Farm Forestry New Zealand

New Zealand forest supply chain risks following Covid-19

Michael Wang and Robert Radics, New Zealand Tree Grower February 2021.

The export market is therefore very important to New Zealand, but this strong reliance on the log export market makes the forestry sector vulnerable to changes in the Chinese wood market. The forestry sector will recover from the effects of Covid-19, but Ministry for Primary Industries predictions for forestry sector export values are that they will have fallen to $6.29 billion in 2024.

Relying on the export market has left New Zealand’s forest sector exposed to market changes. It is important to develop new markets, such as India and south Asia.

A major shock during the last year was the drop in log prices due to the beetle-infested European log exports. The price drop of more than 20 per cent resulted in an excess of supply in the second and third quarter of 2019. The reduction in export volumes led to a reduction in the number of harvesting crews, and lower volumes and value of export forecasts.

Adding value

It is important to add value to our wood products, and services. By the last quarter of 2019, the industry became more confident that the prices, as well as the demand, would slowly increase due to the decrease in log stocks in Chinese ports. However, before the Chinese market could restart after the New Year break, Covid-19 restrictions were initiated in China and were implemented on a worldwide level by March 2020. This led to a change in the forestry landscape and a greater need to build a resilient and added-value forestry sector within New Zealand.

Although there is a demand for creating a high added-value resilient supply chain, there has been limited research into those involved in the supply chain, what their roles are and how we can potentially target them to improve the resilience. The notion of supply chain resilience is not new. Resilient systems have the ability to endure and successfully recover from disturbance.

In the business world, resilience refers to the ability of organisations to bounce back from a significant disruption, and the speed with which it returns to normal performance levels. Supply chain resilience is the ability to be prepared for unexpected risks, responding and recovering quickly to potential disruption to return to the original situation or grow by moving to a new, more desirable state to increase customer service, market share and financial performance. Supply chain resilience gives companies and suppliers peace of mind during unexpected events and catastrophes.

A lack of knowledge leaves us unable to identify the potential points where the value chain could be improved. These research gaps call for exploration and analysis of New Zealand’s forest supply chain risks and this article offers an initial result and some valuable insights.

Understanding short-term risk

The forest supply chain is an integrated network of forest companies, wood product manufacturers and retailers providing products and services from the forest to the end users. A typical forest supply chain consists of various businesses, organisations and customers. The major stakeholders include forest growers, harvesting units, wood product manufacturers, the public sector, wood traders and end users. The supply chain is a complex system so it is essential to understand these risks to build a resilient supply chain network.

In early 2020, to respond the Covid-19 outbreak, and develop relevant strategies to help business owners and policy-makers to overcome the challenges and develop a recovery plan, we conducted research to understand the major uncertainties and risks in the New Zealand forest supply chain following Covid-19. In this research we used an online survey to aggregate opinions from participants without having to bring them together for a physical meeting.

A total of 22 forestry experts including five business consultants, four academics, three scientists, one policy advisor, six directors from forestry companies and three forest owners contributed to this study. A total of 40 supply chain risks were identified from the expert opinion. Then we asked them to rank the risk items − sources of uncertainty and risk − which may cause negative effects from low severity to high severity to the New Zealand forest supply chain following Covid-19.

Risks following Covid-19

According to the mean value of each risk, we prioritised the risks from the first-round survey. In addition, we consulted several forestry researchers and scientists to validate the results. The measurement scale and top 25 risks were as follows −

1 − No problem

2 − Cosmetic problem Need not be solved unless the resource is available.

3 − Minor problem Solving this should be given low priority.

4 − Moderate problem Should be solved to avoid the problem getting worse.

5 − Significant problem The need to be solved is a medium priority.

6 − Severe problem Important to solve so should be given high priority.

7 − Critical problem Imperative to solve this before the product can be released.

With globalisation, modern forest supply chain management faces risks not only originating internally, but also from external environments. In New Zealand, these risks include those fragmented with internal competition, limited information exchange, inefficient business processes, poor collaboration among small-scale forest growers, high operating costs, inadequate forestryresearch and development, and business innovation. In addition, supply chain risks are inherent in decisions, networks, people, equipment, organisation structure, business processes and activities. The lack of knowledge on efficient and effective forest supply chain risk management impedes sustainable development in the forest sector.

