A micro-economic industry study was undertaken to assess the economic effects of potential resource reductions on forest dependent enterprises and employees in key forestry regions of the State. The study aims to identify the future viability of the industry given resource supply changes. The main objective of this work is to identify and estimate the extent to which the adjustments in the forestry industry will impact on regional and local areas.
In particular the study aims to address:
BACKGROUND
The NSW Government's Forestry Structural Adjustment Package is an integral part of the Government's Forestry Policy and involves a commitment of up to $60 million over five years to provide assistance in relation to timber industry restructuring, including training and relocation of individual workers and industry development. The Commonwealth Government has agreed to match the NSW Government's contribution.
In addition, the NSW Government has also given a commitment to provide $47 million to accelerate the establishment of hardwood plantations in this State.
The NSW Government's forestry reform policy aims to provide the timber industry with the impetus for innovative structural change, and to also provide for increasing support for the forest industry workforce involved in this change process.
The approach involves estimating the economic impacts on the timber industry for both larger regions (Statistical Divisions) and localities (Statistical Local Areas). Analysing changes on a local scale clearly indicates the distributional impacts on smaller communities where the adjustment and compensation policies are needed to address areas of severe stress.
The study by Margules (1995) "The Economic Impact of the NSW Timber Industry" established a benchmark set of information on the forestry industry in NSW as a whole and for each of the regions based on Statistical Divisions. This study provides a base against which changes in the industry can be assessed.
The next phase of the work was to develop an overall picture of how a reduced supply of logs could impact on the industry and within a region. Normally, this would involve use of the specified policy option(s) as a basis for eliciting responses from mill operators. In this case, generalised scenarios involving three levels of across-the-board reductions in log supply combined with a small set of associated supply conditions were used.
The survey specified 21 types of adjustments that could be made by a mill operator. Broadly, these fell into three categories:
In part the study was designed to determine the level of supply reduction where the response varied from changes within individual firms to industry structure changes.
This is a relatively simplistic approach to an essentially dynamic process. The options that are available to any firm are, in part, dependent on what other firms do. The choices that any firm makes will be dependent on their objectives and those factors that condition response such as the:
The survey responses can then be analysed to:
This information can then be used to assess the likely direct response of the industry to the change in log supply. These direct impacts provide the basis for the Regional Economic Impact Study (see section 5.4).
Given that specific changes in quota sawlog supply, total log supply and the supply conditions were not available, the following results are indicative only, and are based on the effect of an overall reduction in log supply. Further analysis of the data gathered will provide additional information on the clustering of mill responses and comments on the particular types of adjustments that are likely to occur.
Preliminary results of this work indicate that:
Structural adjustments that take place in the industry could be expected to result in some localities contracting and some expanding their timber industry activities.