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The Northern Myth

Oct 28, 2009

Australia's shame Part 2: Tiwi Forestry - 30,000 hectares of "bankrupt monoculture"

Senator IAN MACDONALD—What is your concern about the Tiwi Islands, from the Tiwi Islanders’ point of view? Dr Ajani—I think they have a product which is not well placed in the play that is going to unfold over the next few years as our hardwood plantation resource comes onto the market.

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The Northern Territory has seen a number of what might politely be called “adventurous” broad-acre agricultural schemes that have resulted in inglorious failure.

Readers will know that I have borrowed the name for this blog – The Northern Myth – from a favourite book of mine of the same name published in 1965 and written by the distinguished agricultural scientist and economist Dr Bruce R. Davidson.

Davidson was a man well before his time and of whom many of the current boosters of the mantra of “develop the north” should take notice.

He was highly sceptical of the overblown claims being made by politicians, commentators and other boosters in the 1950’s and 1960’s of the potential of the north as an unburdened paradise for broad-scale agricultural development.

Davidson’s The Northern Myth presents a brutally clinical assessment – based on good science and thoroughly researched economics – of the prospects for many areas of agricultural and pastoral development across the top one-third of the Australian continent.

Parts of Davidson’s book are of course somewhat dated – but I’m sure that Davidson would be just as sceptical of some of the current claims being made – by the same classes of people – about the apparently bountiful future of agriculture in the north.

The most well-known of the failed experiments in northern broad-acre farming in the Top End was the Humpty Doo rice farm project.

The good folk at the Litchfield Shire Council provide this useful snapshot of the rice project – and of the mood of the time that is strikingly similar to some current views:

Rice grown at Humpty Doo was going to feed the starving millions in Asia. The Northern Territory could become the world’s food bowl – and the post-war world desperately needed food. With new skills, new markets, big money, and big ideas, northern development would become a reality, not just a hollow cliché. Certainly there had been failures before, the optimists admitted. But things were different now, they reasoned. Past failures were attributed to bad luck, bad judgment, inadequate capital investment, and similar reasons. Now, all these limitations and reasons for failure could be swept aside by a new wave of large scale capital development. And the Territory’s coastal plains would at last live up to all the hopes which had been held for them since explorer John McDouall Stuart in 1862 said of the area “it could be the finest colony under the Crown – capable of growing any and every thing.”

It didn’t quite turn out that way.

Suddenly, in the 1950s, the area became the focus for national ambitions to develop the north. The spectacular failure of these ambitions made the name “Humpty Doo” part of Australian folk lore.

In 1954 the junior Menzies government Minister Harold Holt infected the American mega-millionaire Alan Chase with enthusiasm for rice growing at Humpty Doo. Chase formed a grand plan for planting half a million acres to make the NT the world’s biggest rice producer. Chase declared that the Territory would be a food bulwark against communism. “Hunger in Asia breeds communism, and I believe that we have here the means of removing that hunger.” A specially commissioned film, “The Miracle of Humpty Doo” was produced and widely shown.

Chase formed a company Territory Rice which began experiments and plantings. By 1959 there were 5,500 acres under cultivation. It was proposed that the rice growing area would be subdivided in to 400 small farms, with housing and townships.

Magpie geese got the blame, but there were many more fundamental reasons – the project was always undercapitalised; no allowance had been made for rainfall and sunshine variability; soils were poor and drainage unsuitable; costs were high and poorly controlled; and marketing was never properly organised.

A few years later the land-clearing bug was still afoot in the Top End.

