Winds of change blow through forestry

By PAM GRAHAM

If you don't win Lotto's big jackpot tonight, plant a tree. In theory, we will all be rich if the plantations covering the country are processed before shipping.

So even when some pine trees now ready for harvest cannot be sold for what it costs to cart them to market and processors are going out of business, the pitch is still going out to investors. Trees grow no matter what, unlike stocks or bonds. If we can raise pine from being a commodity, imagine the gains.

The quick answer is the usual one. Good locations, size and marketing matter. The industry has potential, but is dysfunctional.

The thing about the so-called wall of wood is that much of it is for sale. The jockeying over this is exercising some of the most powerful business people in the country and virtually every bank. The outcome, probably very soon, will reshape the big end of the industry.

While that goes on, those who will do business together in the future - Maori, the Chinese Government and managers of funds for Ohio teachers, Harvard University and others - are not talking to each other.

How much will Fletcher Challenge Forests sell its forests for? Will the Chinese finally buy the huge Central North Island Forest Partnership estate? Who will new owners use to manage and market forests?

Will Fletcher Forests shareholder Rubicon wind itself up and exit the industry along with its warring shareholders Guinness Peat Group and US hedge fund Perry Corp? And how committed to New Zealand and forest ownership is Carter Holt?

CNIFP receiver Michael Stiassny of Ferrier Hodgson has put some markers in the ground by setting up a new timber management company, TMC, in Rotorua and starting the log export company Silva with Carter Holt. The Chinese are likely to use TMC if they buy the CNIFP.

"The industry shape is changing very rapidly," said Rob McLagan, chief executive of the Forest Owners Association. Whatever happens, there will have to be more collective action because the number of small owners is increasing.

"My own view is that there are growing pains as we move up this incline of wood supply. When you have an industry earning $3.7 billion and now ranking third in our export income and employing 24,000 people, I certainly would not write it off."

The high New Zealand dollar, weak markets and high freight rates have helped to wipe billions from forest valuations and job losses run into the hundreds.

"But when you look at the fundamentals, they are still pretty sound. People are still looking for sustainably managed forests," McLagan said.

A Ministry of Agriculture report released this week says radiata pine is versatile, can be treated, easily worked, chipped and reformed and has a good colour for paper and cardboard making. Its disadvantages are that quality differs within a tree and between regions and its acceptance as a structural timber varies. Basically, it is soft andhas a bad image in some markets.

It has a "green" image with customers like IKEA in Europe, and the Home Depot and Lowes in the US if certified as sustainable. About 42 per cent of our forests are, and MAF expects it to rise to 65 per cent.

The volume is coming on stream a bit like gas from Taranaki did once. The harvest will grow from 22 million cu m to 34 million by 2020. The question is what will it sell for?

At the moment, only 65 per cent is processed and no big mills have been built for 15 years, though there have been upgrades. Workers expect job losses here as Norske Skog favours a newsprint mill in Australia.

Still, BJ Abraham, a Waimate furniture maker, can turn logs worth $3000 into furniture worth $100,000. Wood is as alluring as gold if you get it right.

The MAF report concludes that the industry has great potential but is impeded by infrastructure, skills shortages, investment and the Resource Management Act.


The sawmillers lobby group the Timber Industry Federation asks why anyone would bother milling anything with media campaigns forcing Government action on treatment of timber and chemical use.

Still, rather than a mass exodus from the industry, the federation plans to launch a new 100 per cent Pure New Zealand Pine brand at its conference next month.

"Every few years this industry chokes, then there is a new initiative," says federation executive director Wayne Coffey. He says they come from low-profile privately owned firms.

Separately, Ferrier Hodgson has resurrected the Red Stag brand and the Wood Processing Strategy initiative between the Government and industry is moving to marketing.

Marketing, research on improving pine's properties, investment, pest protection and market access were also raised by MAF.

Tariffs in some markets rise the more timber is processed, which is one reason Forestry Industries Council chief executive Stephen Jacobi is busily co-ordinating lobbying to trade ministers meeting in Cancun.

Love him or hate him, Minister for Economic Development Jim Anderton has been on the job. He thinks we have ignored Europe.

"We have Danish furniture makers now looking very seriously at developing manufacturing in New Zealand," he said.

"We're hopeful of some results later this year or early next year."

The initiative is with Fletchers and probably in the Taupo area, where Fletchers this week added a third line at its mouldings plant, creating 21 jobs.

Fletchers said yesterday that the deal with the Danish manufacturer was well advanced.