Government’s Priorities for the New Zealand Forestry Sector

Speech to ForestWood Conference 2016

Government’s Priorities for the New Zealand Forestry Sector [Slide 1 – title slide]

E āku rangatira, tēnā koutou katoa. Ka nui te honore ki te mihi ki a koutou.

Good morning. Thank you to (Dr) James (Buwalda) for the introduction, I am delighted to be here today.

I would also like to thank the New Zealand Forest Owners Association (FOA) for the invitation to present, as well as to the other conference organisers:

  • Woodco
  • Wood Processors and Manufacturers Association (WPMA)
  • Forest Industry Contractors Association (FICA).

I would also like to acknowledge the international speakers:

  • Russell Taylor
  • Doug McKalip
  • Annette Cotter
  • Ben Gunneberg
  • Adam Beaumont

It is wonderful to see such excellent industry-wide attendance at this conference. The ForestWood conference is an important event for the forestry and wood processing sectors. During this address I would like to briefly outline some of my priorities in my capacity as the Associate Minister for Primary Industries with responsibility for forestry, and highlight how the Government is working to accelerate growth within the forestry sector.

The Government is focused on meeting its key economic growth objectives [Slide 2]

The focus of today’s conference is how our forestry and wood processing sectors can be successful and resilient in the future. The Government values a close relationship with both sectors in order to achieve these goals.

In 2015, a refresh of the Government’s Business Growth Agenda (BGA) was launched with the Towards 2025 Report. This report outlined the future direction of the BGA. In 2015/16 our focus is on investing for growth and further building business confidence.

Although our economy slowed over the last year, it does continue to grow and primary sector exports are forecast to grow by $1.9 billion to $37.6 billion in the 2015/16 year.

Our economy is highly dependent on international trade. Free trade agreements enhance our competiveness, and the Trans-Pacific Partnership (TPP) is an excellent example of that.

The TPP will give New Zealand better access to a number of globally significant markets. This is a good news story, particularly for forestry. In 2014 New Zealand exported NZ$1.5 billion in forestry products to these markets. Under the TPP, tariffs on all forestry products will be eliminated – an estimated saving of $11 million per year.

Of course, it would be remiss of me not to mention the issues raised by industry around non-tariff barriers, in the report launched this morning. While it is an extremely complex area, and one which the Government has little direct control over, it is certainly right for you to bring your concerns to Government. Non-tariff barriers are an issue which will need to be worked on over time, through both multilateral and bilateral talks with the relevant countries. Breaking down those barriers will not happen overnight, but as a free-trading nation, we are committed to ensuring our products have access to overseas markets.

To meet the BGA’s goal of lifting the value of our exports from 30 to 40 per cent of GDP by 2025, we collectively need to do more.

The forestry industry, our third largest export earner, will need to increase both the volume and the value of exports.

As far as volume is concerned, New Zealand is well-positioned to increase returns from log exports and processed timber exports. Wood availability is increasing in most regions, with the national annual harvest of 27 million cubic metres a year. Over the next ten years this is forecast to rise to 35 million cubic metres.

There is also great potential for increasing the value of our forestry exports. A critical part of this is growing the level of processed wood products that we export overseas. Good progress has been made lately, with export volumes of timber, pulp and panels all forecast to increase over the next few years. 

We need to increase exports of higher value wood products [Slide 3]

Woodco’s vision of increasing forestry export earnings to $12 billion by 2022 is a great aspirational target. Along with Woodco’s Strategic Action Plan, this target helps direct and motivate the industry towards potential areas of growth. It is now four years since the launch of the Strategic Action Plan and a good time for industry to review where it needs to focus its attention in the future.

The Government is working with industry to ensure its programmes and policies are aligned with Woodco’s target of $12 billion by 2022.

First, we are providing the conditions needed to support and encourage higher levels of investment in more processing capability and capacity.

The statistics from the forest growers levy on harvested wood show that there is an increasing proportion of harvest going into domestic processing. In 2014 the share of total harvest going into domestic processing was 49 percent. In 2015 the share rose to 51.2 percent.

There has been significant onshore investment, which indicates strong business confidence in New Zealand processors – some really good examples are $60 million into Red Stag in Rotorua, the sale of the Kinleith pulp and paper mill, the Tasman pulp mill, and the Penrose paper mill to Oji Fibre Solutions, PanPac’s $23 million investment to upgrade its sawmilling and drying facilities in Otago, and Lumbercube, the Pedersen Group’s new mill in Rotorua.

The Government is supporting industry investments by reducing potential regulatory barriers and improving efficiencies across the value chain. A great recent example is the Lumbercube mill that processes logs into squares prior to export.

