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Sutton: China and forestry seminar

12 November 2004
Hon Jim Sutton - China and forestry seminar, Rotorua

Good morning everyone and thank you for the opportunity to be here.

In 10 years' time, we may look back on today as a watershed moment for the New Zealand forest industry. I certainly hope so.

The development of new profitable markets for New Zealand's wood products is probably the single biggest strategic issue facing the New Zealand forestry sector.

China is one of fastest growing markets for forest products in the world. How the New Zealand forest industry approaches this critical market may well fundamentally shape the industry over the coming decades.

I am therefore delighted the industry has taken the initiative to convene this workshop.

It builds well on our shared experience of China gained during the brief but successful trade mission I led there in February this year.

It seems highly likely that, come what may, China will be a powerhouse of the world's economy over the next century.

It has a vast domestic economy, with a rapidly growing, mainly urban, middle-class. It is also a key manufacturing centre for wood products re-exported around the world.

As a market for New Zealand wood, China is already significant, currently taking $360 million a year. But two-thirds of this is logs and pulp. And it represents only a tiny fraction of China's potential.

Analysis in the United States suggests that Chinese consumption of industrial wood will increase by 15 per cent a year for the next 10 years. It predicts that China will have an annual wood deficit of over 80 million cubic metres, a deficit that will have to be met by imports.

Your industry has traditionally relied on Australasian markets as its foundation. And logically so. You understand this market, and the market understands radiata pine. You also understand the legal frameworks, political systems, culture, language and exchange rate risks and advantages.

But there can be no room for complacency from anyone in the New Zealand forestry sector about Australasian markets.

In 10 years' time, I predict three key things will have happened in the Australasian market.

One, Chile will major supplier of a broad range of radiata pine products to Australia and potentially even New Zealand. This is already happening. Anecdotally, I am aware that Chilean plywood, for example, has been turning up in DIY stores in Sydney.

Two, Australia will essentially become self-sufficient in wood. According to ABARE projections, by 2008 Australia will produce a little over 5 million cubic metres of structural sawn wood a year, but will demand only about 4.5 million cubic metres.

And three, new world-scale New Zealand sawmills will be producing structural lumber, potentially for the Australasian market. This would put significant pressure on smaller processors.

At the same time, New Zealand's potential wood supply will increase rapidly ? from 23 million cubic metres today to an available 30 million cubic metres by 2008.

Taken together, the message is clear - while Australasia will always be important, new markets must be found.

And the development of new markets is vital to every player in the New Zealand forestry sector.

Even those who want to do nothing but grow trees and sell them on the stump, or sell lumber to New Zealand builders, or MDF to Australian cabinetmakers have a fundamental stake seeing new markets developed.

If markets such as China are not developed, New Zealand forestry businesses will see their margins steadily eroded as more and more wood is pushed onto relatively static 'domestic' markets.

This is not a sustainable situation and is not in anyone's interests.

But, developing and expanding a New Zealand radiata pine market in China will not be easy. It will take time and comes with greater uncertainty, costs and risks.

Nonetheless, your industry must face up to these issues, and must do so with some urgency. It cannot expect to sleepwalk to success.

Of course, I am preaching to the converted here. Your presence at this workshop indicates your commitment to exploring the Chinese market. Importantly, you are willing to do this with other forest industry players.

I congratulate you for your foresight.

You know, this is the third time I have spoken to forestry leaders in nearly as many weeks. On each of these occasions I have stressed a few common themes, which I think are relevant to this workshop.

First, the Government recognises the importance of this sector. It is major employer, driver of economic growth, huge earner of foreign exchange and will be a crucial contributor to New Zealand's response to Climate Change. The Government wants to see the New Zealand forestry sector grow profitable businesses.

Second, global long-term trends of declining commodity prices mean that businesses such as yours must constantly improve efficiency and innovation ? just to stand still.

Third, I think your sector needs to invest more heavily in wide range of activities that drive innovation. Not just in production, but also in market development, product innovation, design, supply chain and distribution management, and human capital.

Fourth, the future is in your hands. The industry needs to look to its own strengths, weaknesses, opportunities and threats. It needs to focus on the needs of markets and consumers and meet those needs as no other country or alternative product can.

Fifth, industry players need to look for ways to collaborate and co-ordinate their efforts. They need to fully explore areas of mutual benefit, ways of sharing costs, or perhaps combining efforts to achieve economies of scale.

And finally, the Government can and will play its part as a facilitator and partner in initiatives and policies that position the New Zealand forestry sector at the forefront of providing sustainable wood solutions to markets around the world.

The Government is already putting substantial effort into China.

The announcement by President Hu Jintao during his visit to New Zealand that China had decided to include pinus radiata in China's building code was very welcome. This was a very good outcome and one that involved concerted effort by industry, officials and at the political level. Further work is being done supported by the Government on a handbook/users' guide and a supplement to the code to maximise the recognition that has been given by China to Pinus radiata as a construction material.

We are currently exploring a Free Trade Agreement that, if concluded, will lift New Zealand's relationship with China to a new level.

Through New Zealand Trade and Enterprise, you have access to experts in doing business in China. NZTE has three offices in China, and works very closely with New Zealand exporters and key companies in China.

In specific initiatives, NZTE is currently exploring setting up a New Zealand Wood & Building Products Centre in Shanghai. The project is being driven by companies which have been exporting to China over the past 3-4 years, many of whom took part in the mission earlier this year.

And, under the Forest Industry Framework Agreement, the Government has made available some $13 million over five years for the crucial areas of market access and market development. Access to this is of course dependent on the FIFA being signed.

Ladies and Gentlemen: Your presence here shows that you are industry leaders with foresight. It also shows you are prepared to challenge the old ways of doing things in the forestry sector.

So it is to you that I throw down some challenges as you think about developing this critical market.

I challenge you to be strategic take the chance today to explore questions like where do you see New Zealand's forestry products being used in 10 years' time? How satisfied will consumers be with the products made from your wood? How are New Zealand companies behaving towards each other and the people you hope will be your customers in 10 years' time? Who will be your key partners in 10 years?

Be innovative look to new ways to solve challenges, meet consumers' expectations, spread risks, build strategic relationships, and achieve economies of scale.

Be prepared to invest British Columbia industry and Government in partnership are investing an extra $15 million a year to develop the housing market in Shanghai.

Be collaborative where this makes sense you do not have to bear all the costs of understanding and developing this new market alone. And sharing information just might be mutually beneficial.

Be prepared to be there for the long-haul. Rome was not built in a day. Developing the Chinese market will take time.

Again thank you for the opportunity to share these thoughts with you.

I congratulate you on the initiative and very much look forward to hearing more about your ideas on the development of this key market.

ENDS

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