Sector overview

There are substantial social, environmental and economic benefits accruing from New Zealand’s forestry industry, and in addition, our forests are pivotal to New Zealand’s climate change response initiatives. At a global level, forestry in New Zealand accounts for just over 1% of total industrial wood supply and circa 1.3% of the trade related forest products. In the Asia-Pacific region however, New Zealand accounts for about 9% of forest product trade volume and some 20% of forest product trade value.

The forestry industry in New Zealand is founded on sustainably managed exotic plantation forests – which cover approximately 1.8 million hectares (7% of New Zealand’s entire land area). About 90% of this exotic plantation comprises Pinus Radiata, with some 6% in Pseudotsuga Menziesii (Douglas fir) and the balance a mix of Eucalyptus and other softwood and hardwood species.

The sector is anticipating a period of strong growth, as existing forests reach maturity and wood production volumes increase significantly to satisfy escalating global demand. In economic terms, the sector is already an important contributor to the country’s total exports – accounting for just over 10% of total merchandise export value. For the year ending 31 March 2011 forestry generated $4.4 billion in export value and showed a slight lift to $4.5 billion for the 12 months ending 30 June 2011.

In terms of the sector sub-segments, the star performer has been logs and wood chips which has increased 38% year-on-year – with demand from China accounting for more than 50% of total volume. Total harvesting of roundwood is anticipated to increase to around 26 million m³ p.a. after 2015 and from circa 2020 onward up to 35 million m³ p.a. NZ Wood estimates the potential recoverable volume has the ability to lift exports by circa 40% over the following 20 years. MAF and Statistics NZ have separately estimated forestry export earnings to rise by circa 35% to $6.1 billion by 2015. The top 12 markets comprise 94% of total sector export value – with China accounting for 32%. Strong demand is expected to continue from China and other Asian markets due to a combination of the Russian log export tax, economic growth forecasts and the post-disaster re-building programme in Japan.

In terms of the wider regulatory context, there has been no decision on a second commitment period to the Kyoto Protocol and the carbon market in New Zealand and further afield can best be described as inchoate. The price volatility in the sector may be partially explained by the complexities inherent in the Emissions Trading Scheme and the difficulty in placing a value on the forest carbon component.

Agreed valuation standards are currently a ‘work-in-progress’ and given the volatility in prices and the general uncertainty in attributing a carbon value, it is essential for those contemplating an investment in this sector to have a clear understanding of the legislative framework, the somewhat complex issues and exactly where any carbon rights or liabilities may reside.

Crighton Anderson looks forward to supporting clients through this growth phase and beyond. Our detailed forestry sector services brochure can be downloaded by clicking this link.

Data source: Ministry of Agriculture & Forestry