Jim Sutton Speech: NZ Forest Owners Association forum Wellington

Ladies and Gentlemen, thank you for the invitation to speak with you today. I trust your discussions have gone well so far.

I understand that this forum is intended to be the start of an ongoing dialogue amongst a wide range of senior industry participants. This dialogue hopes to identify key issues facing the sector and possibly measures to address them.

Discussions such as these have an important role to play. They can improve your ability to interact with Government and to inform and advise us on the issues you face. They allow you to set priorities for action.

Perhaps more importantly, they can build relationships between commercial entities and highlight areas of mutual interest.

These kinds of dialogues might even one day help catalyse greater co-operation in more commercial activities, such as market development, logistics, supply chain management or research, to name a few.

Last month, I spoke to the combined AGMs of this association and Forest Industries Council. That meeting was also thinking about the long-term future of the forestry sector and its interaction with Government. I made a number of points there that I wish to reiterate.

The Government is very aware of the size and importance of the forestry sector to New Zealand's economy. Forestry is one of New Zealand's primary industries.

Last year it earned New Zealand $3.7 billion in exports or 13% of our total merchandise export receipts. This was a 40% increase since 1995.

But over the same period harvest volumes increased 47 percent, meaning the average value of our export products fell over the period in nominal terms. In real terms values fell even further.

Exports of unprocessed logs rose 70% between 1995 and 2003. But, interestingly, the volume of wood processed in New Zealand also increased by 30% over the same period.

And wood processing investment looks set to increase further. Right now, publicly announced investment intentions show that in the next five years over half a billion dollars of new investment is anticipated. And, there is speculation of significantly more.

It is clear that forestry is a big and growing sector. It's exporting more logs, but also processing a lot more onshore.

It is also clear that, while harvest volumes have increased significantly, average product prices have actually fallen.

What this means is that forestry businesses must constantly improve efficiency and innovation ? just to stand still. Some might suggest this is a sign of a 'twilight' sector. Not so. Interestingly, this trend occurs in many sectors and industries ? including the dairy industry, widely hailed as one of New Zealand's success stories.

Worldwide, technology development has allowed producers to become more efficient, and consumers are reaping the benefit of this in the form of lower prices. It is happening in products we have traditionally considered undifferentiated commodities as well as highly transformed products like computers and furniture. For example, in New Zealand the dairy and meat sectors have experienced this long-term trend of declining real commodity prices.

Long-term declining prices are not a sign of 'twilight sectors'. Rather they tend to be a sign of sectors where significant advances are being made in efficiency and innovation.

What this demands of you is that you must invest in constant innovation ? not just production efficiency, but also in areas like market development, product innovation, design, supply chain and distribution management, and human capital.

And, it is not just industry that must be innovative. I think policy makers and advisors must also look for innovative ways to achieve government, community and industry objectives. I am not sure governments have always done this well in the past.

But through initiatives like sector engagements, such as the Wood Processing Strategy, and the Growth and Innovation Framework we are bringing a more innovative and responsive approach to policy making.

Forums such as this one can be an important part of this innovation process.

They help share ideas, identify areas of mutual interest, find ways to spread the costs and improve the productivity of industry-good activities, and break down barriers that may be preventing profitable collaboration.

They can also help keep government informed of your needs and priorities.

As you think over the rest of the evening I would like to make a couple of other observations.

First, I believe that many New Zealand forestry firms still see the sawmill down the road as their principal competitor.

I put it to you that your real competitors are substitute products like steel, concrete, plastic and aluminium - as well as criminals and unscrupulous traders around the world who dump millions of tonnes of illegally produced timber onto key wood markets every week.

While competition between producers is healthy, I think there are many areas of mutual interest where collaboration will bring extra benefits. I hope that you take the opportunity to fully explore such areas, and, if they make sense, I hope you commit to processes to exploit them over time.

Secondly, I think your discussions have two possible paths.

One is looking at Government policy as the source of all the sector's concerns. Things like the RMA, changes to the Holidays Act, Climate Change or compliance costs. Some might even be tempted to think interfering with exchange rates is the solution.

If your deliberations go this way, then by default you will be looking to the Government for solutions and not to yourselves. I hope you do not go this way, because I do not think you will find the solutions you are looking for here.

I say this because, frankly, many of the issues I have just listed are overstated in their importance and effect on business. Others, such as the exchange rate are set by things such as investor sentiment toward the US economy, and are not within the control of Government.

I also say this because even if Government gave you everything you could possibly want in terms of labour and environmental laws you would still be competing with other New Zealand sectors for your key input resources. I ask you, if the RMA were repealed overnight, would forestry suddenly be a more attractive career for a school leaver than say law, IT or farming? Would forest growing suddenly become more profitable than dairying?

I hope your deliberations take you down an alternative path. One where the industry looks to its own strengths, weaknesses, opportunities and threats. One that is focussed on the needs of markets and consumers and where New Zealand meets those needs as no other country or alternative product can. One where you take control of your own destiny.

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

I wish you the very best with this initiative and look forward to hearing the outcome of your discussions.

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