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Clarky's Comment - April, Resilience through Diversity

Resilience through Diversity

We live in this world at a time of fast moving technology and political change. Two years ago who would have predicted the restrictions on dairy exports to Russia and the flow-on impacts to milk solid payouts to NZ dairy farmers? Russia is a major competitor to NZ for log supply into China. The impact of a halving of the value of the Russian rouble against the US$ on New Zealand's log trade to China is still to be fully played out.

None of us has much transparency on what events may shape the future of New Zealand's economic performance 2 to 5 years from now, let alone over the 25 - 30 year life of an investment in forest planting.

Investment decisions we make tend to be made in the context of what we know today, what trends we think we can forecast and what we see other business and political leaders advocating and supporting.

New Zealand has less plantation forest than we had 8 years ago. Deforestation has exceeded new planting. The lack of interest in new planting reflects both rising costs (mainly land) relative to log sales revenues, but also investor sentiment. But is this rational? At least for existing landowners (farmers and Maori) I would suggest it is not. We do not know what a log, a lamb or a kg of milk powder will be worth in the future. What we do know is that the relative values of these primary products will be different from what it is now. We just don't know either the degree or even the direction of that change.

There are however some mega-trends that are undeniable and can help guide our land-based investment decisions:

  1. Increasing urbanisation will ensure that land use policies increasingly reflect urban dweller values and perceptions. The rural vote will decline as a proportion of the total. We see plenty of evidence of this trend, starting with the locking up of native production forests on the West Coast under Helen Clark's direction. This decision was not based on either economic or scientifically tested environmental benefits, but rather on urban voter perceptions.
  2. Increasing focus on fresh water quality worldwide. Given the significance of clean lakes and rivers to New Zealand's tourism and food export branding this is not just an environmental imperative for New Zealand, but also an economic imperative.
  3. Increasing populations, wealth and consumption, especially in our near neighbours in Asia. This translates to increasing demand for both high quality food and wood fibre from sustainably managed forests.
  4. Climate change is now widely acknowledged as the single biggest threat to the sustainability of living standards for future generations. It is highly likely that political leaders worldwide will be forced by stark scientific evidence and public opinion into some sort of fairly drastic measures to both reduce net emissions and mitigate climate change impacts.

Putting all this together, and given New Zealand's natural competitive advantages in growing sustainable forests it makes good sense to get a bit more diversity into our land use and plant more trees. The politicians have not been helpful in recent years in sending policy signals that would encourage new planting; but politicians come and go. The mega-trends, on the other hand, are here for the long term.

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