NZTIF President: Does this government have the solutions to stabilise the sector?

New Zealand Timber Industry Federation president Bruce Larsen outlines his views on how the change of Government will impact the forestry and timber manufacturing sector.

The new Government is bedding in its position and has started with some significant cost reductions — gone are the new ferries for Cook Strait, light rail for Auckland and Industry Transformation Plan.

The Labour Government’s RMA 2.0 laws and Fair Pay Agreements have been or will be repealed; legislation is imminent to re-establish 90-day employment trials and disestablish the Maori Health Authority.

So what does this reset mean for the forestry and timber manufacturing sector?

As a major export earner, employer, and deliverer of solutions for meeting New Zealand’s carbon emissions reduction targets, it is vitally important that our wood products and forestry sectors remain supported by government to enable future growth — especially in timber manufacturing.

Market volatility (domestic and export), inflation, high interest rates and staff shortages have been plaguing the industry over the past few years. Does this government have solutions?

Respondents to a study of 200 senior business leaders carried out by Curia Market Research for Datacom (and published in the NZ Herald) seem to think so:

“Off the back of both the change in government and after a challenging few years with Covid, businesses are getting back into a growth mindset.”

Respondents rated the top business priorities as growth (35%), staff retention and recruitment (24%), and workplace productivity (19%).

I’m not sure how many timber manufacturers are looking at “growth” as a major priority, but certainly staff management and productivity are common themes I hear frequently.

Often, the answer to the second and third issues is to implement mechanisation and technology projects to reduce the reliance on people, drive down production costs and increase productivity.

All very fine, but it becomes problematic in a “down” domestic market with limited export opportunities.

There was also some good news recently in the form of a further slowdown for the CPI, which eased from 5.6% in Q3/23 to 4.7% in Q4/23 — still above the Reserve Bank’s target range of 1 to 3% but moving in the right direction.

However, house building activity is currently very slow, and has been for over a year.

New Zealand structural timber manufacturers have had a very difficult 12 to 18 months with an oversupply of timber, resulting in a sluggish market and significant price reductions.

While many mills have been looking offshore, export markets are also under pressure, and the cost of shipping bulk materials such as timber, especially to Australia (our closest and natural market), remains high.

So, what is the outlook for housing and, therefore, timber? Although I don’t anticipate a flood of investor activity

in 2024, things might look a little more tempting for rental house investors, with rising rents, easing deposit rates, and mortgage interest deductibility likely to go back to 80% during 2024.

Timber manufacturers I have spoken with expect 2024 will be an improvement on last year, but it is likely to be at least next spring before the industry sees any real benefits.

Pan Sector Accord

Subsequently, in response to the poor market conditions right throughout the forest industry supply chain — from silviculture to harvesting to cartage and shipping and on to timber manufacturing — the industry recently signed a Pan Sector Accord, establishing a new body called the NZ Forest & Wood Sector Forum (NZFWSF, see page 22).

The Forum’s collective advocacy will be for policies that are socially responsible, environmentally and ecologically sustainable, internationally competitive, and profitable.

Foundation signatories include:

•          New Zealand Institute of Forestry (NZIF),

•          New Zealand Forest Owners Association (NZFOA),

•          Forest Industry Contractors Association (FICA),

•          New Zealand Farm Forestry Association (NZFFA),

•          Wood Processing and Manufacturers Association (WPMA),

•         Nga Pou a Tane (NPOT),

•         Log Transport Safety Council (LTSC),

•         New Zealand Timber Industry Federation (NZTIF),

•         Forestry Industry Safety Council (FISC) and

Bioenergy Association

On a darker note we are increasingly hearing of the financial stress city and district councils are under, leading to a significant and rapid reduction in project commitment, many of which use timber. Councils are critically short of money.

This disturbing trend comes on top of some major projects being cancelled or paused.

While there may be a case for optimism in the medium term because of the sheer amount of work that needs to be done, the immediate situation is very difficult for many businesses in the construction industry.

The forest growing sector is also facing extremely difficult times, dealing with market issues and proposed new rules.

While no one likes to see the devastation caused on the East Coast, we should remember that while these events are likely to occur more frequently, similar issues have arisen in the past.

Destroyed infrastructure

Much of the forest land was established after Cyclone Bola (1988) in an attempt to reduce land erosion and, undoubtedly, forest land holds together better than farmland.

However, the sea of logs, forest residue and other plant material along with soil and silt that swamped large areas of farmland and destroyed infrastructure has significantly damaged the forest industry’s public credibility.

In response, councils are now bringing in new rules around Highly Erodible Land (HEL).

While there is no doubt the causes of the damage need to be identified and rules changed to improve safety and resilience, some knee-jerk reactions will significantly impact the forest industry and the whole sector.

One example I am aware of is in Northland, where the regional council is proposing to significantly limit the area that can be harvested from HEL on any property.

A theoretical case study on one significant forest with about a third of its productive area classed as HEL will now take around 36 years to harvest the existing crop — i.e., if they started logging at age 25 the crop would be aged 61 before it was completed.

Normally a forest is harvested between the ages of 26 and 32 to ensure economic viability.

This proposed rule would therefore also potentially impact associated businesses. Less harvesting and cartage work, fewer logs for domestic processing, and less work for businesses associated with Northport.

And this requirement is projected to start in 2027, when Northland is already forecast to have a major reduction in log availability due to the forest age class structure!

Yes, rules need to be reviewed, but it is at the catchment and sub-catchment level that management needs to be applied, with foresters and councillors looking at the risk as well as the likelihood and consequences of various events.

In many forests there are also significant areas of native forest and riparian areas along streams which also mitigate consequences.

So there is potential for well-intentioned but blunt changes to plans and regulations significantly impacting businesses and employment well downstream from the intended target — the law of unintended consequences.