Constraints on and risks to sectors

Areas for policy to focus on

Factors determining growth potential

Factors determining growth potential include:

Marketing and promotion

The forestry industry has tended to focus on cost cutting and on a production push rather than market led approach. The image of radiata pine is a major problem in export markets, and on the face of it this could be addressed by promoting more widely its positive attributes and providing technical support for users of radiata to ensure it meets customers’ performance expectations. However, the failure of the Wood New Zealand initiative illustrates the difficulties in achieving adequate buy-in and commitments from forestry industry players to promote radiata successfully. Some overseas-owned companies operating in New Zealand market a range of wood products from other countries, some of them high value timber from Douglas fir, Ponderosa pine and other species. There may be little incentive for some of these companies to lift the market positioning of radiata pine because it fills a low-value niche that does not compete with their other species.

This situation could change, however, as an increasing number of small-scale independent growers start looking for markets as their forests mature. Privately owned sawmillers and solid wood processors may also have greater interests in generically raising the image of radiata products. There is an opportunity for some strategic work to be initiated in the area of market access and/or development aimed at these growers and processors.

Radiata growers in New Zealand, Chile and Australia would appear to have a common interest in removing technical barriers to trade and promoting radiata and its attributes in international markets, and opportunities for co-operation should be explored.

The number of forestry companies that freely operate in both New Zealand and Australia exemplifies the interconnectedness of our forest products trade. New Zealand’s largest forestry company, Carter Holt Harvey, has a strong presence in Australia, particularly in wood processing ventures. Weyerhaeuser and Rayonier are also significant trans-Tasman players. The strategic positions taken by international companies such as these certainly indicate that they view forestry “down under” as Australasian ventures. Many Northern Hemisphere fund managers looking to invest in this part of the world also have the same viewpoint.

Environmental sustainability and forest certification

The sustainability of New Zealand’s plantation forestry is a key competitive strength that could be built on in international markets. Wood products have significant advantages for “green building” because of the renewable and sustainable nature of the resource and the far lower energy requirements needed in its production (particularly compared with steel and concrete). In this way, wood can make a greater contribution to improving the overall environmental performance of commercial and residential buildings by reducing energy and resource use, minimising pollution and reducing adverse environmental impacts.

Certification of the sustainability of forestry production is a critical source of competitive advantage. Overseas retail chains such as Home Depot and Lowes in the US and IKEA in Sweden source wood-based products only from environmentally certified suppliers. If protected forestry areas in the US (such as old growth Douglas fir) are expanded then the US could become a net importer of softwoods, opening up opportunities for sustainably managed and certified radiata pine.

Fletcher Challenge achieved Forest Stewardship Council (FSC) certification in 2000 and around 42 percent of New Zealand’s plantation forestry area is currently certified. This could rise to around 65 percent if Carter Holt Harvey achieves the certification it is reportedly working towards.

R&D and innovation

R&D has in the past focused on how best to grow and manage plantation forests, and biotechnology offers new opportunities in areas such as gene marker-based selection of trees that allows the rapid breeding of trees with required wood properties. However, increasingly R&D emphasis is on processing and on adding value, including through understanding and enhancing wood quality as it relates to processing options.

Much of the gain from R&D and innovation is likely to be incremental, for example in wood hardening technology, wood drying, laminating technologies and sensing techniques to better determine wood quality and performance. Forest Research CRI (FR) is placing great emphasis on the development of wood-based biomaterials to compete with steel, concrete, plastics and other materials. FR has predicted that cellulose will be one of the most important molecules of the 21st century (cellulose occurs in its most concentrated form in the secondary cell wall of woody plants). The biosynthesis of cellulose and its related polymers is being researched, and as a result opportunities may exist to manipulate cell wall formation and produce new biomaterials.

The Wood Processing Strategy (WPS) places a lot of emphasis on R&D and the Forest Industries Council has developed a sector-wide R&D strategy which may be complemented by a commodity levy to fund industry good activities, including research.

Processing competitiveness

To boost its long-term contribution to per capita income the New Zealand forest industry has to reduce its reliance on the export log commodity market and generate more income from downstream wood processing and manufacturing. However, existing processing plants will need continual upgrading to improve efficiencies and hundreds of millions of dollars in new investment is needed if a much higher proportion of the wood is to be processed domestically.

Horizontal coordination and cooperative initiatives

There is potential for better horizontal co-ordination and networking within the forestry industry, for example to co-ordinate marketing, logistics and processing. Scandinavian Co-operative forestry models, perhaps drawing on lessons from the co-operative dairy industry, could provide a model for some parts of the forestry industry such as small-scale independent forestry owners and processors with little market power.

Constraints on and risks to sectors

Constraints

The major constraints on the future economic contribution of the forestry industry include:

Market access and market development

Market access is a key constraint on the industry in relation to technical trade barriers, building codes and standards and tariff barriers. For example, the Indian market is severely tariff-restricted, limiting our exports to logs. Some markets are impeded by “escalating tariffs” which in effect increase with the extent to which products are processed, effectively encouraging log exports and discouraging exports of e.g. lumber. Tariffs have the effect of overpricing log exports and reducing returns from added value processed wood exports.

Resource Management Act

The RMA is consistently identified as a major constraint on processing investment. This is partly due to the uncertainty the resource consent process creates and how the Act is implemented rather than the RMA framework per se. MAF has contributed to the development of a Wood Processing Industry Code of Practice that aims to help overcome constraints imposed by the RMA. However, by itself this seems unlikely to overcome many of the barriers. There are also allegations that rights of appeal to the Environment Court are being used to delay developments in the hope of extracting financial inducements from developers in return for objections being dropped.

