ABOUT THE AUTHOR
has had an interest in forestry issues since 1980. Back then, he
saw at first hand the devastating effects of soil salinity on wetlands and
agricultural land in northern Victoria.
At the time, Tony was also developing an interest in co-operatives as a
structure for implementing initiatives to address tree decline in Victoria.
Since 1980, Tony has been involved in a number of reforestation related
Assisted in forming 3 treegrowing related co-operatives in Victoria; Central
Planting Service Co-operative Ltd (1982), Gippsland Wood Products Co-operative
Ltd (1994) and
Paulownia Growers' Co-operative Ltd (1999).
Established and managed Australia's first tree planting contracting and nursery
organised as a
worker owned co-operative,
Central Victorian Tree
Planting Service Co-operative Ltd
over 5,000 trees on farm and council land in its first year of trading. The
co-operative also supplied 10,000 trees which were planted as part of the
Secured Victorian government funding (A$100,000) to organise and manage an
to create the
Yarrawee Flora Reserve
within the City of Ballarat, in collaboration with
Victorian Lands Department,
Starter Kit for a Treegrowers' Co-operative
Australian Forest Growers,
Market conditions affecting primary producers
The effect of market conditions on treegrowers
Advantages of co-operative action
What is a co-operative?
Functions of co-operatives in plantation forestry
Essentials for a successful treegrowers co-operative
Links to Australian Forestry Co-operatives
Private forestry has the potential to expand significantly over the coming
decade. With Australian consumption of forest products exceeding production and
the world supply gap predicted to widen, state and federal governments are
encouraging private landowners to invest in plantation forestry.
Private landowners, using land for mixed purposes, occupy a predominant
position on Australian land that is suitable for plantation forestry. However,
in it's Survey of trees on Australian farms: 1993-94, ABARE found that less
than 2% of farmers in both the wheat-sheep and high rainfall zones listed the
production of timber and non timber products as the main functions of tree
plantings in the period 1991-92 to 1993-94.
ABARE suggested potential barriers
may include low farm cash incomes, high debt levels, lack of technical and
economic information, lack of suitable markets, and uncertainty about being
permitted to harvest trees.
The barriers to developing a viable private plantation forestry industry are
similar to those confronted by primary producers in the development of other
agricultural industries. Primary producers around Australia have overcome many
of these barriers by forming co-operatives. Over the years,
co-operatives have come to dominate the dairy, rice, fishing, grain, wool,
cotton, and sugar industries, with many having grown into multi-million dollar
businesses exporting a diverse range of products.
This paper argues that co-operatives can play a key role in achieving a viable
plantation forestry industry in Australia. By forming co-operative's
treegrowers can secure fair prices for their timber.
The paper first examines the marketing conditions confronting primary producers
in general and the effect of these conditions on treegrowers. The advantages of
co-operative action are then discussed, followed by a description of a
co-operative and the functions of co-operatives in plantation forestry. The
paper concludes by identifying a number of key issues for a successful
MARKET CONDITIONS AFFECTING PRIMARY PRODUCERS
To appreciate the benefits that a co-operative can bring to treegrowers, one
needs to understand the market conditions that affect all primary producers.
In the economic sense a market exists where an agreement as to price can be
made between a buyer and seller and a transaction takes place as a result. This
over-simplified, but for our purpose sufficient, definition has several
important implications for primary producers.
is that the buyer must want and be willing to buy the produce of a seller.
Willingness to buy will be determined by any specifications as to kind and
quality, as well as price, a potential buyer may set in regard to what they
want to buy. It follows that, to be able to sell, a seller has to offer what
other people want and are prepared to pay.
is that there has to be an agreement as to price; a meeting point at which one
party is willing to sell and the other willing to buy. It is this price fixing
mechanism that creates a market where transactions can take place because
agreements are being made. Many factors influence price agreement but the basic
consideration on either side is to make a profit.
The seller needs to sell at a price that makes production profitable for them;
the buyer needs to buy at a price on which they can make a profit. To that
extent the motivations of each are at once the same, but also antagonistic. The
producer is seeking the highest price they can obtain and the buyer the lowest.
important implication is that the prices will be influenced by the relative
bargaining strengths of buyers and sellers. If there are urgent financial or
other reasons for sellers to sell or if supply levels are high and demand low,
the advantage lies with the buyers. If the contrary is the case, the advantage
lies with the sellers. If there are a lot of small sellers and few buyers, the
advantage will lie with the buyers.
implication is that the prices offered and accepted can be substantially
influenced by information, or perhaps more importantly lack of it, as to prices
available at markets in other places.
