G.P. Horgan and F.M. Maplesden
Gerard P. Horgan and Frances M. Maplesden are, respectively, senior economist in the Wood Processing Division and senior researcher in the Wood Products Division, New Zealand Forest Research Institute, Rotorua, New Zealand.
The integration of New Zealand forest products in the global market: a review of the role of marketing in the development of exports for plantation-grown Pinus radiata.
New Zealand currently has 1.4 million ha of land classified as commercial forest, all of which is plantation forest, representing 5 percent of the country's land area. Additionally, the land area devoted to commercial/plantation forest is increasing: during the past five years it has increased at an average annual rate of 55 000 ha. Much of the recent expansion has been at the expense of more traditional agricultural pursuits such as sheep farming and has been undertaken mainly by small-scale forest owners, farmers and investors. Two other notable features of New Zealand's commercial forestry are:
As well as meeting virtually all domestic requirements for forest products, the commercial forests have, during the past two decades, become a major earner of foreign exchange for New Zealand. In contrast to the mid-nineteenth century, the last time forest exports were as significant, today's forestry exports are based on an expanding estate of fast-growing sustainably managed exotics rather than the exploitation of natural forests.
An important feature of the changes that have taken place has been the recognition of the importance of effective marketing, which has led to greater attention being devoted to it. This increased focus on marketing has contributed significantly to the strong situation of the forestry sector.
Engineered roof structure - gluelam beams and sarking are made from radiata pine
EVOLUTION OF THE DOMESTIC MARKET
For New Zealand, the latter half of the nineteenth century was a time of rapid clearance and conversion of forest to farmland. Over time widespread concerns arose about the ability of the remaining natural forests to sustain the timber demands of the nation. A "timber famine" appeared possible and this provoked the formation, in 1913, of a Royal Commission on Forestry. Based on, among other things, a simple discounted cash flow analysis, the Commission recommended the planting of fast-growing exotic species.
The outbreak of the First World War in 1914 impeded action on the Commission's recommendations until the end of the decade. By then, tree planting, mainly by individuals, had created a plantation estate of 77 000 ha. At the same time, calculations indicated that between 240 000 and 320 000 ha would be needed to meet local timber needs. Therefore, the late 1920s and early 1930s saw a major planting programme aimed at ensuring continued domestic wood self-sufficiency. Radiata pine was the main species planted and, by 1936, a plantation forest estate of some 317 000 ha had been established.
Acceptance of radiata pine by the domestic market, however, did not occur spontaneously. Prior to the Second World War, radiata pine was used solely for box making and concrete forming; it was sold completely ungraded and was regarded almost universally as an inferior species because there was no shortage of high-quality indigenous timber.
The government took upon itself responsibility for developing (local) markets for plantation-grown forest products. Research into uses of the wood was commissioned within New Zealand and around the world. Research, however, was only part of the story in increasing the acceptability of radiata pine; market manipulation, such as restrictions on imports and the imposition of quotas and licences, "encouraged" the local market to utilize domestically produced materials.
The New Zealand Forest Service reports for the period detail the various steps, the small victories (and occasional failures) along the way to today's pre-eminence of radiata pine in the domestic market. An experimental sawmill was built in 1945, grading and drying were introduced in 1946 and, in 1947, the Forest Service was able to report that graded radiata pine had been recommended for inclusion among permissible framing (structural) timbers. This recommendation was accepted and, as a result, reports from the latter part of the decade detail a gradually expanding role for the species in home building and furniture production, market segments which were previously very much the sole preserve of native timbers, particularly rimu (Dacrydium cupressinum).
EXPORTS AND PLANTATIONS
A small export trade in sawn timber to Australia was developed early on by the government's experimental sawmill. However, the emphasis of the 1940s, 1950s and, to a lesser extent, the 1960s was to service the domestic market, to achieve domestic acceptance for graded sawn plantation material and to educate users and consumers. Pulp and paper (newsprint) exports to Australia commenced shortly after a local industry began production in the mid-1950s, while the log trade with Japan began as a trial by Japanese trading houses looking for raw material to meet a rapidly growing supply deficit from Japan's own forests. The log trade continued to be almost exclusively to Japan which absorbed 90 to 95 percent of all New Zealand log exports. Exports, however, were a minor concern to a domestically focused industry, and export marketing and market development were both limited and in many cases opportunistic. Exports were a way of utilizing material seen as surplus to domestic needs rather than as part of a deliberate and proactive long-term strategy.
