April 1997 FO: ACPWP 97/2

ADVISORY COMMITTEE ON PAPER AND WOOD PRODUCTS

THIRTY-EIGHTH SESSION

Rome, 23 - 25 April 1997

THE STATE OF THE INDUSTRY

NEW ZEALAND

Background

The New Zealand Economy - A Decade of Change

Since 1984 New Zealand has transformed its economy to a point where, according to the World Economic Forum, it is now ranked as the sixth most competitive economy amongst the world's 24 most developed countries.

New Zealand has an open economy that has averaged almost 3 percent GDP growth annually since 1990, with inflation under control at around 2 percent. A decade-long programme of Government reform has produced an environment favourable for the development of internationally competitive businesses, viz:
  • deregulation of finance, labour, transportation and energy markets;
  • corporatisation and, in some cases, privatisation of state sector assets and services;
  • elimination of state subsidies, removal of import controls and reducing tariff levels;
  • creation of an open foreign investment regime;
  • a firm Government stand against inflation.

An integral part of this reform programme has been the internationalisation of the New Zealand forest industry.

New Zealand Forest Industry - Historical Development

Starting at the turn of the century, the New Zealand Government purposely set out to develop a planted production forest estate to:

  • protect New Zealand's remaining natural forests (which has been cleared for farm land, urban settlement and timber); and
  • create a new economic sector.

During the period 1910-1930s the Government provided the research drive that selected radiata pine as the ideal plantation species, undertook extensive production forests planting activity and implemented forest management and species improvement programmes.

The 1940s through to the early 1980s the Government undertook additional plantings but increasingly encouraged private sector participation through a range of incentive and support mechanisms.

It encouraged the development of the processing sector - saw milling , panels and pulp and paper operations - and undertook local and international market development for radiata sawn timber and logs. The Government also entered into a number of joint-venture forestry developments with Maori interests (New Zealand's indigenous people).

Internationalisation of the New Zealand Forest Industry

During 1987-90 the New Zealand Government reorganised its involvement in forestry by formally separating its natural and production forestry assets, viz.

  • a Government agency - the Department of Conservation - was established to manage New Zealand's remaining natural forests for conservation purposes - some 6.5 million ha, covering 24 percent of New Zealand's total land area;

  • a state-owned company - the New Zealand Forestry Corporation - was established to commercially manage the Government's production forests and, in 1989-90, was used as a vehicle for the Government to privatise its production forest assets.

The New Zealand Government's exit from the forest industry was completed in 1996.

Purchasers of the Government's production forest assets included local interests as well as international forestry interests from the US, Japan, China, Malaysia, Hong Kong and Indonesia.

As part of this reformation process, the New Zealand Government put in place mechanisms to address Maori claims on land area that the Government had developed as production forests (a similar settlement process is being undertaken in other resource areas as well).

New Zealand Forest Industry - Key Features

Today New Zealand's forest industry is an expanding sector, based on a 1.5 million hectare production forest resource (covering 5 percent of land area), converting 17 million m 3 of material into a wide range of softwood fibre and timber products worth in excess of NZ$ 6 billion in annual sales. The industry operates on a 25-30 year rotational cycle with an annual average wood growth rates of around 22 m 3 per hectare. Radiata pine is the main commercial species at around 90 percent of forest area. Private sector interests now control 92 percent of the production forest resource.

The industry has a significant number of vertical and international market integrated companies, largely as a result of the Government's forest asset sale process. Export values have increased by 325 percent since 1986 and doubled since 1990. It is now New Zealand's second largest export sector and in 1996 earned NZ$ 2.4 billion from sales to customers in a number of Asian-Pacific markets.

Employing some 31 000 persons, the industry is a major driver of New Zealand's overall economic growth and accounts for 7 percent of GDP.

Consumption

The New Zealand market for wood fibre and timber products is mature and annual per caput consumption - estimated at 3 m 3 - is amongst the highest in the world. The construction and agriculture industries make extensive use of timber products. Paper and packaging consumption is also high reflecting a well developed, modern consumer society with high literacy rates as well as the use of packaging materials by other industrial sectors in New Zealand which are also highly export-orientated, such as the food and beverage industry.

Domestic consumption, in roundwood equivalents, is static at around 10 million m 3 annually. As indicated by the growth in exports, a combination of the well developed local market and marginal domestic population growth means the increasing harvest being processed by the forest industry is for its global customer base.

Growing and Harvesting

The New Zealand forest industry actively replants harvested areas. In addition, new plantings of production forests is an important industry feature. Planting takes place on farmland and since 1992 new planting rates have been significant - reaching a peak of 98 000 ha in 1994. New Zealand has an estimated 3 million ha of additional farmland potentially available for conversion into production forestry.

