Logjam warning as trees mature

By CHRIS DANIELS

Carter Holt Harvey chief executive Chris Liddell says the forestry industry is at a crossroads.

The head of the country's largest forest company says some big investment is needed if New Zealand is to take the right road and reap the benefits of its rapidly maturing forest estate.

Liddell, expanding on themes outlined at the company's recent annual meeting, says New Zealand forestry faces diametric extremes.

"One path takes us to a very good result, which is the industry doubling, and the other path is us staying roughly the same, or shrinking."

There is the potential to increase export earnings by $10 billion - rising from 4 per cent of GDP to 14 per cent.

But the other path meant more logs being shipped overseas in the hope of finding a market.

"The one thing we can be certain of is that the logs are there, they are coming on stream, but nothing else is certain. People shouldn't assume that just because the trees are going to grow, that we can process them here.

"It's a huge challenge for the industry and it's a huge challenge for the country. We need about $6 billion over 20 years, about $3 billion in the next decade.

"That is, broadly speaking, two times our [Carter Holt Harvey's] market capitalisation."

Forestry has 22,000 workers and $3.6 billion in export earnings. Under Liddell's growth scenario, employee numbers would triple and export receipts would rise to $14 billion.

"We need to lift our sights from being strong in New Zealand, to being strong internationally. We can be internationally competitive, but only if every part of the system is working well.

"If we can do all that, then we've got an incredibly bright future. I believe we can, but it's going to require a huge amount of effort."

A large proportion of the new wood would not come from the big forest owners such as Carter Holt and Fletcher Challenge, but from the small landowners, the farmers who planted their own land, or small investors who got into trusts and partnerships in the early 1990s.

"They, at this stage, are not tied to any processing. They are the most at risk from taking whatever value they can."

Liddell says the enthusiasm that drove planting and investment in the 1990s has gone, and many now feared there was too much wood.

He accepts that the big companies have not done well in the past few years.

"Part of the problem is that the performance of companies like ours has been relatively poor.

"We are the first to acknowledge that, but we are not alone. You look at the other major companies, they haven't earned their cost of capital to a great extent."

He expects more industry players will choose to invest only in processing.

Previously, a lot of capital has been tied up in tree ownership, but this is no longer necessary now that processors are virtually assured of an adequate supply of trees.

Big companies such as Carter Holt would continue to do business in the many different parts of the forestry industry chain.

Liddell is one of the many players in the industry who says that talk of the "looming wall of wood" should not be seen as a looming problem.

"We shouldn't be threatened by the wood that is coming on," he says. "I guess it is true that at the end of the day you can put it on a boat and it will find a market somewhere. But that's pretty disappointing if that's the net result. It's a massive opportunity."

Tree owners concerned at what sort of return they could expect from their wood should look at the other part of the industry - the processing, which was yet to be sorted out.

"Most of those guys with trees are New Zealanders, or they own the land under them, hoping to get an economic return from them.

"That, in itself, is a huge contributor to the wealth and the lives of New Zealanders."