FIGURE 1. Plantation forest products are becoming an increasingly important component of New Zealand's export mix
In the late 1960s, the emphasis for the plantation forest industry, particularly growers, began to change from simply meeting the needs of the domestic market to supplying the material base for a major export industry (see Figure 1). A number of reasons can be advanced for this. Increased concern about the stability of existing trading arrangements (the country's major exports were agricultural and the main market, the United Kingdom, had applied to join the European Economic Community) led to a desire to diversify both the product mix and the number of countries involved in the trade. This desire coincided with increasing plantation forestry exports to Australia and Japan, as modelling work showed that with existing export prices forestry could be very profitable, and a dawning appreciation of the scale and potential of the world timber market. A second planting boom based almost exclusively on radiata pine began and continues to this day (see Figure 2).
FIGURE 2a FIGURE 2b. Growth in plantation forest area since 1921
Wood from this second planting effort is intended to supply international markets, not local consumers. At best, domestic wood consumption is anticipated to grow only slowly and requirements for 2030 are anticipated to be less than 8 million m³ per annum. This is about a half of the current annual production from the plantation estate or about a quarter of the projected availability in 20 years time.
Markets for material from the second planting wave were not identified in detail before expansion commenced. Nor were questions of marketing addressed systematically until the mid-1980s. In many quarters it was simply assumed that, provided New Zealand was able to meet the international price for the undifferentiated product "wood", markets would exist for anything that the country could produce. When studies did discuss marketing, the ability to produce large dimensioned high-quality material quickly was usually seen as the basis for securing New Zealand's place in world markets. The reasoning was that the world's old growth forests would simply be unable to continue to meet demands for clear and high-grade timber, and that New Zealand's fast-growing plantations could produce a price competitive substitute. Figure 3 indicates the profound effect this reasoning has had on growers - today some two-thirds of the younger-aged estate is managed on pruning regimes.
FIGURE 3. New Zealand silvicultural practice, 1993
MARKETING-RELATED EXPORT ISSUES
With the government carrying out a major structural reform of the New Zealand economy in the mid-1980s, many areas of the economy were deregulated and the domestic market, previously highly protected, was opened to more international competition. One objective of the reforms was to engender a more commercial attitude within New Zealand businesses. A second was the achievement of better economic growth by placing greater reliance on the market and market signals rather than government planning to determine which products would be produced, by whom, where and when. The state forestry agency (the New Zealand Forest Service), owner of nearly one-half of the country's plantation estate, was split into separate commercial and non-commercial entities and eventually a large part of the state's plantation holdings (the trees but not the land) were sold to the private sector (Brown and Valentine, 1994).
The sale of government forests introduced a number of foreign-owned interests into the production end of the industry. There has also been foreign investment, particularly by North American and Asian groups, in New Zealand processing industries. These changes have had a profound effect on the marketing of New Zealand forest products. Former convenient arrangements whereby companies sold their exports as part of a consortium are a thing of the past, as is the situation where exports were a sideline to the main business of supplying the domestic market. All the large forest companies, and many smaller ones, now invest significant effort in marketing and many companies also have permanent representatives based in their major overseas markets.
THE GOVERNMENT'S ROLE IN MARKETING
In the past, as the largest owner of the commercial estate, the government had responsibility for producing and selling forest products as well as promoting the national interest. Today, the government's role in marketing forest products has changed to that of a facilitator. Initial development of some markets, e.g. the Australian market for sawn timber, was very much a government preserve. In that case, government commitment to quality control - framing (construction) material was exported dry, machined to finished size and graded - led to New Zealand products being regarded as better than competing materials and, thus, to their acceptance. Once a market was opened up there was potential for conflict between the government's role as a seller competing with other New Zealand companies and its responsibilities for promoting all New Zealand's interests.
