The New Zealand economy experienced real GDP growth of 2.2 percent, principally driven by strong export sector expansion. Agricultural production recovered from the effects of two years of drought and primary and forest product exporters from the impact of the Asian crisis. Manufacturing exports have also been posting solid growth while a recovery in visitor numbers from Asia has added impetus to tourism activity. The tourism sector is also feeling the benefits of enhanced competitiveness in traditional non-Asian markets.
Domestically, private consumption and residential investment have been weak with interest rates relatively high. Inflation, as measured by the consumer price index (CPI), was 4 percent in 2001. The labour market has tightened early in the cycle with the unemployment rate at 5.2 percent. Capacity utilization rates in the manufacturing and building industries have also risen.
The New Zealand forest industry is based on 1.8 million hectares of sustainably managed, highly productive plantation forests and has a total turnover in excess of NZ$5 billion per annum, including NZ$3.7 billion in export sales. It accounts for 4 percent of New Zealand's GDP, is the third largest export sector and employs over 23 000 persons (and indirectly, a further 100 000). New Zealand currently supplies, respectively, 1.1 percent and 8.8 percent of global and regional Asia-Pacific forest products trade from an annual harvest area equivalent to 0.0009 percent of global forest cover.
Total value of forest products exported for the year ended 31 December 2001 was NZ$3.7 billion, representing 11.7 percent of New Zealand's total exports. This was an increase of 3 percent from 2000. Strong growth experienced in the Republic of Korea, the United States and China was offset by static conditions in New Zealand's largest markets of Australia and Japan (note: New Zealand's domestic market for forest products is estimated at NZ$2 billion, including imports).
Main export destinations were:
|
December |
% of total |
December |
% of | |
| Australia Japan Korea, Republic of United States China Taiwan Indonesia Hong Kong Other countries Total |
NZ$ 917
million |
24.8 |
NZ$ 1 081 million NZ$ 743 million NZ$ 468 million NZ$ 385 million NZ$ 164 million NZ$ 127 million NZ$ 114 million NZ$ 83 million NZ$ 425 million NZ$ 3 590 million |
30.1 |
Graph 1: Exports of Forest Products by Value for Year December 2001
Graph 2: Export Destinations of Forest Products by Value for Year December 2001
The Norwegian paper company Norske Skog, which entered the New Zealand forest industry in 2000 through its NZ$5 billion purchase of the New Zealand and international assets of Fletcher Challenge Paper, sold its New Zealand pulp operation to Carter Holt Harvey, while retaining control of the newsprint mill. All three new LVL plants announced during 2000/01 (Carter Holt Harvey, Nelson Pine Industries and Juken Nissho - representing total new investment of NZ$250 million) came on stream during 2001/02.
Annual new plantation development in 2001 was 39 000 hectares plus approximately 30 000 hectares of replanting. Average new plantings over the past ten years are 45 000 hectares per annum.
New Zealand's annual harvest in 2001/02 exceeded 20 million m3 for the first time and is on track to reach between 35-40 million m3 by 2015. Note that all of this increased harvest is for international markets.
The election of a left/centre left Government in New Zealand in November 1999 has seen not only a significant change in economic policy but a dramatic change in environmental policy. The Labour/Alliance Coalition Government is a minority administration and relies on the Green Party, which holds 7 seats, for legislative support. This is the first time the Green Party has won seats in Parliament on their own ticket, and has given the environmental movement in New Zealand a national level political voice and ability, because they hold the balance of power, to significantly influence New Zealand's national and international stance on environmental issues.
Since election, the Labour/Alliance Government has undertaken the following policies and measures of significance to the New Zealand forest industry:
1. Intervention in industrial and regional development - established in April 2001 a Wood Processing Strategy partnership with the New Zealand forest industry to significantly increase levels of investment in wood processing in New Zealand. The strategy aims to achieve $3 billion in new investment by 2010 by improving New Zealand's transport infrastructure, skills and training levels, environmental regulatory framework and opening up new markets through targeted trade access negotiations and certification.
2. Genetic modification technology - in October 2001, following a Royal Commission of Inquiry during 2000/01, a two-year legislative moratorium was imposed on all new GM technology applications for research and field tests. The Royal Commission, which reported in July 2001, recommended against a GM-free New Zealand but proposed significant changes to research, field testing and general release regulations. The purpose of the two-year moratorium (out to October 2004) is to allow time for development of the revised GM regulatory environment.
