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Clarky's Comment - Expanding Domestic Wood Processing in New Zealand

On 26th April MPI sponsored a facilitated workshop to get ideas from industry leaders on how to achieve more domestic wood processing. While many well-canvassed issues were reaffirmed, the very fact that so many forest growers and processor leaders were willing to participate alongside each other and officials was a sign that the opportunities are real. There is universal recognition that more domestic wood processing leads to more jobs and GDP contribution in the regions. This is a goal worthy of effort. 

It is also Clarky’s view that a strong domestic wood processing industry is critical to confidence in planting and replanting forests. Over-reliance on log exports is a risky strategy. 

Log supply security, standards and guides, ETS distortions that favour concrete and steel, access to skilled workers and non-tariff trade barriers that support processors off-shore all came up again. 

Other than for a few smaller entrepreneurial processors, being internationally competitive in wood processing means investing in modern equipment at scale. But reliance on exports for all that production is also a big negative. Foreign exchange rate movements and, unless you have established markets, the market penetration risks are huge. That is why expanding the domestic market matters.

Confidence in wood supply within about 120 km of any such new or expanded plant is key to the investment taking place. Most high stiffness structural and pruned logs are utilised domestically. Exports are dominated by industrial grade logs. These are better suited to engineered wood products (LVL, CLT, glulam) and panels (plywood, particle board, OSB and MDF). Expanded processing and development of domestic markets needs to support these engineered wood products. Domestic processing also supports the existing pulp and paper industries.

 

There are a few tools the government could use to tilt the construction industry in favour of wood.

  1. Fix the ETS distortions that favour cement and steel over wood. At $20/NZU, on their own the EITE 90% subsidies for cement will not make much difference but the signal would be clear and should carbon price rise as some are forecasting the price impacts will be more meaningful.
  2. Require all central and local government buildings to have a wood option designed and costed before a building consent is issued. Architects and engineers would soon exhibit some interest in learning about use of wood in single story warehouse, industrial, commercial and multi-storey residential buildings. That knowledge is the first step in moving away from the current BAU approach.
  3. Trade barriers against processed wood products are real but it is also noted that they can be difficult and can take years to fix. That is not to say MFAT trade officials should not try.
  4. The “billion trees” programme can help. A boost in planting now will do little to fill supply gaps emerging in some regions in the early 2030s; sooner in Northland. To support investment in wood processing most of the new forests planted now will need to be fast growing exotics, of good genetics, on land that can be harvested without causing landslides and sedimentation. Planting must be in those regions that have enough suitable land to support planting at scale. 

Since the MPI Workshop in April the Productivity Commission has published its draft report on how to transition New Zealand to a low emissions economy. The report affirms the role of forestry as critical in making the changes needed, and suggests new planting targets much more ambitious than the billion tree project.