Chapter 32 - Economic Activities - Selected Services to Industry Categories

Chapter 32 - Economic Activities - selected Services to Industry categories

 economic activities – Primary industry: mining, fuel & energy and manufacturing & other industry

Primary Industry

1.This category comprises expenditure on administration, regulation, planning, support and management of agriculture and fisheries services, brucellosis eradication and soil conservation. More specifically, the category includes expenditure on:

• grants, subsidies and other assistance for agricultural land clearing and reclamation;
• land settlement schemes such as grants, interest subsidies and other assistance for farm acquisition;
• programs of rural debt reconstruction, farm rehabilitation and retraining displaced farmers;
• provision of veterinary and pest control services;
• services designed to stabilise or improve farm prices and farmers’ incomes, such as price support and marketing schemes for unprocessed agricultural products;
• schemes to encourage or restrict output of particular primary products;
• subsidies to induce farmers to purchase and use fertilisers, improved seeds and so forth;
• eradication or control of pests, vermin, plant diseases and other destructive agents;
• provision of services, grants, subsidies and advances for agriculture water resources such as land irrigation, rural drainage and flood mitigation systems;
• freshwater, ocean and coastal fishing and fish farming;
• fish hatcheries, stocking or culling activities, licensing of fishing and extension services;
• research into fish management related problems;
• compensation for slaughtered beasts;
• restocking and freight rebates and additional holding costs;
• the provision of advisory, technical and research services on soil conservation, erosion control and the reclamation of areas affected by soil degradation;
• erosion control and reclamation works; and
• development and application of policies relating to the prevention of soil degradation and the rehabilitation of degraded areas.

2.The ACT’s position relative to the States, based on the 1999 Review methodology and using the latest available data is illustrated in the following Figure. This sees the ACT being assessed by the Commission as having negative needs in this category.

STANDARDISED, ACTUAL & AUSTRALIAN AVERAGE EXPENDITURE:
PRIMARY INDUSTRY, 2000-01

Standardised expenditure is the amount that the Commission deems the ACT is required to spend if it is to provide an average level of service.

Actual expenditure is the actual funding spent by the ACT on this category in 2000 - 01.

3.A category structure is provided in the following table and illustrates the major components of the current assessment, together with comments on how the ACT is affected by the application of the different factors.

PRIMARY INDUSTRY:

SUMMARY OF THE CGC 1999 REVIEW METHODOLOGY

Component factors assessed:ACT position:

Scale affected expenditure (wgt 3.41%)
Admin. scale
Input costs
Regulation, training & research in public interest (wgt 64.19%)
Economic environment
Input Costs
Dispersion
Research for profit & promotion
(wgt 21.40%)
Soil conservation (wgt 9.10%)
Physical environment
Input costs
Dispersion
Brucellosis eradication (wgt 1.42%)
Brucellosis
Native title administration (wgt 0.05%)
Native title administration
Isolation (wgt 0.43%) / The Commission assessed above average needs for the ACT due primarily to diseconomies of small scale.
The majority of the Territory’s negative needs in this component arise from the relatively small number and low value of primary industries in the ACT.
The Commission applied an equal per capita assessment that did not provide for positive or negative needs.
The below average needs assessed for the ACT are due mainly to the low landcare related expenditure in the Territory combined with the small value of the agriculture, forestry and fishing industries to the ACT economy.
The ACT is assessed as having no needs because of the Territory’s lack of actual expenditure on brucellosis eradication.
The negative needs assessed are due to the relatively small costs to the ACT arising from the Commonwealth Native Title Act 1993.
SUMMARY:
The ACT’s negative needs arise primarily from the low number and low value of primary industries in the ACT

Mining, Fuel and Energy

4.This category comprises expenditure on administration, regulation, planning and support services in the areas of mining, fuel and energy affairs concerning coals of all grades, oil, natural gas, liquefied petroleum gases and refinery gases, electricity and nuclear energy research.