3. Indigenous commercial forestry - changed the corporate mission of its State-owned forestry company - Timberlands West Coast - and passed legislation to cease all commercial logging from State-managed forests from June 2001. Harvest levels from privately-owned natural forests now account for less than 0.01 percent of New Zealand's total harvest volume.
4. Climate change - in February 2002 the Government reconfirmed its intention to ratify the Kyoto Protocol at the World Summit on Sustainable Development, August 2002. The Government has an active policy development process under way to design domestic mechanisms to reduce New Zealand's greenhouse gas emissions that will, primarily, leverage off New Zealand's extensive Kyoto forest sinks (see further comment in Climate Change section and Fact Sheet). At CoP6/bis in Bonn in July 2001, and COP7 in Marrakech in November 2001, the New Zealand Government played an active role with the European Union in securing support for the Kyoto Protocol from Australia, Canada, Japan and Russia.
At this stage there is no significant domestic demand in New Zealand for certified woods as most wood fibre consumed in New Zealand is sourced from its sustainably managed plantations. The one exception is tropical timber imports and an importers' group has established an ecolabeling scheme covering imported furniture and components, but this is very limited and has certified less than 1 000 m3.
Several NGO groups have expressed interest in the New Zealand Government agencies adopting a procurement programme based on certified products and this is likely to find favour with the current government. With the dramatic reduction in local sources of rimu (a hardwood) due to the Government ending indigenous logging, imports of tropical hardwood timber, components and finished products are increasing. Pressure from NGO groups on the sustainability of the sources of these products, could see domestic "demand" for certified forest products start to develop over the short-medium term.
Many New Zealand exporters use the themes of "environmental friendly", "renewable" and "plantation grown" in their international marketing efforts. This is particularly strong in Asia where New Zealand pine products are promoted and, increasingly, accepted as substitutes for non-sustainable sourced forest products. Certification will see sustainability claims increase as an important New Zealand marketing strategy.
Certification remains an expanding international customer requirement and over the past 12-18 months demand from United States customers and Asian customers supplying finished products to the European Union and United States markets has increased significantly. The Forest Stewardship Council (FSC) certification remains the system of choice for the vast majority of these customers.
Since 2000, five significant forest owners have achieved FSC certification, while around 20 small-medium sized processors have also achieved FSC chain-of-custody certification.
The following table summarizes New Zealand's total forest area, harvest level and production volumes with ISO or FSC certification, with FSC certification already covering around 25 percent of New Zealand's total plantation forest area and 27 percent of total harvest.
ISO |
FSC |
Forestry operations - 317 000 ha |
Forestry operations - 450 000 ha |
Based on these developments, industry consensus to establish a voluntary, national level performance standard emerged during 2000. Under the industry's Verification of Environment Performance (VEP) project, a multi-stakeholder National Initiative Working Group was established in May 2001 to oversee development of performance standards for third party audit and certification of New Zealand's forests, as well as the design and implementation of group certification systems.
New Zealand's National Initiative - which is based on four chambers covering social, environmental, economic and Maori (New Zealand's indigenous people) stakeholders - is seeking to develop standards that are compatible with FSC Principles and Criteria. A Plantation Forest Technical Committee was established in July 2001 and is due to release a draft plantation standard for public evaluation in April 2002.
The development of standards for commercial indigenous forestry operations has been slowed due to environmental NGO's boycotting involvement on the Indigenous Forest Technical Committee. Despite this, participants from the Maori, economic and social groups have started to develop an indigenous forest standard.
The New Zealand Forest Industries Council has worked actively on the development of an international mutual recognition framework between credible SFM certification systems. The industry's main objective is to ensure that national level approaches do not emerge as new non-tariff trade barriers through mandatory action and adoption by governments.
This is not a major industry issue in New Zealand due to the expanding supply of competitively priced wood, paper and packaging products. The only niche where substitution has occurred, but at a relatively low level, is the New Zealand building industry where wood products are being substituted by steel, masonry and plastic composite products. In response, the New Zealand timber industry has developed User Guides and Design manuals to help designers and builders specify and use wooden building systems and products, including new niches such as multi-story timber buildings.
