire. What fools. It’s hard to know for whom to feel the most scorn – bankers stupid enough to back inherently flawed businesses or the mugs suckered into buying products on the lure of tax deductions – and the salesmanship that tends to come with particularly fat commissions. And then there’s Great Southern Plantations, trading presently suspended pending some further attempt at rescue. Ditto the scorn for all involved. Oh, and the various “independent” expert reports that have been purchased by management at various times, never mind alleged “investment recommendations”.

Angus Grigg also makes the following interesting comments about the impact of the MIS industry on the Douglas Daly region to the south-west of Darwin:

The Douglas Daly region of the NT provides a recent example of how quickly an area can change once the MIS industry moves in. The Queensland Country Life newspaper has reported a doubling of prices for cleared freehold land over a two year period.

…

It also estimates that 50 per cent of the 100,000 hectares of freehold land in the region, two hours south of Darwin, has been snapped up by the MIS industry. To many observers the situation in the Douglas Daly neatly encompasses the advantages enjoyed by the MIS industry over traditional agriculture.

The ABC’s The Country Hour covered the controversy over the MIS schemes move into the Douglas Daly in March 2008.

Back then it reported that:

In the Daly, south-west of Darwin it’s believed cleared land that was worth about $1m a few years ago is now being sold for up to $14m. Herron Todd White’s Land valuer Frank Peacock says he’s heard the same thing, but he couldn’t be specific about which properties are changing hands because many of them are still being settled. He can confirm though, that there has been huge interest from forestry companies. “The majority of land sales over the last 18 – 24 months has been to timber plantation companies and I’d estimate close to half the freehold area in the Douglas Daly would have gone to tree growers.”

He says freehold land, as opposed to pastoral land, has risen to $2,500 a hectare, and some sales have risen to $4,000 a hectare. “It’s unprecedented really for cleared freehold land in the Daly. It’s just a matter of supply and demand and there’s only 25 or so properties in the Douglas-Daly and they have the rainfall and the close proximity to the Port of Darwin and they also have the well-drained red soils and when it’s in tight supply that will underpin demand.’ The Northern Territory government’s moratorium [on land clearing] on the Daly has also seen prices elevated, and Mr Peacock expects values will hold because there are up to five plantations companies vying for freehold land in the Daly.

The Country Hour believes the forestry companies buying up land are Great Southern Limited, Timbercorp, Northern Tropical Timber, and Plantation Tropical Timbers. New South Wales Snowy River grazier Robert Belcher compares these companies to cancer. He’s dedicated his life to lobbying against corporate forestry companies because he says he’s seen the devastation they cause to rural communities. “The first thing you’ll see is a massive acquisition of land, that will displace population and you’ll start suffering population decline which means your infrastructure services will decline. For example educational facilities, health facilities, that sort of thing. I’ve seen it in every state in Australia. “It happens everywhere where there’s rainfall and decent soils. Anywhere from Grafton in New South Wales to Tasmania.”

…

But, one of Australia’s largest tree companies has rejected claims it’s driving farmers out of the Douglas-Daly region.

Great Southern Limited, has recently purchased land in the area, to plant African Mahogany trees. Communication manager David Ikin says the forest industry will strongly support the local region.

And at about the same time the ABC also reported the comments about the effects of the MIS industry from of the operators of a company established to produce biofuel in the NT:

But, Energy Crops Australia were more concerned with what’s happening in the Douglas Daly because they can no longer afford to invest there. “The Douglas Daly has been crucified by the managed investment scheme where the price of land has escalated beyond all reality. Come By Chance (sic – should be “Kumbyechants”) sold for $15 million dollars, purchased for $1.4m four years ago. It’s out of anyone’s price range who hasn’t got massive tax deductibility.” He says these companies will crucify the community and have devastating social implications. “The Douglas Daly as a farming community is finished. When people are getting that sort of money they’re just taking the money and running so there’ll be no farming in the Daly, there’ll be just trees.” He says he’s aware of Great Southern Plantations, Timbercorp and another two forestry companies buying up land in the region.

And, as that icon of independent journalism, the NT News reported as recently as January this year, a lot more land in the Douglas Daly was being acquired, or was targeted for acquisition, to be turned into plantations:

The Northern Territory’s timber industry is likely to undergo a rapid expansion following the buyout of four cattle stations. Up to 40% of the newly-acquired stations will be planted with African mahoganies and the rest of the land kept for cattle. The stations are the 5000ha Stray Creek, 16,000ha Gypsy Spring and 5000ha Kumbyechants in the Douglas Daly region and the 5000ha Rocktear Park near Katherine.
Plantation Tropical Timbers paid $5.9 million for Kumbyechants and Willmott Forests paid $5.5 million for Rocktear Park.The stations are all small but further buyouts are expected.

As recently as three weeks ago the voice of the Australian plantation timber industry, the Australian Plantation Products and Paper Industry Council was trying to put a brave-faced spin on the imminent collapse of the MIS house of cards :

Timber plantations funded through managed investment schemes (MIS) will continue to grow a large proportion of Australia’s future wood resource, despite the decision by leading agribusiness MIS manager, Timbercorp, to go into voluntary administration. Richard Stanton, CEO of Australian Plantation Products and Paper Industry Council (A3P) said today that Timbercorp’s decision was a response to the convergence of several factors directly affecting that company’s business, and did not indicate an impending collapse in plantation forestry investment or some inherent problem with the MIS business model. “Forestry remains a sound long-term investment, negatively correlated with other asset classes, which many regard as an important element of a diversified investment portfolio,” Stanton said…”Up from about 5% in the late 1990s, MIS forestry now accounts for more than a third of the national plantation estate – nearly 700,000ha of 1.97m ha at the end of 2008 – and over 80% of the annual establishment of new timber plantations, as well as a substantial and increasing area of replanting following final harvest.

It is a little too early to tell what the medium-term effects of the collapse of these schemes will have on the viability of what is undoubtedly a valuable and useful agricultural enterprise – there is nothing wrong with growing high-value fine grade timber, for which there is a growing market – but it remains to be seen how many of the trees that have been planted will ever be harvested – or just be left to rot in the ground.

But back to Blinky Bill Heffernan – the ABC reports today that:

Liberal Senator Bill Heffernan has announced the Senate’s current inquiry into food production will now also consider the impact of MIS. He says startling evidence has already come forward.

Looks like the Senate Committee are going to be very busy in the NT for a while – the Senate Environment, Communications and the Arts Committee is currently conducting an inquiry – with Hearings on the Tiwi Islands as I’m writing this post – into “forestry and mining operations on the Tiwi Islands”.

You can see the Terms of Reference for that Committee here and what appear (because I haven’t got around to looking at them…yet) to be a very interesting set of Submissions – here.

The collapse of Great Southern is of great importance to the Tiwi islanders – Great Southern bought out the previous operators, Sylvatech, a few years ago and the forestry scheme, which will produce pulp from about 30,000 hectares of Tiwi lands, has been mired in a web of controversy since the beginning – a coming attraction here at the Northern Myth.

The forestry operations on the Tiwi Islands are a very complex issue to tackle – so bear with my while I get my head around it!