5.More specifically, the category includes expenditure on:

• activities relating to prospecting, mining and mineral resources development, in addition to metal bearing minerals;
• advances and bounties to foster mineral developments and production; and
• price control, research, dissemination of information, measures designed to reduce consumption or increase production of mineral products and support in the form of advances, grants, or subsidies.

6.The ACT’s position relative to the States, based on the 1999 Review methodology and using the latest available data is illustrated below. This sees the ACT being assessed by the Commission as having negative needs in this category.

STANDARDISED, ACTUAL & AUSTRALIAN AVERAGE EXPENDITURE: MINING, FUEL AND ENERGY, 2000-01

Standardised expenditure is the amount that the Commission deems the ACT is required to spend if it is to provide an average level of service.

Actual expenditure is the actual funding spent by the ACT on this category in 2000-01.

7.A category structure is provided in the following table and illustrates the major components of the current assessment, together with comments on how the ACT is affected by the application of the different factors.

MINING, FUEL AND ENERGY

SUMMARY OF THE CGC 1999 REVIEW METHODOLOGY

Component factors assessed:ACT position:

Scale affected expenditure (wgt 16.53%)
Admin. scale
Input costs
Regulation, training & research in the public interest (wgt 49.42%)
Economic environment
Dispersion
Input costs
Research for profit & promotion
(wgt 32.95%)
Land rights (wgt 0.26%)
Land rights
Isolation (wgt 0.84%) / The Commission assessed above average needs for the ACT due primarily to diseconomies of small scale.
The bulk of the Territory’s below average needs in this component arise from the relatively small number and low value of mining industries in the ACT.
The Commission applied an equal per capita assessment that did not provide for positive or negative needs.
The Commission assessed this factor for the Northern Territory only.
SUMMARY:
The ACT’s negative needs arise because the Commission determines that the ACT does not have to spend as much as other States on mining, fuel and energy activities in order to provide an average level of service (whilst operating at an average level of efficiency).

Manufacturing and Other Industry

8.This category comprises expenditure on administration, planning, support, regulation, inspection and promotion relating to industries not elsewhere classified. More specifically, the category includes expenditure on:

• manufacturing activities and research into manufacturing methods, materials and industrial management; and
• other services designed to support, promote and encourage new or expanding industries not elsewhere classified and the development of advanced technology related to these.

9.The ACT’s position relative to the States, based on the 1999 Review methodology and using the latest available data is illustrated in the following graph. This sees the ACT being assessed by the Commission as having positive needs in this category.

STANDARDISED, ACTUAL & AUSTRALIAN AVERAGE EXPENDITURE: MANUFACTURING AND OTHER INDUSTRY, 2000-01

Standardised expenditure is the amount that the Commission deems the ACT is required to spend if it is to provide an average level of service.

Actual expenditure is the actual funding spent by the ACT on this category in 2000 - 01

10.A category structure is provided in the following table and illustrates the major components of the current assessment, together with comments on how the ACT is affected by the application of the different factors.

MANUFACTURING AND OTHER INDUSTRY

SUMMARY OF THE CGC 1999 REVIEW METHODOLOGY

Component factors assessed:
Scale affected expenditure (wgt 12.56%)
Administrative scale
Input costs
Regulation, training and research in public Interest(wgt 34.98%)
Economic environment
Input costs
Research for profit and promotion
(wgt 52.46%) / ACT position:
The Commission assessed above average needs for the ACT due primarily to diseconomies of small scale.
The ACT is assessed as having negative needs in this component due the low numbers and small value of the industries covered by this category (all industries are included except agriculture, fishing, mining, government administration and defence).
The Territory, like all other jurisdictions, receives an Equal Per Capita (EPC) assessment for this component.
SUMMARY:
The ACT receives small positive needs in this category due mainly to the Territory’s
diseconomies of small scale.

