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Situation and Outlook for New Zealand Agriculture and Forestry (August 2008)

7 Forestry – the next 20 years

The long-term well-being of the New Zealand forestry sector over the next two decades will depend on decisions about how the sector embraces opportunities and overcomes challenges. MAF is completing a forestry sector study that explores what factors will drive those decisions. Part of the report’s purpose is to foster debate on the future for the sector. In this publication, we look at some of the commentary from the study.

A burgeoning world population and economic growth, especially in developing countries, will increase demand for and use of wood products over the next two decades. The trend of urbanisation will continue, so that, by 2030, around 60 percent of the world’s population will be living in cities, compared with about 50 percent in 2003. Economic development in the key emerging markets of China and India is likely to remain strong. From 2010 to 2030, the average annual GDP growth rate for China is expected to be around 5.5 percent and 5.1 percent for India.

External factors that will have a profound impact on the sector’s future include fluctuations in international market demand, the supply of wood and wood products and the development of new products. At the same time, global demand is rising for non-wood “environmental services” and there’s pressure for renewable energy sources. Any international crises during this period could have an impact too.

Climate change will generate changes for New Zealand forestry. Conditions for tree growth will change and the higher risk of fire, wind and pests will have implications for forest management. But there are also the various mechanisms being put in place to enhance how forestry contributes to mitigating climate change.

MAF’s vision for the forestry sector in New Zealand for the next 20 years has two points of focus: firstly a sector that is innovative and profitable, and secondly a forest growing industry that takes full advantage of the increasing demands for wood and environmental services from sustainably managed forests.

Currently, the forestry sector does not fully utilise the available wood resource and there was no significant productivity growth in the wood processing and forest growing and harvesting industries between 1996 and 2006. The forestry sector has mainly relied on market growth in a relatively small number of markets to sell its products, rather than increasing market share and/or market diversification. Exceptions with strong recent growth (albeit from a small base) include: sawn timber, mouldings, builders’ joinery and carpentry exports to the US; laminated veneer lumber exports to Japan; veneer exports to the Philippines; medium-density fibreboard (MDF) exports to China; and log exports to India.

If productivity isn’t improved, the sector risks a “business as usual” scenario, and possibly a declining one at that. In some ways, it’s a classic Catch-22 situation: one way to increase productivity is to invest in high-tech equipment, but investment needs profitability, while that in turn needs increased productivity. Reasons put forward for not investing abound, including high compliance and input costs and an adverse currency, but at some point the cycle needs to be broken.

Key drivers and opportunities

The key drivers set the framework for future development, but are generally matters over which the sector has little or no influence.

A forest is more than wood

Globally, communities are demanding more from forests, such as carbon sequestration and storage, maintenance of biodiversity and water quality, and demonstration of sustainable management.

Forestry’s economic and environmental contributions to New Zealand’s sustainable development could be elevated through multiple income streams from wood and non-wood forest products. Risks would be spread and new opportunities created for forest investors.

Changing lifestyles

Lifestyles and ways of working will be transformed by issues relating to climate change, production systems, energy prices, a greater focus on renewable resources, energy efficiency and sustainable environments.

Opportunities that arise for the forestry sector include sustainable buildings that favour wood-based construction (over more energy-intensive materials). There will be international and domestic demand for multi-storey, urban residential buildings using engineered wood products. The transition from products derived from the ancient energy of fossil fuels to the modern energy derived from sustainable resources will provide exciting opportunities for plant-based biomaterials and bioenergy.

Energy supply and cost

While energy is a key cost in processing and delivering wood products, it might also become a key output of the forestry sector. By increasing the use of forest biomass, the forest processing sector can insulate itself from rising energy costs. Higher transport costs will favour the production (and export) of highly processed wood products. Energy costs will be reduced by improving logistics and log truck configurations. Freight tonnage could also be scaled down by developing small scale, high-tech sawmills close to scattered forest resources, requiring less freight energy.

The markets are overseas

An increasing New Zealand wood supply that already greatly exceeds domestic demand will dictate an even stronger focus on export markets. Demands from Asian and new Middle Eastern markets need to be exploited, along with developing new profitable and high value-added products for the affluent European markets. Fewer logs might be shipped in favour of semi-processed products and higher-value finished products. The building of world-scale and internationally cost-competitive wood processing plants where forest resources are more concentrated might also be considered.

The resource

The existing plantation forest resource predetermines potential wood availability and quality, but supply dynamics will change. Opportunities that arise from this situation include the ability to develop markets based on an increasing, sustainable and assured wood supply. Wood processors might take advantage of an uncommitted resource and respond to market surges. There’s a potential for small scale forest owners to (collectively) become strategically important to the future development of the industry but they will need to work together if economies of scale are to be realised.

As well as the strengths associated with key drivers, a raft of threats also exists, for which the sector has varying abilities to respond. These include not knowing how sustainability demands will be transmitted through the policies of international and domestic regulators. Competition from alternative (non-wood) forest products and limited existing markets providing acceptable returns are other factors to take into account, as are high or uncertain energy and shipping costs coupled with exchange rate volatility. Failure to fund research of new and innovative products would hamper progress. There’s also uncertainty about wood quantity and quality from small scale forest owners – an increasingly important resource.

Making the vision a reality

How the sector takes advantage of the strengths and mitigates the threats will determine if the opportunities are taken up, and the degree to which the vision becomes reality.

Contact for Enquiries

Monitoring and Evaluation
PO Box 2526
Wellington
New Zealand

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