NZFIC says cohesion vital for forest sector dev.

27 February, 2004

Media Release for Immediate Use

NZFIC says cohesion vital for forest sector development

Greater co-operation and cohesion are the keys to the forest and wood processing sector’s future development, according to the Chief Executive of the Forest Industries Council, Stephen Jacobi.

“If the industry’s vision of being the number one exporter in New Zealand is to be achieved, it is essential that the industry comes together around a cohesive and deliberate development strategy,” Mr Jacobi told the ‘Go Global’ Conference in Auckland today.

“The existing core industry associations – Forest Industries Council, Forest Owners Association, Farm Forestry Association and Pine Manufacturers Association – all work well and closely together. They have brought leadership to the industry and created the environment in which our goals can be achieved. At the end of the day it will be up to the wider industry to join us to complete the work that needs to be done or continue doing the same old thing, dogged by the same old politics and quite likely the same old level of achievement,” Mr Jacobi said.

Mr Jacobi said the current discussions about a commodity levy for the industry were prompting renewed discussion about a more unified industry structure.

““No levy will proceed unless it is the wish of the industry but the debate is healthy. It is part of what we wanted to achieve by suggesting this industry needs a secure and equitable funding base for industry good activities able to leverage government funding and realise the industry’s future vision” he said.

In his address Mr Jacobi outlined current initiatives undertaken by the existing industry associations to put in place the building blocks for the industry’s future.

“We have been to the forefront of negotiations on forestry access issues at the World Trade Organisation; we’ve progressed an agreement with the Government to return some of the value of carbon sink credits under the Kyoto Protocol to the industry; we are studying whether a commodity levy through the industry has merit; we’ve undertaken market development work throughout the world; and we are leading an initiative to position New Zealand radiata pine under the theme of ‘leading sustainability’.

“Those are significant initiatives. The rest of the industry can either join us in continuing to build the strategy and take the commercial advantage, or remain stuck in what some commentators refer to as the ‘glory days’ of the past. This industry is changing and leadership with commercial foresight is driving the change,” Mr Jacobi said.

ENDS

A copy of Mr Jacobi’s full speech is attached

About Forestry

NZFIC represents and promotes the interests of all sectors involved in the New Zealand forest industry. Membership comprises forestry companies and industry associations who collectively own and manage a sustainable, planted production forest resource of 1.8 million hectares.
New Zealand forestry directly employs 25,000 people, accounts for 4 percent of GDP, has annual sales of more than $5 billion and is the country’s third largest export earner at $3.5 billion annually. Through its Wood Processing Strategy and Vision 2025, the industry aims to become New Zealand’s largest export sector, directly employ 60,000 people, contribute 14 percent of GDP and record an annual turnover of $20 billion.

ADDRESS TO ‘GO GLOBAL’ EXPORT CONFERENCE
AUCKLAND, 27 FEBRUARY 2004

STEPHEN JACOBI
CHIEF EXECUTIVE
NEW ZEALAND FOREST INDUSTRIES COUNCIL

“IT’S THE MARKET! POSITIONING AND PROMOTING A KEY STRATEGIC EXPORT SECTOR – THE EXAMPLE OF FORESTRY”

TITLE OPENING SLIDE 1

SLIDE 2 – the Forestry Example

It’s good to be with you today.

I’d like to congratulate the EMA for taking the initiative in organising this conference at such a critical time for New Zealand exporters.

If the forest and wood processing industries are successful in realising their vision for the future, then in ten years’ time, my successor, or more likely my successor’s successor, will be able to stand in front of your successors and say that forestry has become the country’s top export earner.

Achieving number one export status is not just a pipe dream but it will not happen by some wave of a magic wand.

It can happen only as an outcome of a deliberate and consistent strategy that the industry commits to.

We have the base of this strategy already.

SLIDE 3 –way forward/lateral approach

But to move forward is going to require some lateral thinking; it is going to require a new level of cohesion within the industry; it is going to require some political resolve; and it is going to require increased levels of industry investment.

We are fortunate to have learnt from the trailblazing undertaken by other sectors.

So this morning I’d like to share with you something of where this industry has come from, what today’s challenges are and what we intend doing to achieve our vision for the future.

SLIDE 4 – Graphic
Produced, processed, exported more than ever before …

The last six months have been a difficult time for the industry.

And yet before the downturn of late 2003 we had produced more, processed more and exported more than ever before!

