Part III Policy Initiatives
Factors driving investment in other major producing countries
All countries are subject to the principles of competitive advantage and consequently, most of the factors driving investment in wood processing in New Zealand are the same factors that drive investment abroad. On the supply side, these include the availability of wood and fibre resources, a desire to capture value-added returns by processing domestically, and an ongoing pressure on companies to grow bigger and globalise.
The Food and Agriculture Organization of the United Nations’ (FAO) Paper for the World Bank Forest Policy Implementation Review and Strategy notes five driving forces that will dominate patterns of development in forest products markets in the next decade.
- Patterns of regional demand will not change significantly.
- Growth in consumption will continue to shift towards consumption of paper and reconstituted panels.
- Importance of a few forest product suppliers at the global level.
- Adequacy of wood supplies at the global level.
- Forest products trade.
Patterns of regional demand will not change significantly. Developed countries presently account for 60-80 percent of forest product demand depending on the type of forest product. This situation is not expected to change very much over the next decade. Rapid economic growth in Asia is expected to increase the importance of this region as a consumer, but much of the demand and demand growth in Asia will continue to be dominated by Japan. Projections of relatively slower consumption growth in North America and Western Europe will be outweighed by the sheer size of these economies and will see them continue to consume a substantial share of the world’s forest product output. Thus investment in wood processing is likely to be focused on producing for many of the same key wood markets targeted by New Zealand processors – the US Pacific North West, North Asia and Southeast Asia.
Growth in consumption will continue to shift towards consumption of paper and reconstituted panels. For the past several decades, growth in consumption of paper and reconstituted panels has consistently been 1-2 percentage points above growth in consumption of sawnwood and plywood in most countries and this trend is likely to continue. The only major exception to this is parts of Asia where demand for plywood is currently still very strong. Thus, while New Zealand has invested in reconstituted panel capacity (especially MDF) and engineered wood products (e.g. LVL), markets for these products will continue to be competitive. Additionally, markets for pulp and paper are expected to retain their strong cyclical characteristics. Thus, during periods of strong prices companies will tend to reinvest earnings in creating new capacity. This dynamic will create surplus capacity, forcing the least efficient mills to sit idle as prices inevitably turn downward.
Importance of a few forest product suppliers at the global level. Forest resources are generally distributed more evenly than income across the world, however, more intensive use of forests and higher productivity rates in developed countries mean that forest product supply is largely concentrated in the hands of a few developed countries. Most of the world's wood production comes from temperate and boreal forests, which currently account for 80 percent of global supplies. Among temperate and boreal countries, USA, Canada, Sweden and Finland account for 45 percent of global wood supplies, while China and the Russian Federation are the next largest producers, with 7 percent and 4 percent shares of world production respectively. This global dominance of a handful of countries is expected to continue in the future although, at the regional level, smaller producers such as New Zealand and Chile may gain prominence. Thus, with the exception of a handful of markets (for example the Korean log market) New Zealand (currently producing around 1 percent of the world’s industrial wood) is likely to be a marginal rather than key supplier. Strategies for market development will need to reflect this reality.
Adequacy of wood supplies at the global level. There is a general consensus among recent studies, that wood supplies at a global level will be adequate to meet demands for industrial wood in the immediate future. However, the types of wood that will be available in the future will be very different from what has been produced in the past. Natural forests will generally produce less wood and in smaller log sizes than previously, except in a handful of countries where virgin natural forest will remain available for wood supply. Most growth in wood supply in the future is expected to come from forest plantations and trees outside forests (i.e. trees, shelterbelts and small woodlots on agricultural or other non-forest land – particularly important in Asia), which have the potential to play a much greater role in supply than they have in the past. Thus, New Zealand will increasing compete on a more level playing field (in terms of both market perceptions and growing costs) with plantation-grown wood.
Forest products trade. A general trend towards trade in higher value-added products has been experienced in the past and is expected to continue in the future. This trend will be supported by the general thrust toward more liberal trade policies, through the World Trade Organisation (WTO) and regional associations such as the Asia-Pacific Economic Co-operation forum (APEC). Again, this should confer advantages to the most efficient producers, however, wood products markets can be expected to remain extremely competitive. New market opportunities will be recognised by competitor countries and these will drive new investments in wood processing.
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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