The Ministry for Primary Industries has approved Lumbercube to undertake phytosanitary inspections of their own products. This means Lumbercube can export to China without fumigation, reducing costs and speeding up the export process. This has flow on effects down the value chain. Once Lumbercube is fully operational, it will be one of the largest domestic suppliers of wood pulp and residues – addressing a previously unfulfilled demand. 

Second, Government and industry need to work together to focus on specific opportunities for market development, including further developing export markets for engineered timber products. This will allow us to realise more value from our logs.

On this point I would like to make some comments in response to recent calls for direct Government intervention in the export of unprocessed logs.

We want to ensure that domestic wood processors can also secure ongoing supply of logs. They should be able to access logs on similar terms to offshore buyers. But this must not happen at the expense of others in the sector who have invested with the expectation of being able to get the best return for their efforts. 

Like all business owners, the owners of New Zealand forests, which includes foreign, corporate and private companies, iwi, farmers, and Kiwi mums and dads, look for the best prices for their logs. All of these forest owners have an interest in getting the most value out of their logs and have a commitment to New Zealand’s economy. Any restrictions on the ability of forest owners to get the best return on investment risks eroding confidence of investors looking at future investment.

Many large forest owners in New Zealand deliberately ensure that there is a supply of wood for local processors and make long term commitments to ensure their supply. Hancock Forest Management is one such company, where around 70 percent of their volume is sold domestically.

However, this can’t be the case for all logs. Many modern mills have tight specifications for log supply. Logs that do not meet those specifications are usually exported, ensuring there is a market for the lower grade logs.

What is important is making sure that the sector is well-positioned and enabled to get the greatest value from its products because this benefits all New Zealanders.

Which brings me back to what’s happening with engineered timber and how developments in this area are helping address some of the major economic growth challenges in other areas of our economy – like affordable housing.

New timber technologies, systems and products offer opportunities for reducing construction costs and timeframes and contributing to the Government’s goals for housing affordability [Slide 4]

New technologies will provide new opportunities for the forestry industry to diversify and become more sustainable, in both senses of the word. Recently I visited Concision Engineering in Christchurch, a company using offsite panel manufacturing technology, I saw firsthand the precision and efficiency of prefabrication.

My intention is to work with my colleagues the Ministers of Housing and Economic Development, to improve housing production capability in New Zealand. These approaches include highlighting the opportunities to use more prefabricated timber building systems in New Zealand.

I will also continue work on normalising the use of engineered timber in residential and commercial construction and ensuring timber standards, such as 3603 and 3602, are not a barrier to the uptake to engineered wood products.

Last year I worked with some very motivated stakeholders to understand better about the use of engineered timber. This included engaging with engineers, architects and end‑users to identify their design and project needs. In 2016 I will continue this work through conferences, such as Grow Rotorua’s engineered timber conference in May, and by encouraging collaboration within the sector.

We are further improving the operating environment for the sector [Slide 5]

The Government is focused on supporting the forestry sector through forestry projects that encourage the planting of trees, improve land production and reduce erosion.

Last year I relaunched the Afforestation Grant Scheme to plant an additional 15,000 hectares of new forest at a cost of $22.5 million. Afforestation contributes to erosion control, water quality, carbon sequestration and marginal land utilisation.

This year:

  • I will coordinate with the Minister for the Environment to complete the National Environmental Standard for Plantation Forestry. This will streamline processes and increase efficiencies by providing forest growers with the same set of planning rules throughout the country; and
  • I will continue to work alongside the Minister for Climate Change Issues and other Cabinet colleagues in the Review of the Emissions Trading Scheme. I will work to make sure that opportunities for forestry are realised.

All of these matters will be discussed in more detail in the presentation by MPI Deputy Director-General, Scott Gallacher, shortly.

We need to ensure that small and medium forest owners are well-positioned for the future [Slide 6]

Over the coming decade up to 30 percent of wood available for harvest is expected to come from forest owners who have forests that are less than 1,000 hectares in size.

In order to deliver the best environmental and economic benefits from this resource, these forest owners need to be well-positioned to manage the additional challenges and costs associated with their lack of scale.

Developing skills and capability is key to sector growth [Slide 7]

To support growth in the regions the forestry sector needs a more highly skilled and educated workforce.

With the Minister for Primary Industries I will support initiatives to develop the skill base and encourage higher education in the regions. These include piloting and developing programmes to increase productivity and create employment opportunities for sustainable rural communities.

The forestry sector plays a crucial role in the growth of the New Zealand Economy[Slide 8]

The strategic priorities I have outlined this morning will contribute to our national economic goals as well as Woodco’s Strategic Action Plan.

We aim for, what must be seen as joint goals, it will be important for the Government to work closely with industry, but also important for the industry to create connections throughout the value chain.

Thank you very much for your time.

Nō reira, tēnā koutou, tēnā koutou, tēnā koutou katoa.

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