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Sutton Speech To Farm Forestry Association

12 April 2002

Farm Forestry Conference, Timaru


President Mike Halliday, ladies and gentlemen: I am delighted you are having this meeting here in Timaru.

That's not just because this is my electorate, and I'm very proud of the area. But there are some historical reasons why this is a good place for you to be tonight.

South Canterbury can claim some early involvement with the development of the New Zealand forest industry. Handsawing is reported to have begun at Geraldine in the early 1850s, the first sawmill was erected in 1866, and one of the first steam-powered sawmills in New Zealand was operating at Waimate by 1871. This was, of course, based on a limited indigenous forest resource, said to have been only 18,000 acres in 1849.

Another notable claim for South Canterbury is that the first recorded introduction of radiata pine to New Zealand was at Mt Peel Station in 1859.

Now the region has a significant plantation forest resource, and it is pleasing to see local business people and a local authority taking advantage of the investment and development opportunities this provides.

I guess I can safely assume that the hottest topic at this conference is going to be the Kyoto Protocol and the Government's decision to ratify.

The Government has done significant consultation to thrash out possible methods of implementing the Kyoto. Now, officials have been working on a preferred policy position, and Cabinet will be making decisions on this within the next fortnight.

Once that happens, there will be more public consultation before legislation and implementation. I would expect you and your association to continue to be fully involved.

The Farm Forestry Association continues to play a vital role as part of the New Zealand forest industry.

It is still the only organisation representing "woodlot owners" at negotiating tables, when forestry-related issues are discussed. It is important that your voice is heard. Your concerns are not always the same as those of large forestry companies, or multi-national corporates. You also can bring the voice of rural New Zealand to the table, because many of you live where your forests grow, which is not always the case with "company foresters". While there are a lot of woodlot owners who are not members of the Association, it is probably fair to say that they share many of your interests and concerns. Increasing membership numbers by recruiting from the ranks of these "non-member" growers is a challenge for the Association

The Farm Forestry Association, through the enthusiasm of its members, is the source of much of New Zealand's knowledge and expertise in growing "alternative species" (that is, alternative to radiata pine). Species diversification is likely to be important to the development of the industry, particularly with respect to market diversification.

Individual members' forest areas combine to make the Association a major forest "owner", in the "collective" sense. This makes the Association an important player in the wider New Zealand forest industry and how it will develop over the next few decades.

The importance of the forest industry is not just in what it contributes to the New Zealand economy today, but what it can contribute in the future.

The industry's Vision 2025 is to grow forestry into New Zealand's number one industry by 2025. The potential is certainly there to achieve this goal, but less clear - and the challenge for us all - is how we actually get there. Log exports continue to grow and now account for more than 35 percent of the total roundwood harvested. That doesn't seem like the route that will lead to the attainment of Vision 2025.

Very large areas of forest established in the 1970s are now maturing and are expected to be harvested over the next decade. It's clear that many regions have significant residual wood production, that is, net of current processing capacity. Major investment in new and expanded processing facilities is required if the industry's Vision 2025 is to be realised.

Wood fibre availability itself does not constitute an investment opportunity. Many factors must come together to support a competitive advantage in processing this available fibre.

The World Competitiveness Yearbook in 2001 showed that New Zealand ranked 21st among the 49 economies analysed in terms of general industrial competitiveness. New Zealand remained ahead of Chile, but slipped considerably behind Australia. There is certainly a challenge here for the government - to improve our standing.

In a report prepared for MAF last year by Forest Research, New Zealand's competitive advantages in wood processing were considered to be: 1. the existing processing development, with a relatively high level of technology in wood processing plants plus a broad spectrum of products; 2. industry knowledge development, with high knowledge of radiata pine, relatively high levels of education and training, and adequate labour skills; 3. investment attractiveness, with medium wood and processing costs, generally adequate infrastructure, a favourable exchange rate, and relatively short distances to ports.

In contrast New Zealand's main disadvantage was the underlying weaker general industrial competitiveness compared with competitors such as the United States, Sweden and Australia. The forestry variables where New Zealand did not score well included: 1. poor diversification of markets and products, which ties into the previous comment about the desirability for diversification of species; 2. environmental legislation, and the time, the cost and the uncertainties seen to be associated with resource consent processes; 3. lack of government incentives; and 4. resource dispersion and lack of diversification.

Resource dispersion is particularly relevant to the Farm Forestry Association. As we move into and through the next decade, and as more members' forests start reaching harvest age, this issue will need to have been considered, debated and addressed.

