Paul Nicholls: NZ timber industry is thriving, not lumbering

Forestry is New Zealand's third largest export earner. Photo / APN

Opinion

Demand for local timber is likely to reach its highest levels in years due to unprecedented pressure from the Asian market.

This demand is set to increase as the disaster-struck zone of northern Japan enters its rebuilding phase. The country is one of the world's largest importers of wood products, with large quantities ultimately coming from New Zealand forests.

This comes on top of growing demand for New Zealand logs to assist in the Chinese Government's push to modernise housing and infrastructure throughout mainland China.

The booming export market caused by this large scale upgrading is allowing local foresters to move more than 10 million cubic metres of wood, for which we do not have the capacity to process domestically, quickly and at a good price.

This trend for growth in forestry is in stark contrast to the bleak outlook painted by Brian Gaynor in his recent article "A lesson we shouldn't have to learn again" - a comparison between two such disparate industries as farming and forestry - which looked to demonstrate an apparent slide in forestry as a result of "selling the family jewels".

Forestry is New Zealand's third largest export earner, despite not receiving Government subsidies or support since 1990 - a luxury that is afforded our competitors in Chile, Canada and Australia.

Not only has forestry exceeded the national GDP growth rate consistently since 1978 but, according to the 2005 paper published by Alex Harrington at NZ Treasury, it is the only primary sector to do so over the entire 27-year period. It is not an industry in decline; quite the contrary, it is one of New Zealand's major growth sectors.

Gaynor is correct in saying that forest ownership has changed. In 1978, New Zealand's forests were evenly split between government and the private sector, with overseas interests comprising roughly 13 per cent of this private ownership. Today, government ownership is less than 8 per cent and private ownership over 92 per cent with about 60 per cent offshore.

Yet even with the rise of private and, in turn, foreign ownership in the forestry sector, the increase in domestic processing has continued unabated at a compound rate of 2.6 per cent a year over the last 45 years.

The growth of timber processing locally has been, in no small part, due to significant foreign investment since government privatisation in the early 90s. While some of the smaller or older sawmills have closed in recent years, foreign capital is helping others to expand with considerable success. New Zealand forestry is, in almost every sense, enjoying steady growth.

Where some analysts need to be careful is in comparing New Zealand forestry to its overseas counterparts, particularly in countries where the economic climate allows for lower costs of production and distribution.

Compare us to Canada, Australia or the United States, all working within economies comparable to our own, and across the board we stack up well.

In British Columbia, the contribution of the forest industry has fallen from 3 per cent in 1990 to under 2 per cent in 2008 - a seemingly small decrease but one which means the forests which are mainly state owned have not recovered their cost of administration and re-establishment for the past three years.

In the US, Washington State's forestry contribution fell by over 4 per cent to just under 3 per cent in the past 20 years, with harvested volumes reduced to levels not seen since the Great Depression. Across the Tasman, four publicly listed forestry companies have gone into receivership or voluntary administration in as many years.

Gaynor's assertion that we are lagging behind Chile is comparing apples with oranges. With over 10 per cent of the population classified as below the poverty line average and a GDP per person less than 40 per cent of that of New Zealand, Chile is still very much a developing nation and forestry's meteoric growth in the country is testament to this fact.

The Chilean industry, and in particular its two major players Arauco and CMPC, benefit greatly from government subsidies where 75 per cent of the cost of new planting is refunded, first rotation forests exempted from taxes for two years and profits from harvesting taxed at half the normal rate. Chile's 10-18 per cent tariffs on imported lumber and other forest products remain to ensure demand for local product.

To compare forestry in Chile with our operation here in New Zealand is as valid as asking why the wider Western economies don't grow at the same rate as developing Asian economies such as China, Vietnam or India.

This is not to say that New Zealand forestry can't do better. We need to work smarter and focus our attentions on our strengths. Rather than going head to head with local sawmills or plywood factories in countries such as China, where we are unable to compete on labour costs, we are better off exporting our logs to these factories.

We need to hone in on our growth markets, such as Australia where New Zealand is one of the largest providers of wood products for everything from framing to furniture.

We have survived the financial crisis better than most and now it's time to look forward to a future of New Zealand forestry which is as bright as it has ever been.

* Paul Nicholls is managing director of Rayonier New Zealand.