Market risks and market issues for New Zealand forest product exports
This section briefly discusses the key issues relating to market risks for New Zealand exporting companies. Apart from the results from interviews, as presented in Part I, these issues are not considered in detail in this report because their scope is too extensive. Further information can be derived from APEC (1999), USTC (1999) and Whiteman et al (1999).
Certification
Forest certification is becoming increasingly important not as a competitive advantage but as a marketing requirement. The decision by giant retail chains such as Home Depot and Lowe’s in the United States, and IKEA in Sweden, to source only from environmentally certified suppliers has made the requirement of certification mandatory rather than optional.
However, although certification is a means of accessing the market, it does not necessarily give a price premium in any market.
The strategic difference at the moment for producers is the choice of certification process. The most widely known is the Forest Stewardship Council (FSC) scheme, which is effectively an NGO that includes several environmental organisations plus private retailer companies. Several forestry companies around the world have been or are in the process of obtaining FSC certification, including Fletcher Challenge Forests in New Zealand,which obtained FSC certification in 2000.
However, because of the chain-of-custody concept, which ensures that environmental principles are observed during the whole process of production, forestry companies with forest only or vertically integrated companies with forests and processing plants, are in a better position to obtain certification, whereas producers sourcing wood from different suppliers cannot guarantee that all their supply comes from certified forests.
One initiative from the New Zealand forestry industry has been the creation of a national certification system, currently known as Verification of Environment Performance (VEP). The risk of adopting such a system is that it may not be recognised by some customers because it may be perceived as not being independent of the industry.
Trade access and market development
Bilateral, regional or global agreements that are currently being negotiated or considered have the potential to influence New Zealand forest products competitiveness in export markets.
A proposed trade agreement with Australia, United States, Singapore and Chile, known as the P5 group, would benefit New Zealand by opening the U.S. market. One likely threat here is the competition from Chile for the same market. Though the size of the U.S. market is such that imports of forest products from both Chile and New Zealand even at projected increased volumes will not be significant for the U.S., there will continue to be increasing competition from Chile and other countries in some wood processed products such as appearance grades.
Trade liberalization issues are currently managed through the World Trade Organisation (WTO). Estimation of the impact of reduced tariffs on forest products trade has been recently attempted by Forest Research. According to initial findings, generalized tariff reduction under the WTO scheme could produce a more positive outcome for New Zealand’s forest industry than bilateral agreements (James Turner, personal communication). However general WTO agreements are much slower to progress than bilateral treaties. The key element is to find out and pursue those bilateral agreements that will benefit the industry the most and focus on them. This process of course needs to be directed by government, and needs to consider its impact on the country as a whole, not only the forest industry in particular.
Non-tariff trade barriers are prolific in forest products trade and are discussed extensively in a report prepared by Forest Research for the APEC Secretariat (APEC, 1999). In the Asian countries in particular, radiata pine exports have been particularly impaired by restrictive building codes and product standards.
Market development is a key challenge if the wood processing industry is to succeed. A major effort is required from a unified forestry sector, including forest growers and wood processors, in order to create new products and new markets. Small to medium-sized processors have the ability to position themselves with new products in niche markets or develop new non-traditional markets. Research on market development appears to be an area where more resources need to be placed, both by the government through different agencies and departments and by private companies.
Government's role could be through public agencies that assist companies in promoting products for export, such as Trade New Zealand. A more direct approach could be assisting the development of new non-traditional industries, such as the furniture and components industry, to diversify processing options.
Biosecurity
Biosecurity is considered a large risk for New Zealand as its forest industry relies heavily on one species, radiata pine, perhaps more than any other forest products exporter country in the world. The risk of a disease or plague entering into New Zealand forests is considerable and may have catastrophic consequences for the industry.
Diversification of species and of the genetic pool of radiata pine is one long-term measure towards reducing biosecurity risks. Government involvement is required, if this is to be achieved, as the forest industry seems to be heading in the opposite direction for some of these issues.
At the moment, some of the diseases that represent the highest risk are the Pine Pitch Canker and the Western Gall Rust, both of them fungus diseases. Another main threat is the Pine Tip Moth, which has caused considerable damage to radiata pine forests in Chile, estimated in the millions of dollars. But these are only the known pests that attack radiata pine. There are many more potential pests that may become a pest on entering New Zealand without being a problem elsewhere. (Geoff Ridley, personal communication)
Increasing border surveillance is one way to help prevent diseases entering into the country. However, with more trade and travel of people, it becomes increasingly expensive to implement surveillance in a way that can satisfy the security levels required. Research and development on forest health and phytosanitary issues is therefore a pre-requisite for any adequate response to future problems.
Skills and training
In order to compete adequately in the global market it is necessary to have a highly skilled labour force. Currently there are several problems that the New Zealand forestry industry is facing in relation to skills and training. One is the lack of interest in forestry as a career for young workers, which causes only low skilled workers, who cannot get a job elsewhere, into the forestry industry. Low salaries in comparison to other sectors, hard work, poor working conditions, less training and fewer opportunities and more accidents compared with other industries, are negative incentives to attract highly skilled people. This problem needs to be thoroughly analysed and promptly resolved to improve New Zealand competitiveness in the global arena.
Industry training should also move beyond the traditional technical aspects of forestry and include all the marketing areas such as market development, market access, customer service, quality management, etc. Getting the right product to the customer at the right price and at the right time should be a training focus area.
Contact for Enquiries
Rural Affairs Coordinator
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0675
Fax: +64 4 4 894 0745
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