Exit of State From Plantation Forest Ownership in New Zealand
Andrew D. McEwen 1
I have been asked to speak to you about some aspects of the recent history of plantation forestry in New Zealand, and, in particular, the reduction in ownership by the State.
This graph shows the total New Zealand planted forest area rising from about 75,000 hectares in 1920 to just over 1.8 million hectares today. The graph separates State ownership at the bottom from private ownership. State forest accounted for about 50% of the total area from 1920 until 1987. Despite a 60% overall increase in the planted area since then, the State proportion has dropped to 90,000 hectares or just 5% of the total area.
New Zealand Forest Service
- 4.4 million ha land (16% NZ land area)
- 600,000 ha planted forest (52% NZ total)
- 2 large sawmills
- Forestry training
- Forest research
- Forest border protection
- Advice to Government
- Etc
In the mid 1980s, a government department, the New Zealand Forest Service, was responsible for about 4.4 million hectares of land (16% of New Zealand) including 600,000 hectares or 52% of the total plantation area. It also had two large sawmills and undertook forestry training, most of the country’s forest research, border protection against forest pests and diseases, national forestry statistics, advice to government and all the other functions of a large multi-purpose government forestry agency that many of you will know or remember from your own countries.
This graph illustrates annual roundwood production in New Zealand. In 1950, total harvest was about 2.6 million m3/year with 63% from natural forests. During the period from 1980 to 1987, the volume harvested was close to 10 million m3/year of which natural forest production was about 5% or around 600,000 m3/year. Domestic use of wood (the dashed line) accounted for 5 – 7 million m3/year, about 65% of total production.
From the late 1980s there has been a rapid increase to last year’s harvest of 21 million m3. Production from natural forests continued to decline and at 56,000 m3 last year was only 0.3% of the total. Domestic consumption is still around 7 million m3/year, but this is now only about 35% of total production.
The general production profile of the last 15 years was predicted during the 1980s (that is, that production could potentially double, that production from natural forests would continue to decline, and that there would be little increase in domestic consumption).
This graph shows three peaks in the new area of plantation forest established each year from 1920 to 2002. The graph does not include areas restocked after harvest (a routine process in New Zealand plantation forestry), but shows the annual expansion of total forest area:
- The objective of the planting in the 1920s was to produce a resource capable of meeting the country’s domestic needs. As the domestic consumption figures show, this has more than been achieved.
- The objective of the planting in the 1960s and 70s was to produce an export resource. With current exports of forest products being equivalent to about 14 million m3/year (twice the domestic consumption) this objective has clearly been met.
- The third peak, during the 1990s, was not the result of any national planning objective, but a reaction by the private sector (and particularly small groups of individuals in partnership schemes) to a peak in export log prices early in the decade. Unlike the first two expansion periods, the State did not participate in the 1990s’ expansion.
Privatisation Phase
- Announced in July 1998
- Maximise value from sale of forests
- Protect Māori land claims
- Guarantee security of tenure to trees, rather than transfer ownership of land under trees
If we look at past and potential production from the planted forests from 1920 to 2040, we see that harvest from the existing area of forest can rise by at least another 10 million m3 /year over the next decade and then level out at around 35 million m3/year from about 2020. Increased harvest is possible between 2025 and 2040 if new planting continues at the rates achieved since 1970.
The description of the New Zealand plantation resource, as seen during the mid 1980s, shows that the challenge had shifted from creating a new resource, to the processing and marketing of an existing resource. The financial requirements were significant. A study undertaken for New Zealand Forestry Corporation in 1988/89 suggested an investment in processing facilities in the order of $NZ 7 billion could be required to cater for production from the State forests. In addition there was increasing pressure to separate conservation and environmental functions from commercial forestry operations.
Corporatisation Phase
Crown Forestry Licence
- Continuous term until Waitangi Tribunal rules on ownership of land
- If claim successful, land ownership is transferred to Māori and termination notice issued to licensee
- Termination period has a maximum of 35 years, but during this time, occupancy is progressively returned to land owner as trees are harvested (no replanting allowed by licensee)
The late 1980s were, therefore, a time for a shift in direction. The first step in this was the Government decision of September 1985 to combine the environmental and conservation functions of the Forest Service with similar functions in other departments to create a new Department of Conservation. Associated with that decision was one to create a commercial forest corporation.
Considerable effort went into separating commercial from non-commercial forests. The commercial forests were generally plantations of species not native to New Zealand and relatively free from the multiple-use considerations often associated with managed natural forests. However, measures were put into place to protect specific conservation or recreational values on a forest by forest basis.
New Zealand Forestry Corporation Limited took over the State commercial forestry activities from the Forest Service on 1 April 1987. Difficulties with determining the value of the forests meant that the Corporation managed the assets with the understanding that a purchase would be completed once a price had been agreed.
