Farm Forestry New Zealand

NZFFA proposals for the forestry sector following Covid-19

Howard Moore, New Zealand Tree Grower August 2020.

In May Graham West, Hamish Levack and I submitted a paper to the Minister of Forests setting out what we thought should change in the forestry sector after lockdown. The NZ Forest Owners’ Association and many other industries also submitted ideas. This article contains the main points we made for the NZFFA.

Small-scale forest owners are generally voters and parents, locked into the future of this country. We would like to be involved in helping revitalise New Zealand through jobs, earnings and wealth creation. We suggest a range of actions and are keen for discussions to develop more detail around these.

A national Forestry Development Conference or similar would be a good place to review the sector strategy which Te Uru Rakau has been working on, take into account the new global realities, and motivate all forest owners for the national benefit. Some serious public relations around the One Billion Tree programme could reassure communities, reduce land use conflict and develop sustainable forests of valuable alternative species.

Some big issues

In our view, the big issues facing the forestry sector include the following.

Species

About 90 per cent of our commercial forests are radiata pine. Overseas, radiata forests have been severely damaged by pathogens, implying we are facing a significant biosecurity risk. Our short-term response is tight border controls and crossed fingers. Our long-term response is missing.

Genetic engineering for disease resistance is banned, breeding for disease resistance is underfunded and large-scale species diversification is unprofitable. The NZ Forest Service carried out a lot of work on other species and most of that information has been kept by Scion and actively extended by owners of small forests. We already grow, understand and measure these trees but information and sample plots cannot replace six billion dollars a year in radiata pine exports. The One Billion Tree programme has done little to change this − we still plant 95 per cent radiata pine.

Ownership

The boom in planting small forests in the 1990s resulted in fragmented ownership and an uneven age class mix of trees in almost every region of the country. This has not helped processing because mills need regular and sustainable log supplies which can be almost impossible to arrange from small forests. Consequently, many of the logs from these forests are exported.

In order to process more logs from small-scale forests within New Zealand we need help to encourage further planting to smooth out the regional age class mix and to encourage owners of small forests to engage in collective harvesting and marketing to generate regular log supplies. The incentive for owners in working together is that they should get higher returns as a result of economies of scale.

Markets

China buys around 60 per cent of our wood as logs. It also imports large quantities of timber from Europe, Russia and the Americas. What happens in China and in each part of its supply network affects the prices we get and the volumes we sell. Currently, salvaged timber from dying forests in Europe is being shipped to China, disrupting our log prices.

We would like to sell timber into China instead of logs, but our species is low value compared to northern spruce and fir with tariff barriers making it difficult.

We sell logs because China wants logs and it is easier to compete. If we wish to change that we will have to make some serious investments.

Technology

There has not been any sustained investment in new wood processing technology in New Zealand for years. Domestic mills have processed a steady 13 million cubic metres of logs a year since 2001. One or two new products have been developed from imported ideas such as cross-laminated timber, but none has been revolutionary. Researchers have identified promising new technologies for bio-plastics and bio-fuels but have failed to find investors.

Nobody sees it as their problem. Large-scale forest owners are either happy with the status quo, or with alternatives that offer less risk and faster returns. Small-scale forest owners do not feel the need to collectively get their heads round the technology, take the risk, raise the capital and guarantee an aggregated supply of regular volumes of wood of an acceptable quality at an acceptable price.

Policies

The policy settings of the One Billion Tree programme have yet to produce the desired results. Crown Forestry has helped, but the overall rate of planting will not produce half a billion trees on new land over 10 years. Other policy settings which should be interconnected are not.

The National Policy on Indigenous Biodiversity is the latest to discourage forest investment. Despite the need for planting suggested in many climate change reports, the public is not convinced and some actively protest about the idea of more exotic forests. Pastoral farmers are not confident that growing trees will be a smart move. They need better information about the economics and opportunities, and support and extension services to facilitate land use change.

Small-scale forest owners familiar with growing trees want grants under the One Billion Tree programme to be increased to cover the costs of tending, especially pruning to add value, and more support for alternatives to reduce species risk. Large-scale forest owners have little interest in expansion unless land is available which will generate good timber returns into the future. Party politics aggravate this failure of ‘stakeholder’ relations.

Leadership

The forest sector already produces many of the environmental and economic benefits the government wants. While it has the odd failure, debris flows at Tolaga Bay for example, overall it provides steady employment, steady earnings and steady environmental outcomes. Forest owners may resent legislative changes, erosion of property rights and inconsistent application of land use rules but they do not march on Parliament. They are relatively self-contained and do not see the need for leaders.

