Brian Stanley: Forestry is our lost opportunity to recover from Covid 19 coronavirus

Exports continue as our wood processing firms are go out of business because they're unable to secure a fair priced supply of raw log grown in their own backyards. Photo / Getty Images

COMMENT

Covid-19 is an opportunity to accelerate New Zealand's long journey from volume to value and build an economy that looks after people and the environment.

We're sitting on a significant opportunity to do that, thanks to our forest and wood processing sector – New Zealand's oldest export industry built on a renewable natural resource of great value globally.

There's untapped potential to grow jobs and attract investment to our regions, producing value-added, innovative, certified and sustainable products for world markets that want less plastic, less pollution and no carbon.

Instead, our wood processing firms are going out of business because they're unable to secure a fair-priced supply of logs grown in their own backyards.

China is our biggest buyer of raw logs, accounting for 85 per cent of log exports. It's one of many countries that give their log processing sector handouts such as preferential loans, tax breaks and exemptions.

This frees up cash for them to send log traders here to pay the highest price for New Zealand's raw material. This industrial subsidy behaviour is prohibited under World Trade Organisation rules.

The impossibility of securing an economic log supply has resulted in the closure of six regional mills over the last 12 months. Since December alone, about 1000 small town workers have lost their jobs.

Now, the high premiums being offered by a revived Chinese market threaten the ability of our local processors to get up to speed with a Covid-19 recovery. The situation is also a disincentive for outside investment. Why invest in the New Zealand timber processing industry when that industry, according to recent NZ Government research, must pay the highest global prices for logs?

Forestry Minister Shane Jones is working to address this skewed market with the Forests (Regulation of Log Traders and Forestry Advisers) Amendment Bill, which seeks to ensure foreign log traders give domestic processors a fairer deal.

Eighty-five per cent of New Zealand's log exports are bound for China. Photo / Duncan Brown

The Bill has stirred a flurry of opposition from forest owners around imposing "pointless and costly" bureaucracy on all parts of the forestry industry which, unlike other primary sectors, is unregulated when to comes to trade.

The assumption is that there is free and fair trade in our domestic market. But that's not the case.

Even the Government's research acknowledges trade distortion is happening. Indeed, because of this behaviour 39 countries have banned export of raw logs to support their
domestic industries as well as for environmental reasons, according to MFAT's November 2019 report: Impact of global trade distortions - Effects on NZ exports of logs, timber and fibreboard.

So, if our log-trading peers have cottoned on to what's happening why haven't we? And how has this happened?

In the past New Zealand forest owners and mills had long-term supply/price arrangements, providing both parties with confidence of price and supply expectations and stimulating investment.

Over the past 10 years, since overseas interests with government handouts in their pockets have started aggressively buying logs in New Zealand, the price has risen. And supply arrangements have become shorter and shorter. Many are now no longer than a few months. This is hopeless if you are looking to invest in your firm and your employees.

New Zealand is unusual globally in that our forests are 96 per cent privately owned thanks to the privatisations of the 1980s. In sharp contrast, in almost all our competitor countries, government is the majority forest owner and can dictate its uses over the long term.

Not that we're opposed to private ownership and the investment and benefits it can bring.

Neither are we looking to ban exports of raw logs. We just want security of price and supply for the domestic market.

China and New Zealand have strong and established trade relations. But the fact that we are the last major supplier to allow open export of logs has left us vulnerable. Russia, which formerly dominated the scene, has imposed tariffs.

The United States, Canada and Scandinavian countries use laws and other regulatory measures to help domestic processors compete for logs against export traders or in
other ways to foster downstream activity at home.

Brian Stanley. Photo / supplied

Not surprisingly, international trade in logs is relatively thin compared to the market for processed wood products. This partly reflects the low value-to-weight ratio of logs – making international trade in logs less economic compared to higher valued products. As a result, only 6-7 per cent of global log production is traded internationally.

New Zealand is exceptional in that we export between 50 per cent and 60 per cent of our raw logs.

We believe that wood processing and manufacturing is a major driver of economic growth in a postCovid-19, carbon-constrained world, and a significant feature of the country's diverse and high value export profile of the future.

We're also a nation that stands for free – and fair – trade. Where our competitors don't always stick to the rules, we need new thinking in the form of remedial domestic regulation to underpin growth across our wood processing – and all manufacturing sectors.

• Brian Stanley is chair of the Wood Processors and Manufacturers' Association.