11.This chapter focuses on those components of the 1999 Review methodology that the ACT wishes to raise with the Commission. In particular, the ACT is seeking that the Commission:

• incorporate a national capital allowance for the impact of the design and development of Canberra and the consequent urbanisation effects on the ACT’s costs and the operations of commercial forests; and
• retain the assessment of administrative scale and input cost disabilities.

12.This chapter addresses the former services to industry categories (excluding tourism), and in particular, the primary industry category.

13.As the Commission would be aware, the ACT is not endowed with natural resources and does not have a mining industry of any significance, nor a strong agriculture sector.

14.This position is despite the fact that prior to the planning and development of Canberra as the national capital, the ACT region had successful wheat and wool industries. With the expansion of Canberra and the development of town centres, these land areas have become urban areas.

15.The ACT has a small land area with a significant proportion protected as parks, reserves and open space under Commonwealth laws, planning requirements and restrictions. In addition, the Territory’s urban population is dispersed and occupies the majority of land not protected by Commonwealth planning. These factors combine to deprive the ACT of any capacity to engage in primary industry activity.

16.The ACT faces large disabilities in the service to industry assessments, predominantly in terms of:

• its inability to gain from the economic benefits that arise from such industries;
• the impact which Commonwealth legislative and planning restrictions, and the layout of Canberra (developed prior to self-government), have on the ACT’s services to industries; and
• diseconomies of small scale in terms of administration effort and costs, and in particular, meeting national obligations.

Forests

Introduction

17.As a result of the National Capital Plan, the ACT has significant open space areas set aside for national parks, reserves and forests. This reflects the design and development of Canberra as the national capital (including the significance of Canberra as the ‘bush capital’), the decisions taken by the Commonwealth prior to ACT self-government to gazette parks and reserves and the Commonwealth’s land use planning policies.

18.The ACT has 16,200 hectares of land under commercial forest plantation, primarily pine. This represents 6% of the Territory’s total land area, which represents a significantly higher proportion devoted to forest plantations than in other jurisdictions.

19.The ACT Government funds ACT Forests for services provided in respect of the public’s use of facilities and amenities within land areas managed by ACT Forests.

20.The ACT faces planning constraints imposed by the NCA regarding the clearing areas of forest in clear site of the national capital landscape. For example, harvesting has been limited on the land between Lady Denman Drive and Lake Burley Griffin.

21.While such plantations exist in other jurisdictions, the ACT’s situation is unique in that:

• through the planning and development of Canberra, these plantation areas have become integrated with the urban areas as well as the designated parks and reserves in the Territory;
• special requirements have been placed on managing these areas by the Commonwealth through the National Capital Plan that, at regular times, conflict with sound commercial decisions; and
• there is a high recreational use of forest areas because of its close proximity to urban populations and the provision of facilities by the Commonwealth prior to ACT self-government.

22.Figure 32.1 shows the extent of the integration of the urban areas and commercial forest areas in the Territory.

23.These influences and activities interrupt the usual business of the forestry agency and result in economic costs, via higher expenditure and reduced revenues to the operator of the plantations - ACT Forests.

FIGURE 32.1 – COMMERCIAL FOREST AREAS OF THE ACT

Source: Department of Urban Services, 2002.

Land utilisation restrictions

24.The ACT also faces limiting factors associated with urban encroachment on the operations of ACT Forests.

25.Harvesting activities are limited by the fact that:

• pine plantations adjacent to suburban areas are perceived as an aesthetic amenity and are utilised daily by the urban population;
• forest user groups, such as the Australian defence forces and the Australian Federal Police claim priority rights on blocks of forest; and
• operators place political pressure for the large urban corridors within Forests being retained or extended, such as at the Corin Forest Recreational area at Mount Gibraltar.

26.The urban encroachment has also reduced the viability of ACT Forests as sections of previously managed plantation are effectively reclaimed for urban settlement, for example, in the suburb of Isaacs, at Boboyan Pines and the Orana School block. Periodic resumptions have accumulated over the past 20 years and represent a significant factor in reducing the overall plantation area.

