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Anderton: Pine Manufacturers Association

Pine Manufacturers Association conference

In some ways, the forestry industry is in the front line of the efforts to transform New Zealand's economy

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It's a privilege to be here to open this conference and to welcome you to the fine city of Christchurch. The focus of pine manufacturers on the future of this industry is important for New Zealand. We face a global market where we have a choice between describing our own destiny or being bit players in it.

There is a factory in Hiroshima, Japan I've been to where pine production facilities are stacked four stories high. The factory produces doors and similar fittings from imported wood. It is located on the harbour in Hiroshima, where ships from Canada, the Philippines, New Zealand and elsewhere arrive.

They unload whole logs directly into the water and the logs float in the harbour until they are processed. Then at the factory, the bark is stripped off, the logs are sawn and then processed into high quality furnishings. The lowest-value part of the entire production chain is the log and its transport. The highest value part of the process is the design and manufacture of the finished product.

A significant proportion of the timber in that factory comes from New Zealand.
I can tell you with some relief that not many of the logs floating in the harbour are ours. Much of our timber is milled here, so we send higher value products such as MDF. We need to have more successful processing centres like that one in Japan - here - in New Zealand.

There are some now - you represent them. Our challenge is to keep moving up the value chain and to grow our market share among the high value products we produce. This conference is aimed at getting us to the future we want to create. The aim is to move to a customer focus where we are led by opportunities in the market place.

In some ways you are in the front line of the efforts we need to make to transform our economy. The path to a high wage, knowledge-based economy is pioneered by businesses creating more value from our natural resources. The businesses that will lead the transformation are changing from the old way of making products and components to a new way of being customer focused and innovative.

Industries with the brightest future rely on skills and innovation that can't be relocated to another country. Our first Nobel Prize-winning physicist, Ernest Rutherford, said New Zealanders don't have much money, so we have to think. And along with his pioneering work, we have produced inspiring innovators and thinkers.

In the nineteenth century our economy was transformed when William Saltau Davidson pioneered refrigerated shipping. Our economy was transformed again by aerial top-dressing. There are more examples. Innovation creates strength. It opens markets. Great innovation is game-changing.

This conference is about making a paradigm shift too. The industry is exploring a shift from making and selling "bits of wood" to supplying end users with packaged products. There are great examples of thinking through these issues inside individual companies. But we are seeing a need for partnership across the industry as well in order to tackle opportunities that can only be addressed in a co-ordinated way.

Collaboration is especially healthy among members of the PMA, many of whom are here today. Partnership allows us to focus our energies on competition - and being competitive - in a stronger way.

Think about who our competitors are... Take an example of New Zealand supplying finger-jointed blanks to the US. New Zealand growers compete to sell logs to sawmills; sawmills compete to sell lumber to manufacturers; manufacturers compete to sell blanks to a US wholesaler.

In this scenario the competition seems to be growers versus sawmillers versus manufacturers. The winner is probably the US wholesaler. So maybe the real competitors are the value chains in other countries? Some of them are cheaper than us. But we are never going to win a competition to be the cheapest country. Nor do we want to.

Only this week one of the world's leading marketing gurus had a bit to say about being cheaper. Seth Godin works for Google - a company that didn't exist ten years ago and is now a global business super-power.

He said, "Cheaper is the last refuge of the person who's not a very good marketer. Cheaper is easy and cheaper is fast and cheaper is linear and cheaper is easy to do properly, at least at first. But cheaper is a short- term hit, not a long term advantage.

Cheaper doesn't create loyalty, because the other guy can always figure out how to be cheaper still, at least in the short run. Even free isn't cheap enough to win in the long run. Not if other people can figure out how to match what you've got. So, if you can't be cheaper, be better."

New Zealand has to be better. Better products, better production processes, better design, better marketing. We have to be better all along the value chain. Of course we need to keep pressure on our competitiveness. We can improve efficiency and productivity in our harvesting; transport; processing; energy; regulatory compliance and more.

Sometimes breakthroughs in our processes can be game-changing, just as aerial top-dressing transformed the productivity of our farms. But there are other options to think about too.

When we think about who our competitors are. are they really other radiata pine countries like Chile, Australia and possibly South Africa? The issue is not that there is too much radiata pine in world markets; it is that there is too little.

International wood users have plenty of options when it comes to species that can provide the products radiata pine is suited for. In many cases there isn't enough radiata pine, even collectively, to make a big impression on international markets.