There are serious questions around whether New Zealand can substantially expand its forest products processing investment without changes to either the RMA or the way it is implemented.

Skills and workforce issues

Much of the forestry industry, especially production forestry and silviculture, is seriously affected by labour and skills problems. Forestry work is often hard, dangerous and not well paid. A lot of forestry work is undertaken by contracting businesses that take a short-term and price driven approach, under a piece-rate payment system, and sometimes under-invest in training. Poor conditions lead to high staff turnover, which compounds the problem by reducing any benefits from investment in training.

For sustained periods the forestry industry on the East Coast has experienced labour shortages, despite over 4,000 people receiving the unemployment benefit in this region. The forestry work force in areas such as the East Coast has been affected badly by lack of basic life skills. Cannabis abuse is a huge problem leading to loss of motivation, inability to work safely with machinery and mental illness.

The above problems are complex and are likely to be addressed most effectively through changing peoples’ incentives and attitudes, benefits reform, skill development, stabilising employment tenure over time and improved employment practice. Some form of certification of good employment practice, and collective action by forestry contractors and forest owners/managers to fund industry-wide training, would be useful.

Energy

Wood processing sectors are energy intensive, and long-run security of supply for electricity and the problem of short-run price volatility are critical issues. It would be beneficial if electricity industry reforms allowed interconnectivity between the transmission capabilities of Transpower and local line companies and dispersed and embedded electricity generation, for example to allow forest processing plants to feed surplus electricity from their own generation plants into the national grid.

Energy constraints and “problems” such as low value residue can be turned into competitive advantage. Current estimates on the amounts of wood processing and forestry residues potentially available for new energy production (i.e. over and above that required for an expanding wood processing sector) are currently around 2.4 million cubic meters (Mm³) and this quantity will increase to around 6.7 Mm³ by 2030. This represents a significant opportunity for the introduction of renewable energy based on wood biomass resources in this country. The key constraints to development are capital costs, cost of collection and transport of biomass and finding suitable markets for the large amount of process heat produced as a by-product of co-generation.

Transport

The key transport issue for the forestry industry is access to an effective road transport network. Transport is especially a problem in areas such as Northland, the East Coast and West Coast. It is uneconomic to transport logs by rail except for long distances and road transport is critical to the industry. Recent government decisions to invest $30 million more for road transport infrastructure have been welcomed by the industry, which also wants the government to resume ownership of the rail track network (along with allowing competition to use the tracks).

An allied transport issue (and one closely aligned with skills issues) is that there will be an estimated shortage of over 500 log truck drivers over the three years 2004 to 2006 (inclusive).

The industry is able to recruit enough drivers to replace those that leave through normal attrition but is unable to recruit additional drivers to meet the increasing demand for log transport.

Risks

Biosecurity breaches are a significant risk to the forestry industry. Of the insect pests, Asian gypsy moth is perhaps the major threat, however there have been incursions of painted apple moth, gumleaf skeletoniser and the fall webworm and these pests constitute serious threats to our forests. Other major threats include Pitch Pine Canker (the “foot and mouth disease of forestry”), Western Gall Rust and Pine Tip Moth.

Areas for policy to focus on

Areas for policy to focus on include:

Implementation of Wood Processing Strategy (WPS)

The Wood Processing Strategy (WPS) is a joint government-industry initiative to address constraints on wood processing. The WPS has led to, or been associated with:

  • a National Transport Programme providing an additional $30 million to assist rural transport developments in East Coast and Northland in particular;
  • a Wood Quality Research Consortia and a Wood Processing Education and Training Centre of Excellence being set up;
  • enhanced partnership with MAF Biosecurity, with greater industry involvement in forestry biosecurity policy and operations;
  • national sustainable plantation standards under development, with around 42 percent of forests already certified;
  • energy supply and opportunities for bioenergy development
  • RMA code of practice and Local Government Best Practice guidelines under development involving industry and local government.

MAF is now leading the ongoing implementation of the WPS and this is a top policy priority.

Priority areas for the next stage of the WPS include market access and market development.

Market access, standards and verification issues

Market access can be improved through multilateral and bilateral trade negotiations, and by overcoming technical trade barriers. MAF is currently reviewing the adequacy of the effort it puts into overcoming technical barriers to New Zealand wood product exports, especially where they impede the use of radiata in high value applications such as structural building materials.

New Zealand must comply with international standards governing use of wood in structural and other applications if it is to increase its access to high value international markets. New Zealand must put effort into the development of and compliance with international standards and into negotiating building codes and standards more favorable to New Zealand products. This must be complemented by increasing verification capability to provide assurances that standards are being met, and increased training and education is needed to provide confidence in the use and applications of timber building materials.

In New Zealand around 60 percent of structural framing timber is still visually graded and there is a need for much more rigorous grading and verification which is aligned and harmonised with the requirements of international (and in fact domestic) markets.

Linking wood products sector to R&D and business development schemes

Small to medium size (SME) wood product businesses have considerable growth potential. MAF has identified that these businesses have little awareness of government industry support schemes such as Technology New Zealand and other business development initiatives. MAF intends to work with FRST and other agencies and get the solid wood product sector more closely linked to these schemes.

Promoting the environmental sustainability of New Zealand’s plantation forestry

MAF has an ongoing focus on encouraging and promoting the environmental sustainability of New Zealand’s plantation forestry resource.

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Monitoring and Evaluation
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND

Phone: +64 4 894 0623
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