Rank	Risk	Mean value
1	China market demand	4.27
2	Economic crisis or recession	4.07
3	Fluctuating log price	4.0
4	International competition such as German beetle-infested timber	3.94
5	International politics such as a China-US trade war	3.87
5	International market demand	3.87
7	Labour shortage or immigration	3.8
7	Supply chain disruption or broken supply chain	3.8
9	Weather-related risks or climate change	3.6
10	Forest waste	3.47
10	Natural disasters	3.47
12	New Zealand government policy or regulation	3.4
12	Domestic sawmills or onshore production	3.4
12	Domestic market demand	3.4
15	Lack of skilled or experienced worker	3.27
15	Infrastructure	3.27
15	Financial risks	3.27
18	NZ domestic politics	3.2
18	Decreasing investors	3.2
18	Shipping	3.2
18	Health and safety at work	3.2
18	Forestry nursery pests	3.2
23	Road transportation	3.13
23	Unstable New Zealand domestic log supply	3.13
25	New Zealand production capacity	3.07
25	Unstable export log supply	3.07

China market demand

Our study reveals that the number one risk was the China market demand. This may imply the importance of China’s wood market for the current New Zealand forestry exports. The majority of forestry supply chain risks were from external environments, such as economic crises, recession or international competition. Obviously, the pandemic has had significant effects, such as labour shortage and supply chain disruption being the major ones due to the border control measures relating to Covid-19. Other top ten uncertainties and risks include climate change, forest waste and natural disasters.

The Covid-19 pandemic is still not settled globally, and has led to a new normal in our lives, this would directly influence how quickly the forest sector can recover from the pandemic. We suggest that New Zealand forestry businesses and forest owners work together to build resilience in the organisations and supply chain to protect against the external environmental risks and fluctuations. The first step is to identify and understand the main risks. The stakeholders in the supply chain may develop their relevant risk strategies to mitigate the uncertainties and risks following Covid-19.

Changing plans

Covid-19 is an example of supply chain uncertainty and risk, which requires resilience to mitigate the negative effects. Because Covid-19 has had a significant effect on society and the economy, almost everything is affected by the pandemic and we did not consider Covid-19 as a risk factor in the survey.

One of the important findings of the research is that the results confirmed that the major effect of Covid-19 is on the market and demand side. Even though the pandemic has influenced the supply, for example with lockdown causing forestry harvest disruption, many forest owners changed their harvest plan. This may provide direction for managers and owners to focus on the market and demand side in order to adapt the new normal.

It is a critical factor that China and New Zealand controlled the Covid-19 pandemic early compared to other countries. Therefore, the demand and supply met and a potential collapse of the market was prevented.

Well-designed and reliable biosecurity measures and performance give an advantage for New Zealand logs in the international trade.

Free trade

Recently, New Zealand, China, Japan, South Korea, Australia and all ten ASEAN countries signed the world’s largest free trade agreement − the Regional Comprehensive Economic Partnership in the Asia-Pacific region. It is an ASEAN-led initiative, aims to lower tariffs, open up trade in services and promote investments across the different economies. We suggest that the New Zealand forestry business may expand its markets into these countries.

Managers and owners should pay more attention to business innovation to support forestry business development during the Covid-19 pandemic. In addition, businesses should become more agile to adapt to the changes from the external environment and new technology. Moreover, they should not just focus on exporting logs, but also adding value to wood products.

The research identified the main supply chain uncertainties and risks. The initial results provide a starting point to build a sustainable forestry supply chain and indicate weaknesses, such as domestic sawmills and onshore production along with unstable domestic log supply. These supply chain risks imply the importance of the forestry business collaboration to support New Zealand forestry and wood processing in the long run.

Limitations

This research has limitations. The ranking of potential risks represents the perception of the respondents who consider current events have a stronger influence on their thinking. In addition, some risks affect the entire market such as a lack of Chinese demand or lowering prices. In contrast, other risks may devastate a small area but do not affect the rest. For example, pest incursions or wildfires are a significant danger to forestry but only a relatively small group perceived them as being the most important.

We think it does not reflect the importance of the problem but rather that current events influenced the thinking. Further study will be conducted to investigate the relevant strategies and configurations for forestry businesses to cope with more of the challenges following Covid-19.

Dr Michael Wang is a lecturer in Supply Chain Management at the Auckland University of Technology Business School. Dr Robert Radics is a senior lecturer in Supply Chain Management at Lincoln University.