This excerpt comes from the NT Government’s Department of Infrastructure, Planning and Environment report, Land Clearing in the Northern Territory, written by E.J. Hosking in 2002:

In 1967 the first large-scale clearing project occurred in the Northern Territory on Tipperary station by the Tipperary Land Corporation (TLC) and at the time was believed to be the one of the biggest single agricultural projects in the world (NT News, 24/07/1967). The scheme planned for 79,000 ha to be cleared over 5 years, however, poor management, seasons and trying to do too much too soon eventually sent the Texan-based company broke (Mollah, 1980). Not learning from these mistakes, the Agricultural Development Corporation (ADC) undertook a similar feat in the early 1970s on Willeroo Station. An estimated 48,600 ha was recorded as cleared, with only 16,000 ha ever being farmed (Fisher, 1977).

With self Government in 1978, the NT launched the Agricultural Development and Marketing Authority (ADMA) in 1981/82. This Authority assisted private cropping developments (Sturtz, 2000) that helped establish the NT horticultural industry, and resulted in further clearing on Tipperary station in 1988/89 and development of the Douglas Daly research farms.

The Senate Environment, Communications and the Arts Committee is currently having a close look at forestry and mining operations on the Tiwi Islands just off the coast from Darwin. The Committee was scheduled to submit it’s report by Monday 26th October but there is no sign of the report at the Committee’s website and it has yet to be tabled in Parliament.

I’d heard a few weeks ago that the Committee would not make that deadline, in part due to the sheer complexity of the matters it has been charged with investigating, and also because there is a fair likelihood of separate reports from the Committee members.

You can see the Committee’s Terms of Reference here.

I’ve previously examined the mess that is left of the Tiwi Forestry operations here and here.

Most recently I looked at the predictable failure of the MIS schemes promoted by Great Southern Plantations, the operators of the large-scale Acacia mangium plantations on the Tiwi Islands that have been left to rot after its collapse in May this year.

It is clear, to me at least, that the collapse of the forestry operations on the Tiwi islands represents not just a failure of an ambitious agricultural scheme but also a failure of good corporate governance and highlights the need to conduct appropriate risk, economic and environmental analyses of the overall project – particularly in environmentally and culturally sensitive areas.

And it is not just in Australia that the Tiwi Forestry operations have drawn attention.

In late September Verlyn Klinkenborg editorialised in the New York Times and pointed to the broader impacts of the collapse of the forestry scheme on the islands:

…this is not just another forestry project gone awry — 75,000 acres of bankrupt monoculture where there used to be native tropical woodland…What’s left behind is a sense of desolation and distrust. I talked with several Tiwi Islanders — over a dinner of mud crab, local barramundi, local mussels and magpie goose — and it was clear that many of them doubted the good faith not only of Great Southern and the Northern Territory government but also their own Tiwi Land Council, which had encouraged the partnership

...

The question that night at dinner wasn’t just the economic loss involved — the loss of jobs and royalties and individual investments. It was the meaning of this failure, its demoralizing effect on a people who have been striving to find a way toward economic self-determination. Like traditional owners on the mainland, the Tiwi have had to struggle with the cruel vicissitudes of Australian policy toward its aboriginal population — everything from the brutality of official racism to the confused tolerance that has come in more recent times with cultural and political empowerment.

Apart from the social fallout from the failure of the arrangements between the Tiwi Land Council and Great Southern Plantations there are the very real questions about what will happen to the trees in the ground – will they be left to rot or is at least some part of the project capable of being salvaged?

On 16th May 2009 Administrators were appointed to Great Southern Group. Subsequently, on 18 May 2009 McGrathNicol were appointed Receivers and Managers of Great Southern Limited and certain subsidiaries of Great Southern.

In September McGrathNicol issued Circulars to Investors advising that the Tiwi Island forestry schemes (which consisted of a large number of tree-plots leased by small investors) would be unfunded after 30 September.

On 2 October McGrathNicol issued a further Circular to Investors in the Tiwi Leases, advising that:

The Tiwi Island operations are commercially unviable. The operating costs and capital expenditure requirements are extremely high. As we have been without funding for the Tiwi Island operations from 30 September 2009, we have commenced cessation of these operations. We also wrote to the landlords, the Tiwi Land Council, on 30 September 2009 advising that we will not be accepting any liability for the lease costs from 30 September 2009.