It is these fundamental features of any market situation that creates the need
for co-operative marketing arrangements.
THE EFFECT OF MARKET CONDITIONS ON TREEGROWERS
The effect of these market conditions on treegrowers can be illustrated by
the following observations from Tasmania.
According to Henderson and Leech
, private non-industrial forest owners have for
the most part been at the mercy of an industry used to buying an undervalued
resource. Many treegrowers had tried unsuccessfully to secure markets at
satisfactory returns for their mature resource, commercial thinning was
basically non-existent and native forests were the traditional resource of the
As most treegrowers only plant, tend and harvest once in a lifetime, they lack
forest management and marketing expertise. Individual treegrowers also lack
influence on prices, practices or even actual payment, and once the resource
has been harvested it is hardly possible to withhold further supplies to ensure
The formation of treegrowers' co-operatives in Tasmania was preceded by many
Irregular fragmented supply that was of limited value to processors no matter
how big or small.
No apparent markets for an increasing pine resource.
Repeated examples of extremely low and in some cases no royalty at all being
Repeated cases of poor forest practices, half completed projects, failure to
clean up other related malpractices.
Frustration - growers had been encouraged to plant, tend, prune, etc. only to
be unable to sell or be ripped off.
Direct marketing was not working.
ADVANTAGES OF CO-OPERATIVE ACTION
It was described earlier that if there are a lot of small sellers in a market
and few buyers, the advantage will lie with the buyers. The timber industry
reflects this market condition, where there are a growing number of small
treegrowers compared to relatively few timber processors.
The treegrower is in a very weak position in the market compared to the buyers
of the timber resource
. As a matter of protecting their own interests, the
treegrower needs to secure bargaining strength in the market at least equal to
that of their potential buyers.
The treegrower needs ability to:
Negotiate prices from a position of strength;
Access market information;
Take their produce elsewhere if prices are better; or
Wait for a more advantageous time to sell.
Membership of a co-operative offers all these advantages.
WHAT IS A CO-OPERATIVE?
A co-operative is a product of the market economy, often established in
response to market failures or imbalances. It is not an alternative to the
A co-operative is an incorporated enterprise that is owned and controlled by
the persons who use its services. Membership of a co-operative is voluntary,
and is usually based upon a specific group of persons who have a unifying
interest. Members can include individuals and/or corporate bodies.
In forming a co-operative, members agree to make use of its services and
contribute capital to fund the enterprise, usually by purchasing shares. Funds
are contributed not for capital gain but for service or trading benefits.
Members may receive dividends on capital contributed, but these are secondary
to the trading benefits derived.
The affairs of a co-operative are controlled by its members. Every member has
one vote only, irrespective of the capital contributed or the volume of the
business transacted. Members exercise their control by electing a board of
directors charged with management of the co-operative, by approval of the rules
by which the co-operative operates, and by the passing of resolutions at
FUNCTIONS OF CO-OPERATIVES IN PLANTATION FORESTRY
Co-operatives are very flexible organisations that can provide a diverse range
of services to treegrowers. The following outlines a number of functions that a
treegrowers' co-operative could perform.
The primary function of a treegrowers' co-operative is securing sales and
negotiation of contracts. The co-operative may either purchase from the grower
and then resell, or facilitate direct transactions between suppliers and
buyers, deducting a levy for the services of the co-operative (either as a
percentage of the royalty, or as a fixed amount per tonne).
The co-operative may or may not utilise contracts between producers and the
co-operative. Some co-operatives employ sole agency agreements to market timber
for a given period; others rely on member loyalty without formal
2. Market development
A treegrowers' co-operative can actively explore markets for various grades and
species of timber and other types of timber products. It will also explore
various techniques of marketing.
3. Forest management plans
Market development tasks will be integrated with the preparation of forest
management plans for members. Management plans will cover matters such as
choice of species, mix of species, choice and method of forestry practices,
harvesting and planting schedules over a medium to long term time frame.