Studies in the late 1980s had shown that the commercial forest activities of the Forest Service had run at a loss in every one of that department’s 67-year history. The operations deficit in the mid 1980s was about $NZ 70 million per year. With the stricter commercial objectives required from State enterprises, the Corporation was able to generate a surplus in its first six months and to continue this for every six month period until operations ceased in late 1990. During that 3.5 year period the surplus from operations, after forest investment, totalled $NZ 320 million or $NZ 91.5 million per year.
When agreement on the price the Corporation would pay for the forests had still not been reached in July 1988, the Government announced its intention to privatise the forests rather than transfer them to the Corporation.
One of the matters that needed to be resolved was the manner in which claims by Māori to the forest land would be achieved. During the process of setting up State enterprises, Māori had objected to the alienation of land from State ownership, because they believed that such land should continue to be held until claims under the Treaty of Waitangi legislation had been resolved. For those charged with extracting maximum value from the sale of forests, the issue became how to guarantee security of tenure to the trees on the land, rather than the ownership of the land under the trees.
Agreement on the method of sale was reached with Māori in July 1989. The State would retain ownership of the land, but would be able to sell the trees and grant a Crown forestry licence over the land, setting out the terms of occupancy. In the event that a claim is successful, ownership of the land transfers to the claimant, while the licensee then has a maximum 35 year termination period during which it can harvest its trees. Land occupancy is progressively surrendered as the trees are harvested.
The Crown forestry licence mechanism met the objectives of protecting the rights of claimants to the land, while ensuring secure tenure to the trees.
Settled Māori Land Claims
- Land of 31 whole and several part forest units already transferred to Māori
- New land owner and licensee have agreed to changes in term of Crown forestry licences
- In some cases the new land owner has sold the land to the licensee
The sale of forests was launched in October 1989. 91 separate forest units were advertised for sale. By the end of 1990, 43 units had been sold and a further 8 units had been transferred to two new State enterprises to cater for specific problems with forests in the Central North Island and on the West Coast of the South Island. A second round of sales in 1992 saw another 30 units sold. Finally in 1996, the State enterprise that had purchased the Central North Island forests was sold.
Sale of Forests
- Launched October 1989
- 91 forest units
- By end of 1990
- 43 units sold
- 8 units transferred to new State enterprises
- Further 30 units sold in 1992
- Central North Island State enterprise sold in 1996
The result has been the transfer of forest ownership from the State to the private sector illustrated here.
Forests were sold to a number of overseas and local companies. Several have built new processing plants or expanded existing ones. Links with overseas parent companies have increased total export sales.
Several Māori land claims involving State forest land have now been settled. This has resulted in the transfer of land associated with 31 forest units plus parts of others to Māori. It is interesting that in some cases the new owners and the licensees have varied the terms of the licences to provide longer tenure for the licensee, while in some cases, the land has been on-sold to the licensee.
Forest Sale Achievements
- Transferred risk of forest ownership from public to private sectors
- Provided funds for other government spending priorities
- Protected Māori land claims
- Increased number of forest owners
- Encouraged new processing facilities
- Established new export marketing opportunities
Overall the forest sale process achieved a number of objectives. It transferred the risk of forest ownership, with the attendant issues of export marketing and capital raising from public to private sectors, it provided funds for other government spending priorities, it protected claims by Māori to the forest land, it increased the number of forest owners and it established new marketing links for forest produce. In the mid 1980s apart from the State forests, there were about 5 companies that owned more than 20,000 hectares of forest and all were substantially New Zealand owned. There are now about 12 companies with more than 20,000 hectares and many are wholly or substantially owned outside New Zealand.
Features That Assisted Privatisation
- Majority of forests clearly commercial in nature without significant conservation or multiple use values
- Plantation species not native to New Zealand – reduces conservation concerns
- Surplus of production well above domestic requirements from existing plantations
I would caution those who think that the New Zealand forest privatisation experience is directly transferable to other countries. Our forests had some particular attributes that assisted the process:
- the majority of forests were clearly commercial in nature without significant conservation or other multiple use features;
- the main plantation species are not native to New Zealand. This significantly reduced their conservation values;
- we had a surplus of wood production, well above current or predicted domestic requirements, from existing plantations, even without taking into account the new forests still being established.
With the possible exception of Chile, I am not aware of any other country that has an exportable surplus, well above its domestic wood requirements, coming entirely from plantations of non-native species. I believe that this made our privatisation process much easier than it has been in other countries.
This evening’s presentation was organised by the Council and Wellington Section of the New Zealand Institute of Forestry
Acknowledgements
Much of the statistical data in this paper came from "New Zealand Forestry Statistics 2000", published by the Ministry of Agriculture and Forestry and subsequent updates on the Ministry of Agriculture and Forestry’s web site: www.maf.govt.nz/statistics/primaryindustries/forestry/
Data relating to New Zealand Forestry Corporation Limited were taken from the annual reports for that company.
1 Chairman, Wellington Section New Zealand Institute of Forestry and Director, McEwen Associates Ltd.
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