In addition, the sector is mainly foreign owned. A million hectares of production forest are owned by about two dozen foreign-controlled companies. Around 200,000 hectares are owned by a hundred medium scale businesses, and around 500,000 hectares are owned by 14,000 small-scale growers who earn their incomes elsewhere. Since forestry is not their prime activity they do not see the need for leaders, and nor do the foreign corporates.

Unless there is a common threat, forest owners will neither elect nor support leaders. The Forest Owners’ Association offers large-scale growers shared benefits and a common voice. The NZFFA offers small-scale forest owners the same. Together they have established the Forest Growers Levy Trust. But none of these three organisations aspires to lead the sector. Consequently, it takes a long time to debate issues and reach a consensus, which may or may not be durable. This is not necessarily a weakness, but it makes it very difficult to stimulate change.

Employment, revenue and future wealth

The government asked for ideas on how to create employment, create revenue and build future wealth.

Employment

For most small-scale forest owners, forestry is a side interest, not a business. If the government can develop the right climate for new forest investment there will be work in nurseries and planting in the short term. There is also scope to prune perhaps another 20,000 hectares of pines in small-scale forests because only about a quarter of those in the right age classes are currently being pruned. Generally, the costs make pruning unattractive and the One Billion Tree programme might be amended to help.

Revenue

Government revenue can be rebuilt from taxes and trading. While taxes will never be popular we understand the need for them. If tax changes were necessary, we would want to see caution in designing and applying them, because new taxes often have unintended consequences, equity in their effect across sectors and certainty that the changes were durable, without the need for constant adjustment.

Government revenue could also be increased by the Emissions Trading Scheme by more rapidly phasing out free industrial allocations and lifting the $20 auction price floor. This would strengthen the carbon price, improve revenues from government auctions of carbon credits, help those small-scale forest owners already in the Emissions Trading Scheme and encourage others to plant more trees. This would boost the One Billion Tree programme and help create jobs.

Business revenue can be rebuilt by exporting. Because it takes time and investment to build new export markets, in the short term we suggest that the government should actively support businesses in rebuilding their supply chains and re-establishing their trade links with existing customers. This implies encouraging log exports from large and small-scale forest owners.

Future wealth

In the short term we encourage the government to implement a ‘New Zealand wood’ policy for all government-funded construction. This would stimulate local demand, encourage investment in processing, reduce log exports, revitalise architecture and stimulate new product development, particularly in wood engineering. That in turn would lead to higher exports of design services and added-value timber products. Separately the move would support the phase-out of industrial allocations of carbon credits, and emphasise our transition to a green, low carbon economy.

In the medium term we encourage the government to vigorously pursue its tree planting initiatives. There is clear evidence that on some land, production forestry will generate higher returns per hectare than livestock, even without income from carbon. In terms of national benefit, climate change and wise land use, this land should go into trees.

However, the public is not convinced, many local authorities are ambivalent and some farmers vehemently oppose the idea. Large and small-scale forest owners have offered rational arguments for land use change but are ignored. Party politics aggravate this failure of stakeholder relations and we recommend the government puts some serious effort into a cross-party initiative to encourage afforestation.

In support of that, the Ministry for Primary Industries, which is responsible for forestry and farming, could use its strong links into Federated Farmers and Beef+Lamb NZ to reassure communities, reduce land use conflict and promote land use change. Large-scale forest owners will help with information on the economics of production forestry and management regimes for hill country. Small-scale forest owners will help with local mentors and information on the economics and growing of alternative species. This is a logical step, but one that requires political will.

Wood processing strategy

In the longer term we suggest that a new wood processing strategy is needed. Scion has shown that compared to log exports, local processing can create a wealth multiplier of about five, but over the last 40 years not a lot has happened. Basically, investors do not benefit from the multiplier. All they get is the return on investment of the individual mill. Generally, that is unattractive.

If they aim for low cost and buy second-hand, the mill is inefficient and they struggle to make enough profit to upgrade. If they aim for efficiency and buy new, they struggle with selling enough volume to support it. Planning and resource consents are expensive and time-consuming, making it hard to change a brown-field site, let alone build on a green-field one.

Because the difficulties are so great and the local market is so small, large scale wood processing plants will only be developed if the investors are looking for fibre to supply to their own export markets. This implies a foreign-owned mill selling to a parent marketing network, such as Juken, Oji or Norske Skog. The government might try to encourage such investment or show support by co-investing.

New opportunity

A new opportunity for New Zealand may lie in the development of bio-materials. While the technology is well understood, there are few plants of sufficient scale, partly because there is a large global industry producing cheap, oil-based materials. Demand for bio-materials will increase as public concerns grow over plastic pollution and climate change, but until then it will be hard to find investors. Meanwhile continued product research and development should be supported by industry and contestable funding to ensure market opportunities are identified, scoped and matched to the developing technologies.

