Why are there so many raw logs waiting on our wharves for export? Shouldn’t we instead be exporting them as finished forest product?
The short answer is that we have an absolute trade advantage of sorts in raw logs but have yet to build a comparative trade advantage in downstream forest products. The long answer is a little more interesting as the principal lesson has application across other commodity industries.
Back in the 1980s and 1990s there was a focus on getting what used to be called ‘marginal land’ into production. Suspensory loans where available to help turn it into pasture. Tax incentives where made available for afforestation. In the 1970’s approximately 600,000 ha were in plantation forest.[i] By the turn of the century land area in plantation was three times what it had been in the 1970s.[ii]
The dramatic increase in land area devoted to forest lead to just as dramatic an increase in log flow as we entered the new century. Foresters were calling the increase ‘the wall of wood’ and were scratching their heads wondering who was going to buy it all.
Thankfully China was entering a construction boom, with burgeoning demand for boxing wood as an aid to pouring concrete, as well as other applications. Large forestry nations close to China such as Russia and Canada had placed restrictions on export of their logs. Harvest of rainforest in neighbouring Asian countries faced opposition. New Zealand’s biggest competitor was South America but given shipping capabilities at the time, we were much closer to China. In 2007 New Zealand exported $116 mln of logs to China which made up 18% of total log exports by value. Ten years later these figures were $2.3 bln and 71%, respectively. For 2024, the year of most recently available data, the figures had climbed to $2.9 bln and 89%. [iii]
Sadly, the role of a commodity exporter is not an easy one. As log exports took off on the back of Chinese demand, the forestry industry shrunk rather drastically as a percentage of GDP. Back in 2007 it made up 0.6% of all industry GDP, in 2024 only 0.3%.[iv] The industry’s wheels have been spinning hard but the industry is in relative decline. Landholders, predominantly iwi, have had stagnant rentals. Logging crews have taken on significant debt to squeeze costs through mechanisation, and while mechanisation is to be encouraged, high leverage in a commodity industry isn’t.
New Zealand is blessed with a team of world renown forestry scientists that could have found a road to improved industry fortunes. Most of them have been employed within a Crown Research Institute that between 2007 and 2024 collected and spent approximately $1.2 bln on forestry industry research.[v]
Of this amount an influential portion was collected from tree owners through an industry levy. As one high profile technologist in forestry has observed, industrial science can’t operate in a vacuum. Science needs sponsors, people that can see future potential from raw beginnings and are prepared to invest in it, building a community of interest across fund managers to support scale-up. These people provide a reality check on the science under development so that the science effort doesn’t get spent far and wide with poor focus.
In the case of the forestry industry the community of interest was tree owners so we got tree research. Existing forest product manufacturers were too small and if overseas owned too insignificant across their parent company’s holdings, to muster a voice.
All is not lost, three developments provide an opportunity for New Zealand to produce downstream forest products for export at lower opportunity cost than our trading partners.
The industry can regain its fortunes.
Firstly, across the globe the land area devoted to plantation forestry continues to decline. In 1990 there were 4.3 billion hectares of forest across the world and last year this figure was down to 4.1 billion.[vi] The size of New Zealand’s forest estate has been increasing while the global estate has been shrinking.
Secondly, a recently signed free trade agreement with India eliminates tariffs on over 95% of forestry items opening the way for diversification of markets.[vii] We may be able to sustain the log boom a while longer to invest in focused science.
Thirdly, in the reorganisation of the government science sector the Bioeconomy Science Institute has a specific mandate to develop materials and fuel alternatives from biological resources, improving environmental sustainability and reducing waste. The mandate narrows the wide range of possible downstream products to just a few where we might make a place for ourselves in the world.
As for the key lesson that other New Zealand commodity industries might benefit from, don’t just ride a boom, grow future profitability by putting some of the windfall into focused science for downstream products that can be expected to command respect overseas.
[i] https://teara.govt.nz/en/exotic-forestry/print#:~:text=The%20second%20planting%20boom&text=The%20work%20was%20to%20be,potential%20changes%20in%20land%20use
[iv] https://infoshare.stats.govt.nz/ (SNE047AA)
[vi] https://openknowledge.fao.org/server/api/core/bitstreams/2dee6e93-1988-4659-aa89-30dd20b43b15/content/FRA-2025/forest-extent-and-change.html#forest-area
[vii] https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-concluded-but-not-in-force/new-zealand-india-free-trade-agreement/key-outcomes
Kim von Lanthen is a reader and ex-banker You can contact him here.
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