On 1 October 2009 the Tiwi Land Council terminated all head leases on the Tiwi Islands, relying on a clause contained in the head leases which entitled the landlord to terminate in the event of the insolvency of GSMAL.

In June the Tiwi Land Council had told the ABC that it needed a total of $120 million in order to:

…make the forestry plantations on the Tiwi Islands viable following the collapse of Great Southern Plantations…the land council’s Cyril Kalippa says he has asked the Federal Government for help because Great Southern’s account estimates show substantial money will need to be found to keep it going. “We need about $80 million for the next three years – that’s for the wages and the things that we need to operate the forest. “And also we need $40 million to extend the wharf or the jetty so that 50 tonne ships can come in and pick up the chip wood.”

Apart from the huge sums to keep the trees in the ground and alive – and the money to rebuild a ruined jetty – there remain very real questions about the viability of the whole scheme and who might front the large sums of money in a very tight market to a project with a troubled past and a far from certain future.

In early October The Australian reported that the Tiwi Land Council was optimistic that the project was still viable:

Despite the withdrawal of support from a banking consortium last month, Tiwi Land Council chief executive John Hicks said global demand for woodchips indicated the scheme was “clearly a viable operation”. “We have got it debt-free,” Mr Hicks said. “And it has a minimal rate of return of between 15 and 30 per cent.” The plantations will be harvested on decade-long cycles and landowners now have title to all fixed assets, including the camp headquarters, sewerage farm, port infrastructure, and airstrips. The TLC estimates it will need $80m to manage the plantation to maturity in 2013 and fix the Melville Island wharf so the trees can be exported.

Mr Hicks said at least 15 private investors had indicated they were prepared to support the group in the run-up to the first harvest in 2013. Mr Hicks said the 20 staff on the operation had been retained and that the plant had the potential to create 660 jobs in associated industries.

The controversial venture has already fallen victim to a cyclone and Great Southern was last year ordered to pay $4m for breaching environmental guidelines.

On 2nd October – the same day that McGrathNicols described the Tiwi Forestry project as “commercially unviable”, Dr Judith Ajani gave evidence to the Senate Committee’s Inquiry at Hearings in Canberra.

Dr Ajani is an economist specialising in forest and plantation research at the Fenner School at the ANU, where she has worked since 1996.  She is the author of ‘The Forest Wars‘ (MUP 2007) and is well placed to comment on the Tiwi forestry schemes.

Dr Ajani’s evidence to the Senate Committee centred on her assessments of the short-term propsects of Australia’s woodchip production and exports, the likely demand for the low-grade woodchips from the Tiwi Islands over the period 2010 to 2014 and the looming glut in supply caused by the rapidly increasing supply of plantation hardwood chips from plantations planted under the MIS schemes.

This is a glut that Dr Ajani says will require Australia to double the volume of sales into a flat market (Japan) where we export up to eighty-five per cent of out chips and where we  already supply about one-third of their intake – and that this will commence as soon as early in 2010.

Responding to questions from Greens Senator Rachel Siewert, Dr Ajani told the Committee that:

Dr. Ajani: What we have at the moment, and it is the really crucial issue here, is a very big volume of hardwood chip resources coming on stream from [Australian] plantations and we also have the native forest resource hanging in there as a continuing significant supplier of hardwood chips.

So what we are looking at here is Australia’s plantation chip resource increasing from our current level of production of around 4 million cubic metres per annum—that is the volume of that resource that we export currently from hardwood plantations—to around 14 million cubic metres per annum by 2010-2014. Native forest resources in there at the moment are supplying around 5½ million cubic metres. We have inevitably some very big resource volumes coming on stream very quickly. Some people might say that this is not a glut situation. I think they are not being open in their assessment of the reality here.

…with a glut we have a problem that happens in any commodity industry. Lower quality resources are the ones that always struggle to get market share and, in particular, to get market share at the price they expect.

