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Mallard: Beyond the wood and the trees

Hon Trevor Mallard
Minister for Economic Development

20 July 2006 Speech Notes

Embargoed until:midday

Beyond the wood and the trees - moving up value

Speech to the Forestry Industry Engineering Association Conference, Crown Plaza, Auckland

Thank you for the invitation to talk to you today. Through its wood, building, and interiors sectors, forestry remains an important contributor to New Zealand’s economy.

New Zealand is home to some of the world's largest, and most intensively managed, sustainable, production pine plantations. There are 1.8 million hectares of forest plantations, the majority of which is planted in New Zealand pine.

New Zealand’s forestry industry supplies 8.8 per cent of Asia Pacific’s forest products trade. Forestry accounts for seven per cent of total land use in New Zealand and 20.9 million cubic metres were harvested in the last financial year, with the yield forecasted to increase. Meanwhile, total wood exports are worth NZ$3.3 billion, accounting for 3.3 per cent of New Zealand’s GDP.

These are impressive figures. But you will be well aware that there are plenty of challenges ahead for your industry – many of which are mirrored in other industries, and indeed in New Zealand’s economy as a whole.

At the heart of this is a push for companies to move beyond the supply of commodity products into high value products. This requires innovation and the application of technology, branding and intellectual property to sustain a competitive advantage.

Companies can capture greater value from their existing products by integrating more fully with their foreign supply chains and, where appropriate, by partnering directly with distributors or manufacturers in their key export markets.

Capturing greater value through further processing in New Zealand is required to reposition New Zealand pine products in the added value market. Awareness is also building in your industry of the need to grow your position in global markets for value-added wood products.

This is heartening and such steps are examples of how New Zealand can transform its economy into a high income, knowledge based market economy that is both innovative and creative - and that builds on some of our natural strengths.

The Labour-led government has made economic transformation one of its top priorities for this term in office, building on the work that has already gone on through the growth and innovation framework.

We recognise this is work in progress - we need to constantly think of ways to adapt and build on our successes so far, if we are to secure New Zealand’s future prosperity and raise our living standards.

We need more firms which can compete with the best of them on the international stage, and which can grab the attention of world markets.

Firms need to be at the forefront of international best practice in areas such as technology and marketing, for example, and they need to be more innovative and able to capture the benefits from innovation.

We need firms that have highly skilled workforces and capable managers, and that can realise economies of scale through collaboration and exporting.

Being globally competitive means not just focusing on costs and efficiency but also on differentiation to command a price premium. It also means focussing on innovation to add value – not just in products but in the process, marketing and organisation.

Firms may also gain an advantage by using their small size to be nimble at quick turn around, at small production lines and at flexible market settings. Becoming more integrated internationally via exporting, collaboration and investment is also important.

Economic transformation is not a one-off process. It is about ensuring that the New Zealand economy is able to continuously adapt to changing circumstances.

Firms also have to take responsibility for the vast majority of this process, with government support and input and a solid commitment from us to work alongside you to achieve our common goal of an export-led high value New Zealand economy.

As such the government is a strong supporter of the forest products sector and through the Forest Industry Development Agenda (FIDA) is working collaboratively with industry to stimulate growth.

Through the government's Market Development Fund, the Forest Industry Development Agenda has provided significant support to industry groups to investigate new markets, build greater awareness of the value of New Zealand pine in the domestic market and enhance industry awareness in the areas of design and market intelligence.

The Forest Industry Development Agenda programme has also built greater collaboration between industry bodies such as the Timber Industry Federation, Pine Manufacturers Association, Forest Owners Association and the Wood Processors Association.

The Forest Industry Development Agenda has provided a point of consolidation for Woodco – a new industry body that is essentially an association of associations. Woodco is leading a new Forest Industry Development Agenda initiative currently awaiting approval to promote New Zealand Pine in the domestic market through the “ForWood” programme.

The ForWood programme is the first time that industry groups have agreed to work collaboratively to fund the generic promotion of wood products. This has been an issue that the industry has debated for several years and through the Forest Industry Development Agenda process we are confident that there will be real traction on this issue for the first time.

The Trade Access Group - also under the Forest Industry Development Agenda - has also provided leadership and enhanced industry collaboration with regard to market access issues for New Zealand’s wood products.

The group has developed new initiatives to support industry with regard to biosecurity, fire and building codes as well as tariff and other non-tariff barriers in key markets such as Australia, Europe, China, India, Korea and Japan.

Meanwhile, the government is focused on stimulating economic development in the forest products sector, through its economic development agency New Zealand Trade and Enterprise.

Most New Zealand companies cannot achieve large-scale production independently. Therefore, New Zealand Trade and Enterprise encourages collaborative models where New Zealand companies work together to aggregate supply to achieve scale.
The industry needs to be market driven and understand the end users in key markets in order to achieve growth through selling wood-based solutions rather than individual commodity products.

Initiatives like the New Zealand Wood Innovation Centre which was opened in Shanghai earlier this year are designed with both these principles in mind.

While our exports to China have historically been dominated by log and lumber, many new avenues are opening up as China’s growing middle class has more money to spend and is attracted to new value added products such as doors and windows.

The centre showcases innovative uses of New Zealand pine in the Chinese context and has a targeted programme aimed at the Chinese industry including seminars and information exchange with a variety of industry professionals.

Economic development for the industry will come from the application of technology and knowledge to provide producers with a sustainable, competitive advantage.

Companies that focus on developing their business model beyond commodity trading have the best chance for long-term growth. I encourage you to continue down this path and look forward to taking further steps with you to help transform New Zealand’s economy. Thank you.

ENDS

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