27.Compensating land is not issued elsewhere in the ACT, partly because of the restrictive boundaries of the Territory and partly due to the National Capital Plan and its implications for the design and development of Canberra.

28.The limited production capacity of ACT Forests, driven by the lack of available land in the Territory and its inland location restricting port access, means that it is constrained from taking advantage of opportunities in markets outside the ACT and Australia. It is therefore unable to diversify its revenue base.

29.ACT Forests may also face increased competition in the Territory due to:

• availability of supplies from other softwood plantations established in the 1970s and 1980s;
• cost efficiencies in combined haulage and log processing through scale economies and modernisation may eventually allow interstate competitors to increase their stake in the ACT market; and
• a projected increase by 40-50,000 hectares in private plantation estates in the region (ie southern NSW).

30.In the forestry industry, the ability to keep unit costs low through economies of scale is a key profit driver, and the most likely source of efficiency.

31.Figure 32.2 illustrates the small scale of the ACT’s forestry activities compared to other jurisdictions.

FIGURE 32.2 - HARDWOOD AND SOFTWOOD, TOTALAREA UNDER PLANTATION, SELECTED STATES

Sources: State totals from Plantations of Australia 2001 (planted to 9/2000). State-owned from National Plantation Inventory Tabular Report March 2000 (planted to 9/1999), the 19992000 annual reports of respective states and other relevant publications

32.The recent performance of the local construction sector, notwithstanding quarterly fluctuations, has been strong. Despite this, high costs due to a lack of economies of scale have kept ACT Forests from generating profits.

Fire Hazards

33.Funding is also provided for fire standby and fighting costs associated with bushfires on land managed by any ACT land management agencies.

34.The ACT’s forestry operations remain at higher risk to fire damage than in other jurisdictions given the high use of forests by the public. This is driven predominantly by the close proximity of the urban population to the commercial forest operations, a direct result of the Commonwealth’s planning prior to selfgovernment.

35.While there will always be a risk of fire because of the nature of the industry and the general bushland surrounding forest areas, this risk is heightened by the human access to the ACT’s forest plantations. This fire danger is exacerbated by greater numbers of visitors which enhance the likelihood of accidents or deliberate arson attacks occurring.

36.This risk to the Territory forests is beyond the level of risk usually experienced by commercial forests and was most evident in December 2001 when 3% of the ACT’s forests was damaged by fire that has been attributed to arson. As a result of this fire, the ACT’s commercial operator has incurred a loss totalling $3.6m (comprising the net value of timber lost, the additional harvesting costs to minimise losses, lost infrastructure and rehabilitation costs).

Impacts on the operator (ACT Forests)

37.The impacts on the operator include the following:

• restrictions on silviculture practices in areas recently harvested to meet aesthetic, fuel management and community use objectives as opposed to commercial objectives – this results in compromises in weed control mechanisms, fuel management systems and is estimated to cost approximately $130,000 each year;
• due to the proximity of urban populations and the transport network to and through the forest areas, above standard notifications and arrangements to allow tree management, harvesting and land management activities are required for public safety – the above standard cost for these activities is $10,000 per annum;
• the management of feral animals and weeds introduced to the forest areas through the high use of forests by Canberrans and interstate visitors – the above standard cost for these activities is $160,000 per annum; and
• restrictions on harvesting in certain locations across the Territory (for example plantations adjacent to Lake Burley Griffin and adjacent to suburbs) that prevent the removal of trees in order to maintain aesthetic qualities connected with Canberra’s image as the national capital. As an example, in the year 2000, rescheduling of harvesting operations at Narrabundah Hill was required to meet community use objectives and resulted in the postponement of approximately $1.0m in log sales revenue from this area – other examples, include the plantations adjacent to Isaacs and Fairbairn.

38.Some of the other urbanisation effects placing limitations on forest management practices include the fact that: