Sino demand for NZ forestry products highlights dilemma faced by timber processors

Sino demand for NZ forestry products highlights dilemma faced by timber processors

China’s insatiable demand for New Zealand forestry products continues to grow, but where are things heading for the country’s forestry industry and how much of the processing is being done here?

Forestry is a major employer in regional New Zealand and contributes around $6.4 billion a year to our economy in export earnings. According to Te Uru Rākau (Forestry New Zealand) wood products are now the country's third largest export earner – behind dairy and meat.

Something the Minister of Forestry Shane Jones is more than aware of. Earlier this week he announced he'd signed a new agreement with Zhang Jianlong from the Chinese National Forestry and Grasslands Administration which he expects to pave the way for greater trade and co-operation between the New Zealand forestry sector and China.

“Much of this growth has come from increased Chinese demand for New Zealand forestry products, supporting both continued high prices and record export volumes,” Jones says.

“A number of Chinese companies choose to use wood sourced from New Zealand for their manufacturing, and I’m keen to see how we can grow the relationship further, especially for our respective wood processing industries.”

A report released last year by the Forestry Owners Association titled: Facts and Figures 2017/18: New Zealand Plantation Forest Industry says New Zealand is now the second largest log exporter in the world to China after Russia. In the year ending December 2017 we exported $2.8 billion in forestry products to the country. Logs and poles made up $2.3 billion of the exports, while wood pulp came second on $275 million, and sawn timber/sleepers came third on $149 million.

But despite such strong results it’s not all plain sailing in the industry. Of the 33 million tonnes of logs that are produced every year, 20 million tonnes ($3.3 billion) are being shipped overseas as raw logs. And only 13 million tonnes is being processed here in New Zealand into finished timber and/or products.

Wood Processors and Manufacturers Association of NZ (WPMA) chief executive John Tanner says the amount of raw logs being shipped out of the country every day is a problem for the local wood processing industry.

“The issue we’ve had for a while is the very high prices for raw logs and they have been like that for four or five years now. That stimulates the demand for them and the domestic processors here then have to pay those high international prices.”

But Tanner says he doesn’t think the issues in the industry have been caused by the level of overseas ownership of so much of the country’s forests.

“I don’t think it’s a characteristic of the owners, but of the log buyers who are buying logs for processing,” Tanner says.

And Tanner says the agreement the Government has signed with China is a step in the right direction.

“In the industry we’ve been arguing for more logs to be processed locally and I think the agreement signals this government’s intent on doing just that,” he says.

He says the question that needs to be answered is how can the two countries work together to ensure there is more primary processing, such as milling, done here and more secondary processing done in China.

“One thing we would be interested in is attracting more investment from China in wood processing here,” Tanner says.

The level of overseas investment in our forestry industry remains high, even if it hasn’t translated into more processing in New Zealand.

In February the Overseas Investment Office (OIO) approved Japanese-owned Oji Fibre Solutions’ (NZ) proposal to buy a 188 ha forest at Te Kuiti from Australian company PF Olsen Tisa. It was the first streamlined forestry deal by the Overseas Investment Office (OIO).

For fast-track approval overseas buyers must agree to plant new trees in line with the Government's goal of planting 1 billion trees by 2028.  

While in January the OIO also gave approval for Australian forestry company OneFortyOne and Nelson Forests to buy approximately 2411 ha of land at Manuka Island Forest, in Marlborough for $46 million from a US investment group.

The company had also been given OIO’s approval in September last year to purchase Nelson Forests, which owns more than 25,000 ha of forestry land and around 51,000 ha in Crown Forestry Licences.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Sadly as with quite a number of other primary product exports NZ is very much on the road to become a one trick pony.
It might be easy now, but the squeeze will come.
Market diversification is the only answer to avoid being held ransom.
Don't think we need the upheaval similar to the UK abandoning NZ for the EU.

Market diversification will not happen anytime soon: slightly above 1% of GDP is currently spent on research and development, our universities continue to fall in international comparison by choosing quantity over quality, and our major cities fail to attract good talent due to low wages and falling living standards.
Commodity exports are to remain our bread and butter (pun intended!) for the foreseeable future as we reward speculative ventures with tax breaks but subject productive industries to regular taxes and shake their boats with knee-jerk actions (oil exploration ban).

Having different value added, non primary, products to the range will be great. But even staying with the commodities we do have is not a bad thing, it is a relatively good range of products and something an ever growing world population will need plenty of.
But what we definitely need if these commodities are going to remain the main stay of our exports is a much wider range of countries we are dealing with in a meaningful way, as in the 5 to 10% range.
If we have 3 countries taking 92% of our log exports and one of those 3 takes about 75% of the total then it does not take a rocket scientist to work out that the log market is vulnerable to external shocks from that country.
Looking at the timber stats and see what NZ sold to which countries, in what categories and the various swings in volume and revenue makes interesting reading and should be of concern to our politicians in general and the forestry sector in particular.

Sadly as with quite a number of other primary product exports NZ is very much on the road to become a one trick pony.
It might be easy now, but the squeeze will come.
Market diversification is the only answer to avoid being held ransom.
Don't think we need the upheaval similar to the UK abandoning NZ for the EU.

More unproductive "investment". Lots of buying of existing forests very little actual investment in processing. Infact the expectation is that either local or central government will provide the infrastructure to see those raw logs head off shore as fast as possible.

My amateurish reading of the 2018 Fonterra annual report suggests they lost 30 million dollars on “added value products”. (Page 52) That may have kept some NZ people employed but it suggests added value or further processing may just be adding costs.
I have no problem with commodity sales or foreign ownership as long as there is competition.
After all, the foreign owners take the foreign risk...

As clever as we think we are, we just can't seem to nail the value add on our primary products. Our distance to market is an issue, & so is our mediocre standard of education (especially tertiary) plus the poor attitude of a lot of kiwis to their learning something useful in life. Welfare has sucked out any ambition from the lower classes who are quite happy to breed & bleat. Even our working classes struggle with the every day grind of employment, with half our employees either not engaged or barely. Forestry is a tough game. Casualties are common, as are accidents in the processing part. There are far too many logging trucks in our roading statistics & now they're looking at whether the drivers are bent. We're not doing this particularly well are we?

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