Government efforts are now being focused on removing barriers to trade and on supplying useful market information to potential exporters. The government agency with prime responsibility for ensuring the best contribution from forestry to the New Zealand economy is the Ministry of Forestry, but market access issues involve a number of organizations and ministries, including customs, commerce and foreign affairs and trade. The role of the ministries is complemented, particularly when it comes to exporters who lack their own network of overseas agents, by the government-owned New Zealand Trade Development Board (TRADENZ). TRADENZ has the responsibility of helping New Zealand businesses to increase their foreign exchange earnings and has trade commissioners and offices in some 40 cities throughout the world. Although mainly government-funded, some revenue is earned by contracting to supply specific services to exporters. These services range from market research to special product promotions, as well as advising on such local requirements as customs, labelling and health regulations.
Government-funded research also assists the marketing of New Zealand forestry products. Priorities are decided on advice from the Ministry of Research Science and Technology and a competitive tendering process is used to select research programmes. In this process organizations and individuals compete for public funding by submitting research proposals which are evaluated in terms of relevance to the government's identified research priorities and scientific soundness. The Public Good Science Fund (PGSF) is divided into a number of output classes, two of which, Plantation Forestry and Wood and Paper Processing, relate directly to commercial forestry and account for approximately 6 percent of the total money available to PGSF.
PGSF-funded research helps widen the range of products which could be made from the existing resource; offers ways of improving both the quality of competitiveness of the existing product mix; and funds the development of the databases needed for uses as diverse as preparing codes and standards and answering basic questions about markets and international trade flows. Most of the various databases are now stored electronically and may be accessed directly by licensed individuals and organizations via a modem.
Examples of research being used to improve product range and quality would include, in the solid wood sector, a wood-hardening process and development of a finger-jointing process - Greenweld® - for unseasoned wood. The first of these offers improved performance qualities for low-density timbers in applications such as flooring and furniture. The second offers distinct economic advantages over conventional finger-jointing methods, as it reduces processing costs and increases kiln-drying efficiencies. In the fibre products area, research demonstrating a correlation between fibre quality and wood density has been used by the kraft pulp industry as the basis for separating incoming raw material. By mixing and matching the separated material, it is able to produce pulps better suited to the requirements of a particular application or customer.
An important feature of this research is that it is no longer aimed solely at solving technical issues for production reasons - or for the sake of technical improvement. Behind the work is a much stronger focus on solving technical problems that are based on market requirements. Many of the research projects have a strong focus on issues that can overcome problems or shortcomings in the market place, or on improvements that will provide market advantages, especially in relation to competitive products and materials.
Pinus radiata has for many years been seen by overseas markets as having significant shortcomings in higher-value end-uses compared with other species. Some of these inadequacies have been real product limitations, but others have reflected a lack of knowledge or incorrect perceptions in the market. As an example, for many years radiata pine was seen by the Japanese market as only being suitable for packaging uses. Substantial and continuing technical research over many years was needed in an effort to prove its technical capabilities. But this technical effort alone was not sufficient. Continuing marketing efforts were also needed in order to gain acceptance in more valuable end-uses. Thus, technical and marketing efforts in both research and development have been complementary parts of the process.
Much of the government's marketing effort can be described as generic (i.e. promoting radiata pine in general, and not just a single product or supplier); however, it is not the only body involved in this form of the marketing effort. The industry itself supports a number of associations for whom generic marketing is becoming increasingly important. Radiata pine must compete internationally against many established species and, while its attributes make it suitable for a variety of applications, there is no export market where the full potential of the species is completely appreciated.
Sector organizations involved in generic marketing include the New Zealand Forest Owners Association (FOA), the New Zealand Timber Industry Federation (TIF), the Radiata Pine Remanufacturers Association (RPRA) and the New Zealand Forest Industries Council. These organizations actively publicize radiata pine, organize conferences where those in the industry can share experiences and provide a link to other sectors of the economy such as transport.
Typical of the efforts by these organizations is that of FOA. Its mission is to promote commercial plantation forestry in New Zealand with a view to creating a favourable economic, political and social climate for the operation of members' businesses in the country's commercial forestry sector. Members of FOA own or manage over 90 percent of the commercial plantation estate and promotional activities by FOA are funded by a direct levy on log exports, a major component of the current export mix (see Figure 4).