…the Tiwi Islands chips using Acacia mangium are of a lower quality. They are of a lower quality, according to Great Southern plantations, because they have a lower pulp yield—in other words, you need more wood to make the same volume of pulp—and they are of a lower quality in terms of the additional costs that are required with respect to bleaching for paper production. That is information that Great Southern itself presented.

NT Labor Senator Trish Crossin asked Dr Ajani how the Tiwi might deal with their very real practical problems – they have trees in the ground that will cost a lot to maintain before they can be harvested and sold into an uncertain market:

Dr. Ajani: …it is a complicated problem…the Tiwi Island issue is embedded in a much bigger problem, which is the plantation MIS arrangements as a whole. The first job is to contain the problem. It is not just for the Tiwi islanders but also Australia wide—that is, in my view we should terminate the plantation MIS arrangements, because the last thing we want is greater havoc being played because we have more investment going into these operations while we are facing the market as I have described. The issue you raise is: what then happens to the trees?

…given the information that Great Southern itself provided some time ago and given the market conditions, there should be a great care about further expanding the plantation estate.

Liberal Senator Ian McDonald, in previous governments a Minister that provided no small measure of support for the plantation industry in general and MIS schemes in particular, asked a number of forceful questions of Dr Ajani, concluding with a question that revealed his belligerence and inability to comprehend her evidence:

Senator IAN MACDONALD—Chair, I am at a loss to understand the evidence Dr Ajani is giving.

Chair of the Committee is the Liberal Senator for South Australia, Simon Birmingham asked Dr Adjani about the prospects of the world hardwood chip market.

CHAIR— Dr Ajani, is the global hardwood chip market still growing?

Dr Ajani—The global hardwood chip market is largely flat…The trade figures are largely flat. The current downturn also is not presented in this graph on page 4. I do not see the hardwood chip trade globally recovering to such an extent that the wood volumes that we have coming on stream, virtually immediately, are going to be cleared easily and without putting pressure on the price.

Dr Ajani—…We are seeing globally a very strong separation of wood into wood products—paper and sawn timber—and the actual production trends of those products. In other words, what we are seeing globally are resource saving technologies coming through such that the strong growth in wood products is not flowing through to strong growth in wood input.

CHAIR—Recycling technologies and so on are substituting for plantation and native woodchips—is that your contention?

Dr Ajani—Yes. The main play here in the paper market is the role of recycled paper dampening the demand for wood despite strong growth in paper consumption.

Senator McDonald returned for one last unsuccessful shot at Dr. Ajani:

Senator IAN MACDONALD—What is your concern about the Tiwi Islands, from the Tiwi Islanders’ point of view?

Dr Ajani—I think they have a product which is not well placed in the play that is going to unfold over the next few years as our hardwood plantation resource comes onto the market.

In short, it seems that the Tiwi have been landed with a white elephant of monumental proportions – large swathes of pristine, high conservation-value tropical forest have been stripped and burned – or sold off in curious deals that have only made a loss to date.

The Tiwi have now been forced to go cap-in-hand for money from a cautious market and Governments that, understandably, have little inclination to throw good money after bad for a resource of dubious sustainability and diminishing value.

Many think that Tiwi Forestry is just another Northern Myth – an ambitious but poorly-researched and managed scheme that will – if it has not already – see large tracts of precious tropical forest land laid to waste for no good end.

As I indicated above, the Tiwi Islands forestry case is complex and I have only just touched the surface here.

I don’t expect everyone to agree with me – so if you have a view contrary to mine please register, and leave a (hopefully constructive) comment.

Similarly if you feel you may have something to add to or support my comments then please do the same.

You can read some background material (from a blog run by the NT Environment Centre in Darwin) here.

And I’d encourage you to read the Submissions and Transcripts of Evidence given to the Senate Committee at the Committee’s website here.

Thanks for taking the time to get this far!!


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