In a recent export market development, Japanese electric cable drum manufacturers have signalled a shift towards substituting wood with plastic because of concerns about using wood. Further research, however, indicates that cost and product performance have also contributed to this substitution (plastic drums last 2-3 times longer than wooden drums).
New Zealand has an interest in the minimization of the international barriers to trade posed by prescriptive building codes and product testing standards which discriminate against wood product trade and use, particularly in structural applications. The New Zealand Government, with support from industry, has targeted prescriptive building codes in five export markets - Japan, Republic of Korea, China, China Taiwan and India - and is seeking, on a bilateral basis, building code revisions to allow wood products to be used on a non-discriminatory basis.
A study by the New Zealand Forest Research Institute, commissioned by the New Zealand Forest Industries Council (February 2002), has calculated that the annual economic impact of Japan's prescriptive building codes, which restricts the optimal use of wooden building materials, to be US$1.02 billion at the consumer level and US$3.81 billion to wood product suppliers.
In February 2002 the New Zealand Government reconfirmed its commitment to ratify the Kyoto Protocol by August 2002. Discussions with the New Zealand industry on policy development of domestic mechanisms that will allow New Zealand to meet its greenhouse gas emissions reduction target (stabilisation at 1990 levels) have been under way since October 2001.
Proposed mechanisms include:
• a low level carbon tax on fossil fuel;
• negotiated agreements with major emitters to reduce fossil fuel dependence;
• emissions trading - including carbon in Kyoto plantations;
• a national energy efficiency strategy, including changes to building standards, machinery energy requirements and car emissions; and
• improvement to public transport networks.
The New Zealand Forest Industries Council is working to encourage the New Zealand Government to adopt some logical preconditions and timetable for ratification, based on:
• certainty that key provisions of the Kyoto Protocol will not unfairly impact on New Zealand's forestry and forest products manufacturing industry and its international markets, as well as the private property rights of owners of Kyoto and non-Kyoto forests;
• prior ratification of the Kyoto Protocol by the United States, Japan and Australia - key trading partners for New Zealand and the forest industry;
• acceptance by key industrializing developing countries, such as China, Indonesia, Thailand, Malaysia, India, Brazil and Chile of greenhouse gas emission reduction obligations for the Second Commitment Period; and
• development of a "Green Package" for the New Zealand forest industry which would highlight the industry's significant Kyoto forest carbon sinks and be designed to enhance the industry's international competitiveness and accelerate investment in wood processing as harvest levels raise.
The following is a fact sheet on the New Zealand forest industry and climate change.
|
FACT SHEET Climate change, the Kyoto Protocol and the New Zealand forest industry |
What does it do? The New Zealand forest industry grows wood fibre and manufactures a wide range of forest products. It also supplies a range of non-wood products and services (e.g. watershed, recreation, greenhouse neutral energy) and associated activities in research, development and technology services.
Where does it operate? Historically New Zealand's forest industry has been located in the Central North Island. Since the late 1960s plantation forests have been developed throughout New Zealand. As a result, harvest levels are increasing most significantly - by factors of 2-4 over the next five years - in Northland, East Coast, Hawkes Bay, Southern North Island, Nelson/Marlborough and Otago/Southland.
Employment statistics: The New Zealand forest industry employs around 23 000 people directly and 100 000 people indirectly.
Earnings: The New Zealand forest industry had outputs valued at $5 billion comprising 4 percent of GDP. Since 1985 export values have increased by 400 percent (with an annual average growth rate of 14 percent), making it New Zealand's third largest export sector with total exports of $3.7 billion (2001 year), representing nearly 12 percent total export receipts.
Based on its international competitiveness, as well as its proximity and business links to the world's fastest growing forest products markets in Asia, the New Zealand forest industry is expanding rapidly. The following development targets by 2025 are achievable: total outputs of >NZ$18 billion comprising 14 percent of GDP; promotion to the country's top export earner with >NZ$14 billion of export receipts; employment of 60 000 people directly and 250 000 indirectly; and a ranking among the top five global suppliers.