Harvest rates have also increased significantly as the wood from forests planted in the 1970s comes on stream.

Processing and Marketing

The processing and marketing sector has undergone significant changes over the past decade as a result of the deregulation and internationalisation process and expanding harvest levels.

Pulp and paper companies have faced increasing local market competition from imports and have consolidated product ranges while maintaining steady export growth. Product customisation has also been a feature.

The panels industry has expanded significantly with a number of "greenfield" MDF facilities coming on stream and being further expanded during this period. To illustrate the level of development, between 1986 and 1996, the value of panel exports increased by nearly 1 000 percent.

New Zealand's sawmilling output has continued to grow while undergoing quite significant structural change, which has seen a reduction in the overall number of sawmilling companies operating and extensive mill consolidation by larger firms. Sawn timber export values increase by 332 percent during this same period.

New Zealand has also developed a significant log export trade which has expanded dramatically during this period. Over the past 5 years log exports have averaged around 28 percent of total forest product export value.

New Zealand has a timber remanufacturing and engineering sector which continues to expand from its small base. Internationally competitive downstream wooden furniture and kitset housing sectors are evident and New Zealand's forestry services sector is actively expanding into Asian-Pacific markets.

Exports of Forestry Products from New Zealand - Growth 1986 to 1996
Quantity
Value

(NZ$ thousand)
Quantity
Value

(NZ$ thousand)
Value

(% Change)
Forestry products
1986
1986
1996
1996
Logs and wood chips 84 156 713 842 848%
Sawn timber (thousand m3) 406 111 402 961 369 891 332%
Wood pulp (tonnes) 504 056 219 791 680 911 389 269 177%
Paper and paper board (tonnes) 249 462 187 489 383 737 402 812 215%
Panel products (m3) 81 61137 038 588 002362 189 978%
Other forestry products (m3) 128 093 241 855 189%
All forestry products
Estimated roundwood equivalent

(thousand m3)

3 881 11 084
Total value 767 969 2 479 858 323%

New Zealand Forest Industry Performance - 1995-96

Over the past two years the New Zealand forest industry has faced very tough international trading conditions - a mix of low commodity prices in key products including pulp, newsprint, logs and timber; weak demand in some key product markets - such as the Australian housing market for sawn timber; and the ongoing appreciation of the New Zealand dollar against the US dollar squeezing margins and company profitability (the New Zealand dollar strengthened by nearly 11 percent during 1995-96).

Despite this, reflecting medium-long term confidence in its ability to compete internationally as a supplier of increasing significance to rapidly expanding Asia-Pacific forest product markets, the following key performance features were apparent:

  • annual harvest expanded to 16.4 million m 3 in 1995 (up 9 percent from 1994) and grew by a further 3 percent to 16.9 million m 3 in 1996;

  • in 1995 new plantings where 71 000 ha, with a 14 percent increase to 81 000 ha in 1996 (last four year average has been 75 000 ha annually);

  • the New Zealand Government completed its exit from the industry through the sale of the State-owned Forestry Corporation to a Fletcher Challenge Ltd led consortium for NZ$ 2 billion covering cutting rights for 190 000 ha of established production forests and two solid wood processing facilities;

  • total export value contracted to NZ$ 2.45 billion in 1996 for the first time since 1983. This was 7 percent down from 1995 exports worth NZ$ 2.66 billion. In terms of roundwood equivalents, export volumes were 10.5 million m 3 in 1995 (or 64 percent of total harvest volume) and 11.1 million m 3 in 1996 (66 percent of harvest);

  • processing investments throughout the industry, in both new and upgrading existing facilities, totalled NZ$ 448 million, including a new 145 000 m 3 MDF facility (overall processing investment commitments from 1995 through to 2005 currently total NZ$ 1.4 billion).

New Zealand's annual wood harvest will at least double over the next 15 years to over 30 million m 3. Depending on planting rates future potential beyond 2010 could increase significantly and by the year 2035 New Zealand's total annual harvest could be in excess of 50 million m 3.

Sustainable Forestry Management

Since the 1992 Earth Summit in Rio, the New Zealand forest industry has become increasingly involved in international environment issues relating to sustainable forestry management (SFM). This involvement has ranged from:

  • participation with the New Zealand Government in various UN processes - such as the International Panel on Forests and FAO's Conference on Forests;

  • leadership in the development by ISO of standards for Environmental Management Systems for use by the forest industry, and

  • involvement with international forest industry networks, such as the International Forestry Roundtable.

As a result of this, the New Zealand forest industry has some well developed views on SFM and the role of certification and product labelling.

Key Policy Positions

The New Zealand forest industry's position on SFM, and forests and forest products certification and labelling is based on the following viewpoints:

  • The world's forestry systems are extremely diverse and dynamic, both in biological terms and the social, environmental and economic development objectives for which they are managed. This extreme diversity makes a unitary approach to SFM and certification and labelling inappropriate and unachievable.