FIGURE 4. Log exports by volume and destination
FOA has identified Northeast Asia and the United States of America as key target markets. Marketing activities cover the full gamut from commissioning and publishing promotional brochures and technical manuals which can be used by members as part of their individual marketing effort, to involvement as an exhibitor in trade fairs and organizing promotional seminars and educational workshops in key markets. The marketing effort of FOA is overseen by a Promotions Committee whose members are already involved in forestry marketing and market development for their employer organizations. They are, therefore, well aware of the challenges to be faced in the marketplace and of any limitations in the material available.
Technical material is produced in English but both technical and promotional material are translated into the languages of the markets targeted - for example, Korean, Japanese and Mandarin. Jointly with RPRA and TIF, FOA has exhibited at trade fairs in the United States. Although each of these organizations represents a different group, there is a considerable overlap of interests and membership which encourages joint efforts. In fact, overlapping membership is a feature of all New Zealand sector organizations and differences between organizations are more often a function of the scale of operation of most members rather than a perception of the need for a different form of generic marketing.
CORPORATE MARKETING EFFORTS
For individual companies, the marketing effort is customer-focused. This is in marked contrast to the situation in earlier years when most companies and most importing countries considered forest products as commodities and therefore focused exclusively on price and delivery considerations rather than the broader aspects of marketing.
The situation has since changed substantially and nowadays a much great effort is put into the provision of client-specific services. In most cases the larger exporters have representatives stationed permanently in their main export markets. They have marketing divisions within the company and staff visit clients regularly to discuss the products and how service can be improved. It is worth noting that the delivery issue is still important; in some markets the companies have also invested directly in importing firms and wholesale outlets and are able to supply customers directly from stock rather than having to send orders to New Zealand for processing. Some smaller firms have also joined together to create similar systems. An example of such a cooperative effort is that of Furnex, a grouping of New Zealand furniture manufactures who export to Australia. The products of the individual members of this group complement rather than directly compete with one another and, by operating a warehousing and marketing system in three Australian cities, the group is able to offer the Australian retailer a faster order fulfilment system and the security of dealing locally rather than overseas.
Companies have also embraced new technology and quality control systems where this has allowed them to improve service to their customers. A number of exporters have achieved the ISO 9000 registration and all have a strong commitment to product improvement.
The log trade provides an example of both the use of technology to allow better service and of commitment to improving the quality of the product. Originally the preserve of unwanted, damaged and low-grade material, the trade was at first organized by Japanese trading houses. Today all major log exporters deal directly with their own customers and most logs are bar coded. Bar coding allows immediate access to the history of individual logs, such as where and when they were cut and transported to the port, and allows rapid identification of the source of quality problems which may arise. In the past, most logs were sapstained by the time they arrived in the export market. The better stock control permitted by modern technology can reduce this particular problem. However, for pruned logs now exported for use by the Japanese ply industry, sapstain is totally unacceptable and logs for this use are exported debarked and anti-stain treated.
Branding is used but, surprisingly, there is little agreement within the New Zealand industry, or demand by customers in the main New Zealand markets, for a brand which identifies New Zealand forest products as being the output of a sustainably managed plantation forest estate. Although debate about the need for ecobranding has begun to appear in New Zealand forestry magazines, the most powerful images seem to be conjured up by such terms as "New Zealand Pine" which captures both the positive image of New Zealand in many markets and the myriad uses associated with pine.
During the past ten years, New Zealand commercial forestry has become integrated into the global market. Exports and exporting have become vital to the sector. With the growing importance of export markets has come recognition of the important role marketing has to play, and with this recognition has come a more professional attitude to the marketing of products and a change in the role of various organizations. The government's role is now a supportive rather than a leading one, sector organizations provide much of the generic market material while individual companies with a focus on servicing the needs of their customers actually sell the products.
Anon. 1913. Report of the Royal Commission on Forestry. Wellington, Houses of the New Zealand General Assembly.
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Ministry of Forestry. 1994. A national exotic forest description as at 1 April 1993. Wellington, Ministry of Forestry, Government of New Zealand.
NZPI. 1994a. Branding economics. New Zealand Pine International, February/March 1994, p. 16-22.
NZPI. 1994b. Jenkin Timber acting global. New Zealand Pine International, July/August 1994, p. 34-37.
Roche, M. 1990. History of New Zealand Forestry. Wellington, New Zealand Forestry Corporation/GP Books.