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NZ Forest Owners Association - Sutton Speech

Office of Hon Jim Sutton Speech Notes 2 October 2001

NZ Forest Owners Association/Forest Industry Council, Auckland

Ladies and Gentlemen: thank you for the invitation to speak tonight.

Forestry is standing on the threshhold of huge opportunities here in New Zealand.

We have a well-established forestry industry that earned $3.6 billion in export revenue in the year to March this year ? that was 12.2 per cent of all New Zealand's exports for that period.

The Ministry of Agriculture and Forestry's latest Situation and Outlook for New Zealand Agriculture and Forestry report, published this week, indicates the wood supply available from our planted forests could increase from the year ending March this year harvest of more than 18 million cubic metres to 28.6 million cubic metres by 2003. That's a 59 per cent rise in just two years.

We also have a well-established wood processing industry. It currently consumes over 12 million cubic metres of wood a year, with another six million cubic metres ? nearly a third of the harvest ? being exported as logs.

The average price of export logs increased by 21 per cent in the year to March this year. Coupled with record volumes, this has resulted in the largest export value for logs since 1993.

So by 2003, the industry could have an extra 10.6 million cubic metres of logs available for export in log form or processing into added-value products.

Exporting unprocessed logs will continue, because they are an important part of the export product mix.

MAF predicts that log exports will stay around 34 per cent of the harvest through 2003, possibly rising to 38 per cent by 2005. This means that as more wood becomes available for harvesting, a greater volume will be available for on-shore processing.

Hypothetically, that wood could support, for example, six new sawmills (about the size of, say, Waipa) and three new medium density fibreboard plants (about the size of, say, Nelson Pine).

Investment in wood processing has fallen off in recent years and currently will not be enough to process anywhere near all the extra wood available for on-shore processing. For the period 2000 to 2005, publicly announced investments in wood processing total $531 million, compared with $1.27 billion for the five years before that. MAF estimates that there is potential for another $1.5 billion of investment in wood processing over the next five years or so.

The extent of commercial uptake of the opportunity presented by the extra available wood will depend on the comparative advantage of locating investment in New Zealand. Urgent work is needed to identify and neutralise actual and potential disincentives that might stall investment.

That work is underway.

As part of its contribution to the Wood Processing Strategy, Investment New Zealand commissioned the internationally recognised forestry consultants Jaakko Poyry to study this issue.

The "Business case for Investing in New Zealand Value-added Processing of Solid Wood and other Wood Products" was released this month and is available on the TradeNZ web-site if you have not already seen it. It makes a strong case for further investment in New Zealand and provides the kinds of nuts and bolts information that investors are looking for.

I understand that Investment NZ has already had some positive reactions to this study.

The main factor that will drive harvesting and any new investment will be the level of domestic and overseas demand for New Zealand's wood products. The industry needs to put more effort into marketing ? finding new markets and improving existing markets, as well as developing new wood products.

It is important that log and lumber exporters should agree market supply and promotion strategies in common markets, especially those with substantial growth potential as well as those which have been developed for lumber sales in recent years.

Direct competition between New Zealand lumber exporters and local sawmillers processing New Zealand pine logs has the potential of downgrading market perceptions and the positioning of our pine and minimising returns to New Zealand.

The Government recognises the opportunities, challenges and costs that the large increases in potential wood supply from outside the Central North Island region raise, especially as plantations in Northland, the East Coast, Hawkes Bay and in the southern North Island come on stream.

Deputy Prime Minister Jim Anderton and Forestry Minister Pete Hodgson co-chair the Wood Processing Strategy Group which includes industry representatives, agencies and officials. The aim of this group is to look at ways to enhance the ability of your industry to carry out further wood processing in New Zealand.

Working Groups have been set up to look at a wide range of topics We won't be able to solve all the problems that you face but a dialogue has been established that will enable us and yourselves to understand the issues involved and the compromises and choices that are being made.

My main involvement with your industry these days is through my trade negotiations portfolio.

Your exports are currently worth $3.6 billion and you have stated that your aim as an industry is to challenge the dairy industry's position at the top of our export table. The focus of my work as Trade Minister is facilitating that outcome.

Trade liberalisation in the forest products area is a priority for the government. The "wall of wood" that is upon us will have to be exported into a highly competitive global marketplace and it made all the tougher by tariff and non-tariff barriers.

We are focussed on getting a successful launch of a new World Trade Organisation Round at the Ministerial meeting in Doha next month.

The draft Declaration - the first of many that will be prepared before the meeting - is looking good for your industry. There is widespread agreement in the WTO that industrial or non-agricultural products must be on the agenda and the provision for negotiations in this area meets our interests.

Importantly the text calls for a comprehensive negotiation with everything on the table.

Of course, that may not be the end of the story , and you are likely to hear a lot from non-governmental organisations that the inclusion of fish and forest products will result in the depletion of those resources.

We will need to work closely with you to counter those views. Your industry, along with other industries and businesses involved in exporting, has a role to play in explaining to our fellow citizens how trade is vital to us all in New Zealand. You and I might consider that a truism, but for many, they don't seem to understand it.

A new organisation ? the Trade Liberalisation Network ? is being set up with an aim to help educate people on why trade is important to us.

In the meantime, China and Chinese Taipei's imminent accession to the WTO should improve the tariffs you face in those markets. The Foreign Affairs and Trade Ministry has calculated that China's accession is likely to save your industry $7.2 million in duties currently being paid on processed forest products and access in Taiwan will improve for pulp and processed products such as fibreboard.

Work is also on-going in the area of non-tariff measures. Forest Research Institute's study on Non-tariff Measures in the Forest Products sector is an important contribution to understanding of the non-tariff measures faced by your industry.

The co-chairs of the Wood Processing Strategy Group Trade Access Group have met with government departments, industry and other relevant agencies to discuss barriers that building codes, product standards and product testing standards are imposing on the industry.

Unfortunately it is a process of gradually chipping away at those barriers and being vigilant to ensure that new one do not take their place.

In closing, ladies and gentlemen: I would like to congratulate you on the strength and dynamism of your industry.

There are many barriers in export markets that prevent your products being sold easily. My Government and our officials are committed to improving access for your products.

There is still a lot of work to be done, but by working together, I think we can achieve a lot.

Thank you.


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