It could be that the real competition is not from other radiata pine producers, but more from the expanding Northern Hemisphere producers of spruce, pine, fir and larch. For example sawmillers in eastern and central Europe are expanding rapidly and making inroads into Asian markets.

The growers of short rotation timber crops -- "fast wood" forestry -- of South America are already a force to be reckoned with, especially for reconstituted wood products. And these are just the wood-based competitors, not to mention steel, concrete, aluminium and plastics.

So if we want to make a bigger impact on world markets, perhaps there are opportunities for partnership with other radiata pine producers both within and outside New Zealand.

Many companies in New Zealand also operate in Australia. Most of our wood industry associations already co-operate effectively with their Australian counterparts. The PMA is a good example. Co-operative activities might include generic market promotion. It might include trade access issues. Co-operation in research is already a reality with the Scion/CSIRO joint venture. No doubt more can be done.

Then there could be possibilities promoting differentiated products and services. For example, we could be the supplier of choice for overseas manufactures. We would have to look seriously at developing economies of scale. World-class logistics would be needed along with 'add-on' requirements, like certification. Another possibility is development in wood-based products.

Improvements in existing products, for example, might see treated MDF for exterior use. Wood-based construction systems with better thermal and acoustic performance are another possible development. Beyond these products there are possibilities in business system innovation.

E-commerce for more efficient matching of buyers and suppliers has potential to expand. Vertical integration in the housing sector is another possibility -- with single companies providing land purchase, house-design, financing, construction, interior design, and appliance fit-out.

In-market support is a constant theme at forestry conferences. One outstanding example is the Shanghai Wood Centre. It's a topic for discussion here and I want to thoroughly welcome it. Six of our forestry companies formed New Zealand Wood Innovations (Asia) Inc. They had some help from New Zealand Trade and Enterprise.

The partnership has set up a New Zealand Wood Innovation Centre, in the central business district of Shanghai. It opened last year. The centre shows off the ways our wood products can be used for furniture, apartment fit-out and construction in China's building industry. Shanghai and the surrounding region is growing at an unprecedented rate. The Centre will help our wood industry to build long-term relationships and learn how to better meet the needs of Chinese customers.

I hope we will see more pioneering New Zealand companies join up or work in similar ways in other markets. It is a positive step forwards on the path of turning products into consumer solutions. In-market support need not stop there. What about going beyond the wholesalers in our export markets? The Tenon model of owning the value chain through to the retailer is now well-known. Another familiar model of pushing along the value chain to get close to the end-user is Juken New Zealand's version.

But getting these ideas to fruition may need "co-operative competition" to beat the real competition for the good of everyone. The ForWood project is an example of co-operative competition. Most of the players in the forest industry have collectively committed to contribute $560,000 a year for at least three years for a generic wood promotion campaign. It will further develop our domestic market.

This project is up for discussion at the next Forest Industry Development Agenda Steering Group meeting later this month. If the Steering Group agrees to the project the Government will provide 75 percent of the costs through the FIDA's Market Development fund. Potentially, that's worth another $5 million. This partnership is perhaps the most exciting development in the forest industry in years.

I hope it will lead to other examples in the future. It's daunting to make a paradigm shift to new ways of thinking and working. But examples will be shown at this conference. I have very high expectations for our wood industry. It has all the ingredients to become our top export industry.

Over the last ten years export income for value-added products grew by more than seventy percent in real terms. But we can do better still. More raw material is becoming available. An extra eight million cubic metres of logs a year could be available in the next five years.

If publicly announced plans to expand existing mills or build new ones over the next five years go ahead they will take around two-and-a-half million cubic metres a year out of that extra eight million. So there will be still another five million left. To put that into context, it has been reported that Carter Holt Harvey is considering a world-scale mill, possibly in Northland. It has the working name of Bigfoot. It would use 800,000 cubic metres a year.

So even after allowing for an increase in log exports there could potentially be another four or even five Bigfoots in the next five years or so. This is an opportunity New Zealand cannot miss. It can be turned into jobs, higher incomes, vibrant regions and deeper strength for the New Zealand economy.

The Labour-Progressive government is committed to working in partnership with industry to unlock its potential. That future will be opened up by increased high value production - of the sort PMA manufacturers are focused on.

This conference is focused on the pathway and the paradigm shifts in thinking to realise our potential. And in opening this conference I wish you well in the valuable discussions you have here.


ENDS

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