  • This diversity means the New Zealand forest industry does not support any attempts to develop and implement singular or prescriptive solutions that seek to achieve SFM on a global basis - either through an international, legally-binding forestry convention (such as appears to be the recommendation emerging from IPF) or a monopolistic certification and labelling system (as is being attempted by the environmental movement via the Forest Stewardship Council).

  • Its important to note that northern hemisphere countries have dominated SFM and certification developments and the global "solutions" proposed to date are based on managed natural forestry principles, which discriminate against planted production forestry systems and potentially create trade barriers for New Zealand's forest product exports.

Sustainable Forestry Management

The most appropriate level at which to address sustainability issues is at the national level, as the forestry management and forest product processing practices which occur take place within a framework of local laws and regulations, ownership and processing arrangements, and environment, social and economic development objectives which are unique to each and every country.

National and local governments, working in partnership with forest owners, processors, communities and other stakeholders, have the capacity to achieve SFM solutions that meet their particular environment, economic and social needs at the country level.

While the UN and regional intergovernmental initiatives (such as the Helsinki and Montreal processes) have usefully focused attention on SFM issues post the Rio Earth Summit, their future role should be aimed to assisting individual countries develop relevant SFM solutions - including the integrated forestry estate model when appropriate - through information sharing and technology transfer.

The forest industry has a major role to play in developing SFM solutions. The Third International Forestry Roundtable (Concepción, Chile, 14-17 October 1996) has led to the development of a shared vision on SFM involving resource stewardship, best practice, continuous improvement, enhancing soil, water and ecological values and compliance at the national level with local laws and regulations governing social, environmental and economic activity.

Certification and Labelling

Products certification and labelling, per se, is a commercial issue involving buyers and suppliers. From a forest products marketing perspective, sustainability is a product attribute which customers may or may not value and seek in the wood fibre and timber products they buy from industry.

Certification and labelling systems should not create barriers to trade between nations and be compatible with WTO rules. Certification and labelling systems should therefore be performance based (i.e., not prescriptive) or management system based, be voluntary and designed to provide industry a methodology to measure, demonstrate and verify forestry management systems and practices in order to satisfy customer requirements - whatever these requirements may be. All criteria and indicators relating to SFM must be scientifically based.

The monopolistic approach to global certification and labelling system proposed by the Forest Stewardship Council is inappropriate as it attempts to impose a particular definition of sustainable forestry management on global consumers and suppliers and will impact on forest product trade flows, in particular planted production forest sourced goods.

The ISO provides a more appropriate consultative, participatory, multi-stakeholder framework within which relevant certification and labelling tools can be developed for use by industry. The TC207 Forestry Working Group is developing a technical resource document for the forest industry that will enable certification of forestry management systems at the company level - potentially against whatever standard specific customers might set, including FSC definitions.

While third party auditing clearly improves certification credibility, the level of auditing is best determined by customers, and should not be prescribed by industry, regulators or environmental groups.

Achieving SFM - The New Zealand Model

New Zealand has achieved SFM by developing complimentary forestry estates and separating commercial from non-commercial management values and objectives, i.e.:

  • natural forests, protected and largely managed by Government for conservation-related values (accounting for 24 percent of land area, 6.4 million ha);

  • highly productive, sustainably managed production forests owned by private sector interests for commercial purposes (at present covering 5 percent land area at 1.5 million ha).

  • The purposeful development of the production forests has:

  • preserved the natural forests by providing an alternative, more specialised and productive source of wood fibre and timber products;
  • established a new industry - the forest products industry - the development of which provides a wide range of social, economic and environmental benefits to New Zealand.

These benefits include:

  • wealth creation and increasing contribution to GDP and foreign exchange growth;
  • new regional development opportunities, including stability for rural communities;
  • increasing employment and enhanced skill levels;
  • improvements in soil, water and air values.

The additional key components that have enabled New Zealand to achieve its SFM solution are:

  • a legislative framework that ensures compliance with company, taxation, employee safety and training requirements;

  • an effects based environment law - the Resource Management Act - which is based on the concept of using all natural resources on a sustainably managed basis and mitigation of the impacts on the environment of all industrial processes;

  • open dialogue with local communities and environmental groups on the activities of the forest industry, including the use of codes of conduct (i.e., covering harvesting and transportation) and voluntary agreements that preclude the development of production forests on natural forest areas;

  • a robust settlements resolution process by Government with the indigenous population that actively seeks to address historic natural resource claims including natural and production forestry resources;

  • an open market economy that recognises that private sector interests are better placed than Government to carry out commercial activities, such as forest product growing and processing activities.


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