New South Wales's native logging industry is not "economically viable" and the state government should consider shutting it down after 2028 if its prospects do not improve, an independent economic regulator has recommended.

If that happened, it would be the third state to stop logging native forests after Victoria and Western Australia, leaving Tasmania the only state with a large native logging industry.

The recommendation was made by the NSW Independent Pricing and Regulatory Tribunal (IPART) in its triennial analysis of the government-owned logging company Forestry Corporation of NSW.

It found Forestry Corporation's native timber operation had been steadily losing money over the past decade, in part due to delivering timber to sawmills for less than the cost of providing it.

In 2028 most of those contracts binding the corporation to supply timber at certain prices are set to expire, the report says.

It says if native logging cannot be made economically viable when the contracts are renegotiated, the "long-term feasibility" of logging native forests should be reviewed.

IPART said the feasibility of the activity should be questioned because of mounting losses over the past decade, along with moves in Western Australia and Victoria to shut native forest logging.

It also noted concerns about logging making bushfires worse and damaging threatened species' habitat.

Separately, the ABC understands the NSW government's expert panel reviewing the future of the industry has been discussing the possibility of the industry being shut down with environment groups and loggers.

The revelation comes the same week that Forestry Corporation released its annual report, which shows it suffered a $29 million loss in its native logging division in the 2022-2023 financial year.

"This is just a really bad deal for taxpayers, even before you consider the immense damage that it's doing to biodiversity and forest health," said Justin Field, a former Greens and then independent MP in NSW, who now heads the Forest Alliance NSW.

Industry lobbyist James Jooste, CEO of the Australian Forest Product Association (AFPA) NSW, criticised IPART for providing "commentary" in its report.

"Good on them for putting this commentary in place, but it's outside their remit," he said.

"This is a critical industry … for our housing, energy, manufacturing, and mining sectors … timber is the workhorse of the economy."

The IPART report also made several other recommendations, including that Forestry Corporation take further steps to ensure its transporting costs were competitive.

A spokesperson for Forestry Corporation said it accepted the recommendations and would implement them.

The report compared the costs incurred by Forestry Corporation for logging and transporting timber to the revenue collected through contracted sales agreements with private sawmills, which is meant to cover those costs.

IPART concluded that Forestry Corporation "is selling native timber to sawmills for a delivery charge which is below the cost of harvesting and hauling that timber alone".

The loss per tonne of wood delivered to sawmills increased by 18 per cent since the last review, from $3.96 per tonne to $4.67.

IPART also concluded it was essential to manage native forests sustainably amidst environmental concerns and a declining industry, noting:

• The NSW Natural Resources Commission found NSW forests are showing signs of stress and degradation
• There are now alternatives to native timber including plantation timber and engineered products, the use of which could also help housing supply and affordability
• Studies have suggested shutting the industry could bring net economic benefits to the economy
• There are concerns that continued logging is impacting the state's resilience to climate change by increasing fire severity

IPART is required to conduct the analysis once every three years. Its report excludes the costs to the public for the loss of the trees themselves, as well as the revenue paid by sawmills meant to compensate for that (called "stumpage").

The Forestry Corporation spokesperson said the IPART analysis therefore did not look at the full revenue received from its customers, which it said did exceed the costs of harvesting and hauling.

Despite that, Forestry Corporation's native timber operations have posted increasing losses in their annual reports, totalling $73 million over the past four years.

While the IPART report is normally publicly released by the treasurer, this year's report was delayed and only obtained by the ABC through NSW Freedom of Information laws.

It comes as the Independent Forestry Panel reviews the future of the native logging industry for the government.

Mr Field said one option being considered by the panel is the closure of the native logging industry.

"We know that it's looking at many options for the future of the industry, one of which is an exit from native forest logging in New South Wales, and that's consistent with what's happened in other jurisdictions, and really the direction that things are heading," he said.

Mr Jooste said if the native logging sector was closed in NSW, the economy would suffer.

"What we'll find is considerable upward inflationary pressures put across our entire economy, from recreational cost increases just for accessing our forests in New South Wales [to] housing cost increases and your power price increases will go up across the state as well. All for a future made in a country like Indonesia, Malaysia or China," he said.