The Importance of Price in Re-Negotiating Long-Term Supply Contracts from Softwood Plantations – The Case of Queensland Australia

It is often thought that log sales from plantation and natural forests are determined in free and open market auction systems. This is often the case for those countries with a competitive market structure in these industries. Competitive market forces therefore determine log prices in these markets. However, in those countries where log markets are less-competitively structured and asymmetry of market power resides on either or both sides of the market, open auction systems may not be optimal. In the state of Queensland on the eastern seaboard of Australia, characteristics of the log market suggests uncompetitiveness at the structural level of the market. Many of the markets are regionalised and highly concentrated on both sides of the market. This paper seeks to address the theoretical ramifications of high market concentration and its impact on log price determination, the process of price determination and the sharing of economic rents from bargaining processes. A bilateral model is presented to address these issues and variations in log supply from small family forest farmers are included in the model.