Yes, money does grow on trees

$18 billion a year in exports is the promise if foresters and the Government get things right. PAULA OLIVER surveys the past year's preparation for the boom.

When forestry devotees stepped out of their industry conference almost a year ago, many of them did so with renewed vigour.

After all, Deputy Prime Minister Jim Anderton and Forestry Minister Pete Hodgson had vowed to work more closely with the industry to overcome the hurdles that threatened to keep it from realising its enormous potential.

Forestry is on the cusp of a boom. A quiet achiever, it earns $4 billion in exports annually - about 20 times more than the much-heralded wine industry.

Wood supplies are forecast to almost double in the next six years, as thousands of plantation hectares reach maturity in a tight timeframe - prompting a "wall of wood" label.

If Mr Anderton has his way, that wall will transform forestry into an $18 billion earner in coming decades.

But it is not a simple equation.

Mr Anderton's promise of help at the conference did not come without conditions. He said the industry had to work on an image problem, improve a poor safety record and contribute to improving basic needs such as road and rail.

Among the issues he undertook to look into, in return, were the well-publicised skilled labour shortage, years of under-investment in roads and transport, and a complicated Resource Management Act (RMA) process.

So, a year later, what has happened? Do the forestry devotees still have a spring in their step?

Many in the industry say progress is being made.

Forestry groups are holding up their end of the bargain in the safety area, by introducing drug and alcohol programmes and practices that have reduced fatal accidents. New Zealand Forest Owners' Association chief executive Rob McLagan says a lot of effort and training has improved the culture of safety dramatically.

A Wood Processing Industry Steering Group made up of senior politicians, industry representatives and Government department staff has met twice in recent months.

A series of focus groups, split from the wider group, are looking at areas such as labour, training, biosecurity, the RMA, trade barriers and transport. The groups have set themselves stringent deadlines.

"People are making all the right kinds of noises. What we're looking for now is early delivery on some of those targets," says Devon McLean, chief executive of Carter Holt Harvey Wood Products and a member of the steering group.

"We need action, but the reason these things are still issues is because very few of them are simple to solve."

Roads are a core issue. Much of the new timber is growing in non-traditional areas such as the East Coast and Northland, and in spots that are not easily accessible.

Historically, getting a party to pay for the new roads needed has been as difficult as getting someone to grasp a hot potato.

Now, a roading committee is looking at new ways of costing the roads. Because traffic in remote rural areas is not heavy, it has been difficult to round up funding from local government and Transfund.

New options include looking at a road as part of a network that feeds to other pieces of infrastructure, rather than as purely a stretch of seal.

In the case of Mr Anderton's Tairawhiti development project in Gisborne, a similar strategy resulted in vastly different costings.

Members of the roads group are now looking to flesh out a similar strategy.

Labour shortages are next on the list. People lose sight of the fact that forestry is actually a high-technology, highly skilled industry, Mr McLagan says.

"People see it as an old, mature industry, but actually it's emerging right now. Forestry seems to have hidden its light under a bushel, but this increase in volume means lots of jobs and progress."

Filling those jobs is not so easy.

Since the forestry industry underwent huge change in the late 1980s and became corporatised, workers who were laid off have been shy of rejoining the fray. A labour skills group, which met yesterday, looks to have had an early effect - a member says there will be provision in next month's Budget for help to train forestry workers. Crucially, much of the expected volume boom is coming from areas with high unemployment.

If basic needs such as manpower and roads can be met, major industry players say there are wider concerns that also need attention.

The RMA is one of those. Companies looking to build processing plants must go through a laborious process to gain consent, which is often enough to put them off investing.

Prime Minister Helen Clark encountered such a feeling in Japan this week while trying to encourage timber company Juken Sangyo to extend its operations in New Zealand. Operating under the joint-venture banner Juken Nissho, the company already has facilities in Northland, Gisborne and Masterton. But it expressed concern at the RMA and other laws as it decides where to site a new processing venture.

As a result of earlier concerns, an RMA group has been established.

"The RMA group is really out to streamline the processes and provide certainty for applicants," Mr McLean says.

"One of the problems at the moment is that you get a different answer in virtually every different region. For overseas companies, it's difficult to know where to start."

For Mr Anderton, processing the wood rather than exporting it as logs is a key element in his aim to make forestry an $18 billion earner.

"Every raw log shipped overseas is an economic failure," he says. But the industry does not entirely agree.

"We have to recognise that there is an international market for logs, as well as making sure we do add economic value where we can," Mr McLagan says. "A lot of people forget that there is actually a lot of value added to a tree from its beginnings as a seedling."

Convincing timber companies to invest in processing facilities is not as easy as just pointing to the coming mountain of wood, says Carter Holt Harvey chief executive Chris Liddell.

His company took what he describes as a bold move last year when it decided to open a $132 million laminated veneer lumber plant in Whangarei.

"That greenfields plant was a big vote of confidence in the New Zealand industry, but it was not without its risks. It was a bold move.

"The reality is we're going to need a lot more of those over the next 10 years if we're going to get the sort of infrastructure that we really want as a country."

Mr Liddell says that it has to be remembered, before people ask why timber companies are not pouring money into the coming boom, that the past decade has not been especially prosperous for the industry.

"It's not as though there are a huge number of investors, with hundreds of millions of dollars, looking to invest in the wood-processing industry in New Zealand.

"There are parts of our portfolio which are still not earning even their cost of capital. That's a minimum return to attract new investment. It is going to be challenging, in my view, to attract new investment into our industry."

A recent event that some believe may have dented our chances of foreign investment was the Central North Island Forestry Partnership falling into receivership. The partnership between Fletcher Forests and the Chinese Government-owned Citic could not combat falling log prices and was put in the hands of receivers in February.

A newsletter from the Timber Industries Federation described it as "unbelievable, shameful, and a blight on the industry."

Whatever its effect on the chances of foreign investment, the partnership's failure will ensure that the country's largest forest estate goes up for sale.

The timeframe for fixing all the industry's issues is tight. Wood supplies have already begun to increase and will rise steeply in the next three years.

The challenge for Mr Anderton and the industry groups is to put their plan into action before an opportunity begins to slip through their fingers.

* On Monday the Business Herald looks at the Resource Management Act, criticised by many industries, including forestry, as a major impediment to development.