When it is possible to process most logs in New Zealand and add value, the sector’s export earnings could triple to $18 billion a year from the present forests alone. This would make the wood sector comparable to, and complementary to, the dairy sector and add enormously to trade resilience, even without afforestation.

Higher value species

In the long term the forestry sector can also contribute wealth by growing higher value species. Radiata pine has many good features, but in our export markets the timber is quietly average, clearly foreign and not greatly valued. Other species have become their standards in appearance and structural grades because those species have been traded for generations across Europe, North America and Asia. We have attempted to argue radiata’s place in these markets, and occasionally we have small successes, but it would be a lot easier if we simply grew the trees our customers were familiar with. The NZ Redwood Company is doing this with redwood for export to the United States.

Species widely recognised and traded overseas include eucalypts, Douglas-fir, poplar and cypress, all of which are grown in New Zealand. There is interest from large growers in eucalypts and Douglas-fir, and at one time poplar and cypress were grown commercially but these are now only planted on farms or by small-scale forest owners. Good quality cypress logs sell to Asian buyers at twice the price of radiata pine logs.

Diversification

As noted earlier, in the long-term this sector must diversify to manage species risk. We should diversify into trees which we know how and where to grow, and that are valued in our export markets. Eucalypts, Douglas-fir and redwood are leading the way, other species should follow. With suitable regimes poplar and cypress can produce small sawlogs in 15 years. Planted on grassland they will earn carbon credits which will help offset the costs of establishment and management.

Our existing radiata pine forests can continue to supply exports where these are profitable, and local demand for timber, panels, pulp and paper, which they do well. Radiata does not need to be replaced unless the forests are destroyed by pathogens or the local market starts to buy alternative timbers in preference, when it will be a commercial decision. If the Ministry for Primary Industries emphasised this sort of diversification there might be less opposition to new forests from farmers and the public.

Recommendations

Our vision is an expanded and more diverse forestry sector, complimentary to pastoral land uses, operating within sound economic, environmental and climate change policies. To help create this by the three avenues of jobs, revenues and wealth we recommend that the government −

• Require the Ministry for Primary Industries, which has responsibility for farming and forestry, to actively reassure communities and rebuild stakeholder relations with rural landowners, in order to reduce land use conflict
• Require the Ministry for Primary Industries as part of the above to promote the establishment of forests of productive alternative timber species which are valued in export markets, for species diversity and market resilience
• Accelerate the transition of all industries into paying for their full carbon emissions under the Emissions Trading Scheme to help rebuild government revenues and meet climate change targets
• Host a post-Covid-19 Forestry Industry Development Conference which would promote sector unity, confirm a sector strategy that aligned with climate change aims and develop a list of priorities and projects to rebuild supply chains and create additional exports, revenues and employment
• Allocate $1 billion of the Provincial Growth Fund for the introduction and partnering of new wood processing technologies arising from that conference, especially where they supported regional growth and employment.

The wood sector can contribute a significant and sustainable improvement to New Zealand’s economy and wellbeing. We are fully aware that in terms of wealth creation and reaching national environmental targets it has been underperforming to date. We support greater domestic processing of export logs as a means of addressing some of these needs. However, we believe that work needs to be within the context of the other short, medium and long-term initiatives above to best help the revival of the sector and the economy.

Good things and dogs

Since May, of course, we have come out of lockdown, which is a Good Thing. Te Uru Rakau is promoting an Industry Transformation Plan, which might be a Good Thing. And the government has launched the Forests (Regulation of Log Traders and Forestry Advisers) Amendment Bill, which is a dog. It aims to establish a registration system for ‘log traders and forestry advisers’ to support long-term log supplies for local mills, but it has been roundly condemned.

Around the country people and organisations quickly downloaded the draft Bill and prepared submissions, the processors in favour, forest growers opposed. The NZFFA’s submission, while not as outspoken as some, suggested that −

• The Bill is divisive. We would rather have regular national forestry conferences where all parties could attend, argue and resolve the problems. We want better information, not regulation.
• The Bill is disruptive. It uses terms such as ‘forestry advisor’ and ‘log trader’ which are poorly defined, will cause confusion, and could force good professionals out of the sector
• The Bill is oppressive. The New Zealand Institute of Forestry already has registered forestry advisors who could probably do all of the jobs described in the Bill.
• The Bill is expensive. All the new advisers will want to be paid, and as the aim is to help processors, they will not foot the bill. That means all of the costs will end up with the growers.

Right now, the Industry Transformation Plan and the Bill do not seem to be in step or even related, but this may be clarified in time for the next issue of Tree Grower. Meanwhile I will enjoy the improvements to our house and garden.

Howard Moore is a Wellington branch member active in the Forest Investors Action Group and the Executive.