ACCC raises concerns over Global Forest Partners’ sale of Hume Forests

The Australian Competition and Consumer Commission has outlined preliminary concerns over the proposed acquisition of Hume Forests, an asset owned by funds managed by Global Forest Partners, by the Forestry Corporation of New South Wales.

GFP has owned Hume Forests since 2004 and placed it up for sale earlier this year via a competitive bid process. The asset, located in the Oberon and Murray Valley regions of central and southern NSW and close to forestry assets managed by FCNSW, is planted with radiata pine and covers a freehold land area of approximately 19,000 ha, around 14,000 ha of which is productive.

FCNSW is a state-owned corporation that manages commercial native and plantation forests on behalf of the NSW government. It owns and operates more than 230,000 ha of softwood timber plantations, representing more than 70 percent of all softwood plantations in the state, and just under 35,000 ha of hardwood timber plantations in NSW. It is also the largest producer of softwood logs in the state.

In outlining its preliminary concerns, the ACCC said Hume Forests is the only alternative supplier other than FCNSW of softwood timber in the Tumut/Tumbarumba and Bathurst/Oberon regions of NSW, so that any acquisition would have a “significant effect” on competition in both the short, medium and long term. It added that there was no prospect of any meaningful new entrants to the market in the short-to-medium term because of how long plantations take to reach maturity.

ACCC deputy chair Mick Keogh said in a statement: “We are concerned that this acquisition is likely to lead to price increases or reductions in service levels for the supply of softwood logs in [these regions] by removing a significant competitor to FCNSW.

“Barriers to entry and expansion are very high in the forestry industry. Market shares reflect access to land in these regions and that is unlikely to significantly change in the long term. Given the nature of the industry, we are considering competition issues with a long-term time horizon of 25 years or more.

“This industry is characterized by long-term contracts and infrequent tenders by plantation owners. In this context, we are carefully considering the extent to which FCNSW and Hume are likely to competitively constrain one another.”

The ACCC said it was considering claims made by FCNSW that it would be constrained from exerting market power post-acquisition due to its status as a state-owned corporation, existing long-term contracts, the constraint from downstream imports and customer buying power.

In its statement of issues, the ACCC said: “Market participants submitted FCNSW generally offers softwood at lower prices than other plantation owners, which may be a result of its statutory mandate. It is unclear at this stage precisely why FCNSW may price below other market participants or whether the ACCC can have confidence such pricing will continue in future.

“However, it is unclear to what extent the ACCC can rely on FCNSW’s statutory obligations to prevent competitive harm. FCNSW is a state-owned corporation and, as such, has one of its four principal objectives to operate as ‘a successful business and, to this end… operate at least as efficiently as any comparable business.’ Achieving competition objectives is not a statutory obligation of FCNSW.”

It is also taking into account the potential that FCNSW may be privatized in future. The NSW government was preparing to sell FCNSW’s commercial softwood plantation business to the private sector before the bushfires of summer 2019-20 forced it to cancel its plans.

The ACCC added that it considers “the future without the proposed acquisition will be the status quo or acquisition by an alternative buyer. Hume is being sold in a competitive bid process so there may be a range of potential alternative owners.” It said it would also consider whether alternative bidders might be likely to convert the plantation estate into agricultural land as part of its full review.

The ACCC is inviting submissions from interested parties in response to its statement of issues by November 3, 2022, with a final decision scheduled for January 27, 2023

The sale of Hume Forests is being managed by Resolute Advisory. GFP and Resolute Advisory have been contacted for comment.