Plantation Forestry and Economic Development in the Tiwi Islands

The maritime borders of Australia include over 8,000 islands. The second largest of these – Melville Island 5,786 km² together with the fourth largest – Bathurst Island 1,693 km² (and a number of tiny outlier islands) comprise the Tiwi Island group within the Northern Territory. Since 1960 seven investment groups have attempted to develop forestry plantations on Melville Island. The Tiwi landowners and the investors have sought sustainable outcomes from plantation forestry. Fifty years experience has provided a range of data and understanding that informs the Tiwi Plantations corporate model developed by landowners. Three substantial independent financial appraisals of the Tiwi islands forestry project have been undertaken by Poyry Forest Industry Pty Ltd in 2010, 2012 and 2014. All analyses were for a single rotation of A. mangium, and they provide useful guidance about the economic merit, from a private investment viewpoint, of establishing, growing and harvesting this species over a series of ten year cycles of forest plantation on Melville Island. In this paper, a social benefit cost framework is used to appraise the potential contribution to Tiwi Islanders of plantation forestry on the Melville Island. Analysis of the priced benefits and costs of investment of a ten year cycle of A.mangium under most likely yields and prices indicates that the investment in Acacia plantation forestry has a 35 per cent probability of earning a 4 per cent p.a. or greater real return on capital. To double the odds to two chances in three of earning the annual required return on capital of 4 per cent real return on capital, an additional $100m of unpriced benefits need to be generated over the forty years life of the plantation rotation. This would require unpriced annual benefits of $5.1m or $2550 per Tiwi Islander. The Tiwi Islanders currently have 30,000 ha of mature Acacia to harvest. They have relatively small landowner debt to service, an established port and confirmed buyers. Re-investment of the cash returns from the current harvest into more plantation forestry to secure future community benefit is not a compelling attraction; re-investing these revenues to grow-out Acacia over further rotations is unlikely to benefit landowners as much as investing the proceeds in a sovereign wealth fund.