Russia is home to some 815 million hectares of forests. After Russia, only Brazil, Canada, the United States, China, Australia, and the Democratic Republic of Congo have more than 100 million hectares each (Table 1).
Table 1: Most Forested Countries in the World
Source: Our World in Data, Margules Groome
On a per capita basis, Australia has the third most forests per person in the world. Table 2 shows the per capita forest availability for a selection of countries.
Table 2: Available Forest Area for a Selection of Countries (millions of hectares)
Australia is the sixth most forested country in the world with a growing trade deficit in wood products. Figure 1 shows that Australia’s trade deficit in wood products for CY 2022 was USD 3.15 billion (~AUD 4.7 billion) and has increased at a CAGR of 6.2%/a over the past decade. Since 2019, the value of Australia’s imports of wood products from China increased more than fourfold. China is the world’s largest importer of logs and timber globally, including large volumes from Russia.
Figure 1: Australia’s Growing Trade Deficit in Wood Products
Source: IHS GTA, Margules Groome
Figure 1 includes an array of imported wood products. Figure 2 provides a value breakdown of Australia’s wood product imports by major category for CY 2022.
Figure 2: Australia’s Wood Products Imports CY2022 by Value Category
Source: IHS GTA, Margules Groome
Figure 2 shows that the largest wood products import category is furniture. Furniture can be manufactured from solid wood or engineered wood and can be hardwood or softwood. The wood can be plantation grown although natural forest wood is often preferred for its better appearance and/or higher durability. About 37% of the total imports relate to materials used for or as part of building construction or renovations. Wood is a strategically important material for construction including residential housing. Australian natural forest wood is used to manufacture durable products such as decking, house cladding, window frames, flooring, poles, and other uses. Their natural growth also develops pleasing visual qualities for internal uses such as panelling and furniture. Australia’s softwood plantations are used for structural timber, i.e. building frame construction or the manufacturing of engineered wood products, largely also used in construction.
A recent stakeholder survey undertaken by the Forest and Wood Products Australia (FWPA) indicates that wood supply availability and costs are key criteria for building specifiers in selecting materials. The survey also found that wood is a top performing material relative to steel, concrete, aluminum, brick and other materials measured against a range of criteria which includes sustainability, cost and ease of installation.
Figure 3 shows the steep increase in domestic timber prices following the Homebuilder stimulus package announced in 2021 as part of the Federal Government’s COVID-19 response. Similar price increases were observed abroad, most notably in the United States due to supply constraints. Following the start of the Russia-Ukraine war in February 2022, wood supply in Europe is constrained because of an import ban on Russian and Belarusian wood. European harvest levels are also in decline following the completion of salvage harvesting of large tracks of European forests killed by bark beetle. Germany alone lost half a million hectares of forest due to bark beetle.
The timber price spike that Australia experienced in 2022 could be a prelude of more to come as global and domestic supply is constrained. An increase in timber prices will contribute to construction cost increases and shortfalls to project delays.
Figure 3: Recent Australian Domestic Timber Price Increases
Source: Timber Market Survey
There are several reasons for Australia’s domestic shortfall and increasing reliance on imported wood products:
- A policy driven decline in the areas of natural forest areas available for sustainable harvesting.
- No expansion of Australia’s approximately one million hectares of softwood structural timber plantation estate over the past three decades.
- Very limited plantings of hardwood plantations for structural timbers over the past three decades.
- The absence of a true log market (opaque domestic log prices) and the administered pricing of a substantial volume of logs.
- The loss of almost 60 000 hectares (~6%) of softwood timber plantations during the 2019/20 bushfires.
Analysis of Softwood, Structural Timber Demand and Supply Outlook
Figure 4 shows Australia’s forecasted demand growth for structural softwood timber, driven by expected population and economic growth. Demand is expected to increase from ~4.6 million m3/a in FY 2023/24 to ~5.6 million m3/a over the next decade. The value of imported softwood timber and/or structural engineered wood products will therefore need to double over the next decade. In today’s money that means the import deficit can be expected to grow to AUD 6.52 billion on this basis alone.
Figure 4: Expected Demand Growth for Structural Softwood Timber in Australia
Source: ABARES, Margules Groome
This increase considers construction and renovation demand growth only as it relates to softwood. It assumes that there will be no significant softwood plantation fire losses over the next decade. Since 1975, Australia has lost, on average, about 0.34%/a of its plantation forest estate to fire. Taking the historic rate of fire losses into account, the import deficit may grow to AUD 6.86 billion. Still further increases can be expected due to the further planned decline in Australia’s domestic natural forest harvesting.
Analysis of Natural Forest Supply Outlook
Australia has a very large natural forest resource growing on both Crown and private lands. Australia’s policy-driven exit of sustainable natural forest harvesting has been inspired by green voices from well-intentioned but innocently ignorant members of the community. Figure 5 shows the decline of harvest volumes of natural forest logs. The “lock up” of natural forests by good intentions unfortunately has unintended consequences. In the absence of timber harvests and management of natural forests there is an accumulation of combustible forest biomass and less money to invest in critical road access, staffing and forest protection.
