Cut jobs or die wondering urges Liddell

By SIMON LOUISSON on NZPA

Carter Holt Harvey chief executive Chris Liddell says resolving the dispute at the massive Kinleith pulp and paper plant in Tokoroa could lead to the construction of three, four or five plants of similar size.

In March, CHH, which is half-owned by the world's largest forest products company International Paper, announced it would lay off 390 of its 770 workforce, although 190 new jobs would be created by Swedish company ABB that has contracted to take on maintenance work.

CHH argues that New Zealand's wood processing plants must become internationally competitive or wither.

New Zealand's wood production will double over the next 20 years. Under Liddell's growth scenario, that will swell the industry's present 22,000 workforce to 60,000, increase exports from $3.6 billion to $14 billion, and push forestry's contribution to GDP from 4 per cent to 14 per cent.

His no-growth scenario, where investment is not attracted here, has forestry contributing less than 4 per cent to GDP, jobs and exports growing only incrementally and most growth coming from low-value log exports.

"Kinleith is a critical part of the industry's future," he says, noting that its $500 million in annual exports is more than double wine export receipts and 14 per cent of wood product exports.

Liddell insists he does not want to create a low-wage environment. He says wages will not necessarily go down and CHH mainly wants to change work practices, cut overtime rates and work "smarter".

Workers at Kinleith earn an average of $80,000 to $90,000 a year, which includes large chunks of overtime.

Unions do not agree.

Their members are boycotting the recruitment drive by engineering giant ABB, which says it has received more applications than it has jobs available.

Liddell says job losses are painful but there will be more jobs in the end.

He wants to shift the debate from job cuts.

"Why shouldn't there be three, four or five Kinleiths?"

CHH recently completed a $300 million upgrade of Kinleith and Liddell would like to see the plant's size doubled.

He says there are very few processing facilities of any scale planned to process the doubled capacity coming on stream.

The New Zealand industry was initially developed to cater for the domestic market, but now 97 per cent of Kinleith's production is exported.

Unless Kinleith and other plants are internationally competitive, capital markets will not provide the $6 billion needed to invest in new facilities.

CHH is obtaining a rate of return of 4-5 per cent in its pulp and paper facilities, which include the recently acquired Tasman plant at Kawerau. It says its cost of capital is over 10 per cent and any return less than that means investors are effectively losing money.

New Zealand does not have to be the lowest-cost producer - it can develop niche and quality products to differentiate itself. But there are limits, says Liddell.

"You can differentiate all you like, but if you don't have the cost structure behind it, you are not going to be successful."

It is not just labour costs and work practices that need to be tackled. Energy and infrastructure are almost as important.

Liddell is critical of the wholesale energy market that forced up power prices last year and is damning of Tranz Rail, which CHH is increasingly eschewing in favour of less acceptable road transport. He notes there is virtually no infrastructure in Northland and the East Coast where most of the new forests are.

CHH's big hope for growth is China. In five years China has gone from self-sufficiency in wood to importing 5 million cubic metres - more than New Zealand's total production.

"China is probably going to be the most important country in the world from an overall forest products demand in the next decade to 20 years."

Its economy is growing at 6 to 8 per cent and as people go up the socio-economic chain, they tend to use more packaging and tissue products, he says.

Russia supplies much of China's imports.

New Zealand's competitive advantage is that its trees are plantation forests, says Liddell.

Russia is chopping 125- to 150-year-old trees and while it is only milling 1/150th of its total forest, and is harvesting less than the re-growth rate, it is doing it unsustainably - clearfelling tracts which are easiest to log. As Russia is forced to go deeper into its forests, it will have to build infrastructure and that will increase its costs and drive up world log prices.

Liddell says it is still a big economic advantage to process the logs close to where they grow.

His main focus, apart from making money for his US bosses, is to maximise the benefit for New Zealand by establishing as much processing capacity here as possible.

"I haven't given up on New Zealand having a flourishing forest products industry.

"We have the trees here, we have the markets relatively speaking in this part of the world. If we can't make the forest products industry successful what the hell can we make successfully."