Clarky's Comment - Regional Wood Supply

There has been quite a lot of attention to local mill concerns about declines in wood supply in some regions, led by Northland. Political candidates have got involved, some suggesting restrictions on exports, or even maximum prices that forest owners could charge to local mills for logs. Such suggestions are dangerous. While they may boost sawmillers’ confidence in the short term log supply, the damage done to confidence in investing in new planting and replanting would be enormous, manifesting in even greater log scarcity in the longer term.

There is no doubt the age class profile of forests planted and harvested in Northland will see a material reduction in volumes available for both export and local sawmills from about 2026. That scenario has been forecast for many years. It may be exacerbated by some forest owners choosing to harvest trees at age 22 – 26 rather than wait until trees reach age 28+. But the primary cause of the age class gap is that larger corporate and Crown forests in the region were planted and harvested over relatively short periods.

There has been little new planting in most of New Zealand since about 1998. The gap in Northland could have been filled if the operating environment and investment signals from government-led land use and environmental policies since that time had favoured forest planting. They did not and frankly still do not. We have seen lots of investment in farming intensification over the past 2 decades and more recently in manuka for honey production, but almost no new planting and net deforestation.

But we are where we are. No amount of export restrictions or price regulation can fix this problem. Nor will new planting now fix it in the short term, but can in the longer term when those new plantings mature. Local mills are getting most of the better log grades (pruned and structural) that they can make a decent margin on. Restrictions would only have a marginal effect on the supply of those grades to local mills.

An important and relevant issue raised by sawmillers has been that some forest owners are selling to exporters that cut and sell forests at a younger age than is ideal for domestic processing. This is interesting as there is no rule that determines the optimal age for felling of commercial plantations. 

Forests are privately owned assets. Forest owners will tend to fell trees when they feel that the financial returns of doing so exceeds the opportunity gains of growing the trees on longer. One could ask if the trees are worth more to sawmillers when they are older, why is there no financial reward to forest owners relating to internal log characteristics or sawn grade outturn that would motivate them to grow the trees to an older age?

Sawmillers have the knowledge and the tools are available to value, and pay for, logs based on the sawn outturn of high value clear grades or high grade structural lumber. But for some reason sawmillers have preferred to persist with pricing logs on an average mix for any particular log grade. Prices are based on log grades that do little to differentiate for the difference in internal wood properties. That does not motivate forest owners to grow forests on longer to produce logs with higher structural stiffness or higher percentages of No. 1 Clears.

The resolution to concerns about felling trees “too young” lies in pricing differentials that reward forest owners for producing logs that generate lumber cuts of higher value. That can often (but not always) be achieved by growing stands to an older age.

NZ wood processors have rightly pointed out that they struggle to compete for logs with overseas wood processors that are subsidised. There are a range of ways that foreign governments support their wood manufacturing industry that can be murky and difficult to get detail on. But we must try and raise these at every opportunity when negotiating or upgrading Free Trade Agreements, as together these act as effective non-tariff trade barriers to our own wood processors selling into those markets, or competing in NZ for logs. The other way that the NZ government could support the NZ wood processors is to encourage use of wood in domestic commercial and multi-storey residential buildings. That would have environmental, energy use and other co-benefits.

Restrictions on to whom or when or at what price a forest owner sells its logs have no place in solving this problem. An unintended consequence of such restrictions would be less interest in planting and replanting forests. That would ultimately be like scoring an “own goal” for both the sawmillers and the regional economy and employment.