Figure 5: Volume of Natural Forest Logs Harvested
Source: ABARES, Margules Groome
The 2019/20 Black Summer bushfires reportedly burned ~20 million hectares of forested land and resulted in human lives lost and property destroyed. The ABC reported an estimate of three billion animals killed or displaced. An estimated 715 million tonnes of carbon were released into the atmosphere. Some blame climate change. Others argue for more forests to be locked up given the losses. Forestry professionals see the necessity for increased forest management (to manage both combustible fuel and forest health) and conservation which includes timber harvesting.
Forests around the world can play a significant role in combatting the effects of climate change. This is often referred to as “climate smart forestry” due to the significant opportunity to mitigate the risks of climate change impacts. According to the International Panel on Climate Change (IPCC, 2022) by investing in and developing a sustainable sector that pays attention to biodiversity, wood provision and climate mitigation are addressed at the same time.
In February 2023, Opal, the manufacturer of Reflex paper in the Latrobe Valley, announced that it will close its white paper manufacturing operations permanently. Opal’s apparent use of “high conservation value” natural forests resulted in it losing its certification, prompting thousands of businesses to sign an ethical pledge to boycott it. In contrast, China and Brazil are rapidly investing in expanding their pulping capacities. Reflex paper will be replaced by regional imports of white paper, adding to Australia’s trade deficit in wood products and carbon footprint. The Victorian Government plans to phase out natural forest harvesting by 2030 and announced plans to transition to softwood timber plantations. It is likely that this will be brought forward as the market for pulp logs disappeared with the closure of Opal’s white paper business. As natural forest harvests in Victoria end, reliance on imported hardwood timbers will increase and the trade deficit in wood products will worsen.
The Western Australian Government announced its plan to exit natural forest harvesting in 2024. That too will result in Australia increasing its reliance on imported hardwood timbers and a larger trade deficit in wood products.
Both the Victoria and the Western Australian Governments have made funding available to support the expansion of softwood plantations, AUD 120 million and AUD 350 million respectively. However, it takes 20 to 30 years for softwood plantations to mature once planted.
Australian Wood Product Exports
Australia exports lower value wood products. In 2022 Australia’s main wood product exports included wastepaper and hardwood and softwood woodchips. China, Japan and Taiwan purchase this chip for pulp manufacturing. Pulp is then converted to a range of other products such as paper, packaging materials, tissue, rayon and other products. Australia imports higher value products, such as furniture, sawnwood and plywood, adding to the trade deficit in wood products (Figure 6).
Figure 6: Australian Imports of High Value Wood Products
Source: HIS GTA, Margules Groome
Note: Plywood includes laminated veneer lumber.
Increasing Reliance on Imported Wood
Australia’s increasing reliance on imported wood products appears to be at odds with the rest of the world now planning onshoring, reduced reliance on China for key products and addressing climate change. Important considerations are:
- Australia imports wood from several countries with less available forest resources than itself to supply its shortfall. Considering the impact of this on forest resources elsewhere on the planet, is this ethically acceptable? Forests in Australia grow faster than forests in Europe due to Australia’s warmer climate. Overseas forests, like forests in Australia, are home to unique species, sensitive ecosystems and old growth and provide habitat to rare and endangered species.
- There must be an implicit assumption that forest products originating from overseas are more sustainable or better managed for harvesting than what is possible in Australia. In-field observations by professional foresters suggest this is not the case.
- There is no accounting for the significant and increasing carbon footprint associated with shipping wood products across the globe. Timber products imported by Australia increasingly originate from distant sources such as the Nordics and Eastern Europe including the Balkan countries. In the case of China, the carbon footprint is larger as wood raw materials are imported, processed, and exported.
- Given that wood is a renewable and climate-friendly building material that locks in carbon, insulates better against temperature changes than most other building materials and is affordable, Australia should be producing more wood, not less.
- The apparent misconception that forest conservation, the use of forests for other purposes such as recreation as well as for timber harvesting are mutually exclusive needs to be corrected.
- Local job opportunities (forest contractors, saw millers, other value adding processors and retailers) and other economic activities are foregone as natural forest log supplies decline and the trade deficit in wood products grows.
- Australia is increasingly reliant on global supply chains and exposed to global timber price shocks.
Forest certifiers have a role to play in the responsible use of Australia’s natural forest resources. Not all certifiers are prepared to certify Australia’s natural forest management. The market assumes certifiers are globally even handed and free from biases or influence. As is the case with financial auditing, nobody appears to be auditing the certifiers.
There is the need for sober thinking about Australia’s current policy settings around the harvesting and management of its large natural forest resources. This includes natural forests on Crown and public lands. Continued support is required to expand Australia’s softwood plantation estate. Action is required to meet Australia’s future timber demand growth and to create a strategic safety buffer against possible future fire losses.
For further insights, contact Margules Groome.