Possible strategies could include strong co-operative marketing operations and on-site primary processing (possibly utilising New Zealand advances in portable sawmill design).

As the volume of unprocessed log exports rises, the decision by the Government of the day to abandon investment (including foreign direct investment) from the functions of the Ministry of Forestry at the time of its merger with MAF was one of the more damaging excesses of New Zealand's experiment with extreme right-wing economics.

The government is now working more closely with the forest industry to tackle priority issues hindering the development of wood processing in New Zealand. In April last year, the Government initiated the Wood Processing Strategy. It is a joint, "whole of government" (involving eleven different departments) and forest industry exercise. Your association is involved in the process.

There have been some notable achievements from the Wood Processing Strategy.

- An excellent report was produced last September on problems and impediments imposed by Resource Management legislation through regional and district plans. Subsequently, an industry code of practice dealing with technical matters often associated with resource consent applications, and a "best practice" guide for local authorities, are being developed. It is anticipated the draft code of practice will be available next month.

- In terms of infrastructure - an integrated transportation study undertaken in the Tairawhiti Region (that's the Gisborne and Wairoa Districts) identified the need for $120 million for road upgrading and new feeder roads. This study was extended to the Northland Region, and Nelson is likely to be the third region where transportation is reviewed. The new fuel taxes will assist fund some of these roading developments.

- In the field of employment, skills and training, there's been a lot of activity in the areas of harvesting and forestry contracting on the East Coast. Among the activities is an earnings supplement project for forestry workers in the area, aimed at getting new workers over the "three-month hump" - that period before they are work-hardened and can contribute safely to the gang's piece-rate earnings. These ideas will be assessed on the East Coast before testing their applicability to other regions.

- Under the auspices of the New Zealand Forest Industries Council, substantial progress has been made in the area of National Certification over the last year. A National Initiative for New Zealand Forestry Certification was launched last May, with the subsequent development of draft performance standards by a Plantation Management Technical Committee. The development of pilot group certification schemes for small forest owners and a chain-of-custody certification scheme for small to medium enterprises, are also being considered.

- Biosecurity has been a big issue in the past year. The appointment by MAF of a Forest Industry Liaison Adviser has seen major improvements in relationships and communications between forest growers and the MAF Biosecurity Group. The Biosecurity Council now has Primary Industry representation, and Forestry Biosecurity and Forest Product Exports Committees have now been established.

- Trade access is, as we know, a key issue for forestry ? the Trade Access Working Group is developing a strategy for addressing issues around wood use standards and building codes, particularly in Japan, China, Taiwan, India and Korea. Urgent work is underway to address a draft Chinese building code that discriminates against New Zealand radiata pine and is heavily orientated towards North American species and US timber sizes.

Although market development for New Zealand wood products has improved in the last decade, other countries such as Chile have clearly outpaced us. That's a major challenge for the industry.

Countries in the Asia Pacific Region are the dominant markets for New Zealand's wood products. They account for around 98 percent (by value) of our current exports of forest products. APEC countries account for about half of the world trade in forest products.

China is now the world's second largest consumer of forest products by value. By volume, it ranks second in consumption of wood-based panels, second for paper and paperboard products, and third for sawn timber. China's expanding consumption and lack of adequate forest resources, as well as enivironmentally motivated restrictions on its own wood supply, have contributed to a recent rapid increase in imports. China is now the world's third largest importer of primary forest products. The Chinese market provides both huge opportunities and massive challenges for the New Zealand forest industry.

New Zealand is about to enter another key phase in the maturation of the forest industry - the utilisation of the wood resource from the second planting boom.

Sixty years ago the government approached a similar situation with wood from the first planting boom. Back then it was the major plantation forest owner and had a much greater "hands-on" philosophy. It built sawmills at Waipa and Conical Hill to serve as demonstration and development units for production and marketing techniques - for the sale of exotic plantation grown timber to a market that was used to indigenous timbers.

Today's challenges, issues and opportunities are similar to those of sixty years ago: an expanding wood resource that must be processed into new products and sold into new markets if its potential is to be fully realised. Today's strategy is rather different, with government and industry working in partnership to alleviate the impediments to private investment in wood processing facilities. Watch this space for further developments in this connection soon.

The question is, will it be equally successful in achieving its objectives?

Hopefully the next few years will witness considerable investment in wood processing in New Zealand, the development of new markets and new products, and a reversal in the trend of log exports increasing as a percentage of our roundwood harvested.

I encourage you to make sure your organisation has a key role to play in this.

Thank you.

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