Impact on regional development/economy: Since 1990 over NZ$2.6 billion has been invested in on-shore processing facilities. The industry's current annual harvest of 20 million m3 will increase to 35/40 million m3 per annum within the next 15 years, and reach an estimated 50-60 million m3 per annum by 2030. Assuming the industry retains its competitiveness, an estimated NZ$3-4 billion in new processing investment is possible, which could deliver very significant benefits at the national level (i.e. 5 fold increase in export receipts) and regionally in terms of employment, infrastructure and wealth creation. The regions likely to benefit most directly from this new investment in processing are Northland, East Coast, Hawkes Bay, Southern North Island, Nelson/Marlborough and Otago/Southland.
Greenhouse gas sequestration and emissions: At its present size, the industry's plantations remove around 5 million t of carbon each year (net of harvesting). New Zealand's forest product processors are currently responsible for emitting 280 000 t of carbon per annum - though it is also responsible for managing forests that act as forest sinks. This puts the industry in a very strong carbon balance position, i.e. the industry's sinks absorb 18 times its harvesting and processing emissions.
What has it done to reduce emissions? Since 1990, the forest industry has managed to reduce emissions by 3 500 t of carbon per annum despite an increase in annual harvest and a 30 percent increase in production of processed products. The forest industry is on target to reduce this further by an estimated 4 000 t of carbon per annum by 2008. Energy efficiency and greater use of biofuels and recycled wood fibre has been primarily responsible for these reductions.
How can the NZ forest industry assist New Zealand achieve its Kyoto Protocol targets (stabilisation at 1990 levels)? The New Zealand forest industry needs to be fully recognized as an important part of New Zealand's climate change solution because it is based on sustainably managed forests that absorb carbon dioxide from the atmosphere and are therefore carbon sinks. According to the New Zealand Ministry for the Environment:
• New Zealand's assigned amount for the First Commitment Period 2008/12 (CP1) is 365 million t of C02 equivalent;
• New Zealand's emissions during CP1 is projected to be between 415-440 million t C02, which is between 50-75 million t CO2 in excess of its 1990 stabilization target;
• but is projected to gain an additional assigned amount (or "removal units") of 110 million t of carbon dioxide due to tree growth in forests planted since 1990;
• which means that counting these removal units generated by the industry's Kyoto Forests, New Zealand's emissions will be 35-60 million t C02 less than its stabilization target.
Furthermore, its processing sector makes extensive use of wood waste as "carbon neutral" biofuels for energy production thus reducing carbon emissions substituting for fossil fuel use. It increasingly recycles fibre for remanufacturing - thus avoiding methane emissions from landfills and reducing energy intensity in the processing phase.
All forest products store carbon and Forest Research has estimated that during the first commitment period (2008/12), total wood products produced by New Zealand could represent an additional sink of up to 10 million t of carbon. Finally, in the construction materials area, the manufacture of wooden building products results in lower carbon emissions than for most non-wood substitute products. To illustrate, independent research by the University of Canterbury suggests that on an annual basis, a 17 percent increase in wood usage by New Zealand's building industry could result in a 20 percent reduction in carbon emissions from the manufacture of all building products, representing a 1.5 percent reduction of New Zealand's total emissions.
Competitors and impacts of the Kyoto Protocol: The New Zealand forest industry operates within the Asia-Pacific market and mainly competes with forest industries in developing countries - such as Brazil, Chile, Republic of Korea, Indonesia, Malaysia, Thailand and China - which are not parties to the Kyoto Protocol and are therefore not incurring any costs associated with reducing greenhouse gas emissions.
Impact of the Kyoto Protocol on the industry: The New Zealand forest industry is concerned that the Kyoto Protocol currently does not fully recognize the role the industry performs in reducing greenhouse gas emissions. The impact of key Protocol articles, combined with the fact that developing countries have yet to accept any emission reduction obligations or accession and ratification timetable, could fundamentally change the international economics of forestry for forest products manufacturing. These factors will almost certainly impact on the ongoing growth and development of forestry and forest products manufacturing in New Zealand.
There are unresolved questions concerning the potential impacts of Kyoto Protocol mechanisms, including the role of forests and forest products as carbon sinks for emissions trading and the treatment of carbon in internationally traded forest products, on future:
• wood fibre values, prices and flows from New Zealand's pre- and post-1990 plantation forests;
• energy availability and energy costs to process New Zealand's expanding forest harvest;
• price of forest products to New Zealand and international customers; and
• further investment in on-shore processing and reforestation and afforestation in New Zealand