Thousands of timber jobs in regional Victoria face the axe because the Andrews Government has changed agreements for wood supply, mill owners say, with logs still going to the state-owned Heyfield.

Six beleaguered mill owners said the State Government changes to wood supply contracts last year had left their businesses facing a bleak future, jeopardising small Gippsland communities like Noojee and Powelltown.

The root of the latest timber industry crisis was the Government's unprecedented decision to buy Australian Sustainable Hardwoods in Heyfield last year.

Taxpayers forked out $61 million to save the mill and hundreds of jobs after the owners said the inadequate wood supply offer from VicForests would force it to close.

But the Government awarded extra supply to Heyfield, and small mill owners argue it has been at their expense.

A group of mills have banded together to lobby the Government — and consider their legal options.

The towns affected by the uncertain timber industry stretch across Victoria's east. ( ABC News )

All six had their pre-agreed contract extensions changed in the wake of the Heyfield bailout, while tender contracts for wood supply contracts beyond 2021 were ceased.

At the same time, the group said, Heyfield is being supplied with native timber.

Last year the state-owned VicForests released its updated timber outlook and as a result, extensions in existing agreements were not made due to the impacts of fire and protected species on timber supply, such as the Leadbeater's Possum.

"That has got to be a dead-set conflict of interest the Government … awarding themselves 240,000 metres [of timber] at our expense,'' said Greg McNulty, from a family-owned mill in Benalla.

The mill owners have penned an open letter to Premier Daniel Andrews urging him to intervene — many of them family-owned businesses that are generations old.

"Surely you know that a stake in Heyfield is a major conflict of interest for your government," the letter said.

"We just want to know what your government is going to do to level-up the playing field so that local jobs, and the future of the community are protected."

Premier Daniel Andrews today denied there was any "conflict of interest".

"There are a whole range of protocols in place to manage that,'' Mr Andrews said.

He said decisions on timber allocations were decided by VicForests and that Regional Development Minister Jaala Pulford was in talks with the affected mills.

Pressed on why Heyfield received Government intervention, Mr Andrews said "the unique circumstances at Heyfield required us to take action" and that talks with the smaller mills would continue.

VicForests said it was unable to meet the optional supply extensions in the mill agreements because of "severe restrictions" on available timber.

"We are intensely aware and sympathetic of the issues faced by other mills and will work with each mill so we can together achieve a fair transition to lower timber volumes," a VicForests spokesperson said.

Heyfield mill workers rallied to save their jobs in March last year. ( ABC News: Stephanie Anderson )

No certainty in the industry

Brian Donchi from Fenning Timbers in Bairnsdale said the uncertainty over future supply was making business difficult because it was hard to raise funds to invest in new equipment.

"There is no certainty and no security going forward for the Victorian timber industry, it's not just for the mills — it's for the harvesters, the haulers, for a lot of those towns, these towns rely on timber production," Mr Donchi said.

"We just want to know what the Government is going to do so we can get our certainty and security back."

Over the past two years the Government and industry has been grappling with a native timber supply issue, with the state-owned VicForests declaring that supply of logs to mills would have to drop to keep the industry sustainable.

Some of the state's native forests outside of national parks are off limits to logging because of the detection of the endangered Leadbeater's Possum, Victoria's faunal emblem.

The tiny Leadbeater's possum is an endangered species. ( David Lindenmayer )

Many in the timber industry argue there is supply on Crown land if the restrictions were eased.

But environmentalists say the current regime of logging is destroying precious habitats and damaging Melbourne's water supply catchments.

There is pressure on the Government to protect more wilderness and create the Great Forest National Park in the Central Highlands —an issue Labor is vulnerable to attacks over in key inner-city seats under threat from the Greens.

But the Andrews Government also wants to protect blue collar jobs, and union jobs, in the timber industry.

There is support for both points of view in Cabinet.

Mr Humphrey says his mill business is in "jeopardy" without a secure supply of timber. ( ABC News: Ben Knight )

A town on the brink?

In Noojee, the AG Brown Sawmill faces a tough future because its long-term agreements were rescinded last year. It is also waiting on its current agreement with VicForests to be filled.

"If we can get the original material, the feeder logs, then we are certainly in jeopardy, the mill is in jeopardy, the business is in jeopardy," Craig Humphrey from the mill said.

Noojee is a town of fewer than 200 people nested in the foothills of the Central Highlands. It is a key employer for the region and helps support harvesters and haulers as well.

Harvester and hauler Brett Robin wants to see a level playing field and for the Government to stop pandering to inner-city "lefties".

"There is plenty of timber out there. It's locked up because of a bloody stupid possum," he said.

"It is a big problem that there is uncertainty in the industry when we should be able to invest, employ; we should be looking forward to what we do because it's the only natural renewable resource that we have in Australia, it's over regulated."

Logging is set to begin in coupes around Noojee this week and locals are furious. ( ABC News: Ben Knight )

Concern over logging's impact on bushfire, tourism

But not everyone in Noojee wants the timber industry to forge on.

Logging begins in coupes surrounding the picturesque town on Thursday, and some locals are furious, saying it will increase the bushfire risk.

David Clark is worried that clearing the thick forest would also destroy the tourism appeal of Noojee.

"It is a beautiful place, that's why people come here. You take that away, that's really going to do damage to the tourism industry," Mr Clark said.

But the Government rejected claims logging would increase the chance of fires.

In response to a question in Parliament, Agriculture Minister Jaala Pulford said evidence showed logging did not increase the risk of bushfires.