Management planning of this kind will be either directly provided by the
co-operative through its staff to its members, or made available on a
contractual basis via the co-operative.
It may maintain, on the member's behalf, an inventory and valuation of the
member's resources, or it may assist the members in these tasks.
4. Arrangements with contractors
A treegrowers' co-operative may enter legal arrangements with contractors and
hired labour, assuming responsibility for legal, insurance, worker's
compensation and related matters on behalf of its members.
5. Timber harvesting and transport
A treegrowers' co-operative may co-ordinate and supervise the harvesting and
transport of timber to suppliers, contracting with loggers as required. It may
assume responsibility for ensuring that harvesting occurs in accordance with
prescribed forestry practices. It may establish and operate holding depots for
timber as required.
6. Financial transactions
A treegrowers' co-operative may centralise financial transactions such as
invoicing, payment and credit systems. It may acquire and utilise computer
technology for this purpose.
7. Pooling equipment purchases
A treegrowers' co-operative may purchase forestry equipment, technology, and
office requirements on behalf of its members.
8. Discounts on bulk purchases of supplies
Forestry supplies and services may be purchased in bulk, attracting volume
9. Advice and information to members
In the early stages of development of the private forestry industry, government
agencies have undertaken to provide extensive management advice and marketing
information. As the industry develops, this provision is likely to be
withdrawn, leaving the industry to function in a more self-reliant manner. The
advisory and information providing role of treegrowers' co-operatives will
acquire greater significance as this process of government withdrawal occurs.
10. A voice for members in control of their business
Members of a treegrowers co-operative exercise control over the policy of their
enterprise, and possess a voice in its operation. Treegrowers who deal
independently with major companies or government agencies are not so
ESSENTIALS FOR A SUCCESSFUL TREEGROWERS CO-OPERATIVE
A committed group of enthusiastic treegrowers to facilitate the
A well researched and constructed business plan. As with all
functions, the basis of a good marketing system is founded on planning,
control, and adequate information.
An inventory of members' forest resources to enable tactical planning and a
'resource level' inventory to plan strategically and understand the potential
market opportunities. This is a fundamental issue and should be undertaken to
the point where a logging programme can be planned, prior to any sales being
undertaken. This should also include 'signing - up' all potential sellers with
a complete infrastructure in place.
Persuading the buyers of timber that their requirements would be
by routing their timber purchases through a co-operative.
Adequate communication to growers, processors & contractors of the
co-operative's policies and procedures.
Having administrative procedures that ensure both timber and cash are
properly accounted for.
Having an informed and dedicated board of directors.
Having sufficient establishment funds and working capital to finance the
Having suitability qualified staff including, at a minimum, a person with an
industrial forest background, a marketing manager and administrative staff.
Having hand-picked contract harvesters. The training of an 'elite' workforce
who are self regulating and highly skilled both operationally and
silviculturally is highly desirable. The cost of supervision is too high and
the business end of a chain saw or logging machine can make or break any
All contractors must carry adequate public liability cover, worker's
compensation, personal accident and sickness for the principal and machine
cover. All insurances must be sighted with a valid certificate of currency and
noting the co-operative by name as a party.
All operators must have the appropriate training and produce current training
certificates and wear all necessary safety equipment.
Establishing a trust fund into which all payments from buyers are made. Funds
are then dispersed to the treegrower, contractors and the co-operative.
The treegrower is subject to marketing conditions similar to that faced by
other primary producers. Through the action of pooling their members' timber
resources, a treegrowers co-operative gains the volume to market more
effectively than can be achieved by its individual members.
There are also advantages for buyers acquiring timber through a co-operative.
The common requirements of large consumers of timber are resource security and
reliability of supplies. Also, there is the problem for the potential buyers of
controlling and disciplining supplies from a large number of geographically
dispersed independent treegrowers.
By using a co-operative, treegrowers can achieve stable and economically
advantageous markets, and buyers can achieve reliable sources of timber from
While co-operatives have unique features that will fulfil the needs of
treegrowers and buyers, it is important to remember that a co-operative must
pass all the same economic tests as other businesses. For this reason, those
who seriously consider starting a treegrowers' co-operative will have to
carefully address feasibility questions before developing the new co-operative.