Small wonder then that international investor interest in New Zealand’s forest estate is at an all time high.

We have come a long way since the earliest plantings of radiata pine in the 1930s.

SLIDE 5
Where we are, where we’ve been

Forests were originally planted as ‘make work’ schemes and processing industries were developed behind the protective walls of fortress New Zealand.

There was little regard for economics, future competitiveness or the optimal location of the resource.

The result is that today much of the expanding forest resource is located away from the processing facilities and with poor transport and infrastructure.

Until the privatisation of the late 80s, our industry grew up under a high level of government intervention and subsidy.

From that period until quite recently the industry was dominated by a few large and mostly New Zealand owned corporates.

SLIDE 6 – How things have changed

How things have changed !

Today we compete in an open, international market and - thank goodness - without the distortions and stultifying effect of government subsidies or protection.

The predominance of the industry giants has been replaced with a highly diversified forest ownership structure from corporate forestry, to investor groups to farm foresters, all with quite different profit drivers and motivations.

That mosaic is matched on the processing side with the involvement of large integrated forest owners and processors, mostly with international ownership, and a range of dynamic medium and small sized processors and manufacturers.

Today’s industry is fundamentally different from what it once was.

And the result of changing times and changing ownership is that today the industry has an output of around $5 billion, including $3.5 billion exports.

We are the third largest export sector, providing around 12 percent of total exports, contributing 4 percent of New Zealand’s GDP, directly employing 23,000 New Zealanders and a further 100,000 indirectly.

What has not changed is the commitment of every player in this diverse industry to maximising the value of our forests.

SLIDE 7 – Wave of opportunity

For some years now the key strategic assumption has been a projected doubling of the annual harvest.

By 2007 the available wood supply has been forecast to double to 30.7 million cubic metres per year, up from the 15-16 million cubic metres harvested each year between 1994 and 1998.

In 2003 we harvested an all time record of around 23 million cubic metres.

So today we are more than half way up that “wall of wood”.

Now it’s true that the “wall of wood” is a bit of a misnomer because it is not a pattern that is evenly spread around the country.

And recent decisions by major forest owners to delay harvesting until markets improve may well delay achieving the target of 30 million cubic metres by 2007.

SLIDE 8– Graphic – supply driven potential

But however you look at it there is no doubt that there will be something like an additional 7-10 million cubic metres available in the next 5-10 years either for further processing in New Zealand or for export as logs.

That’s a hefty chunk of the current 17 million cubic metres currently exported.

That’s the “wave of opportunity” that confronts us.

That’s the key marketing challenge for this industry and one that’s no less relevant even after the events of the last six months.

Slide 9 – Riding out the cycle

As of today the “triple whammy” of an appreciating exchange rate, rising freight costs and volatile energy pricing has led to a cut in output and employment.

When faced with the magnitude of these increased costs, the industry has little option but to retrench and restructure.

The industry has no other choice but to deal with the current market situation as we find it – riding out the cycle as best we can but keeping our sights firmly fixed on the long term vision.

Slide 10 – Vision 2025

Our industry has a firm view of where it wants to be headed.

Our Vision 2025 is one where:

- we contribute 14 percent of GDP
- we employ 60,000 New Zealanders
- we have a turnover of NZ$20 billion
- and we are the largest export sector.

SLIDE 11 – Can we achieve it?

In the current climate there is more than the usual head-scratching about whether we can achieve these ambitious goals.

I suggest they can be achieved but only if we do things differently.

Doing the same old thing is not going to get us where we want to be.

There are at least two key elements of the new thinking which we are today seeing come forward at the company level.

We see this not just in the well publicised deal between Tenon and the Danish company Zenia House but also in the work Carter Holt Harvey is doing to explore the construction market in China and the initiative by a group of pine manufacturers to launch a new range of exterior products under the “Bodyguard” brand in the United States.

The first element is that this industry is already embracing an added value future.

We are already processing more than ever before.

Our industry is underpinned by supplying processed products to the domestic and Australian markets – markets which have performed strongly with the current housing boom.

The problem we face is that we must add value and not cost.

Log exports are often seen as lost opportunity.

The reality is though that log exports will remain an important and valuable part of industry revenue for as long as we have not developed the capacity to process profitably in New Zealand, have not overcome trade barriers penalising added value exports and have not positioned radiata pine higher value markets offshore.

SLIDE 12 – New core agenda

The second indication of a new way of thinking is linked to the first.

Realising the industry’s added value future requires a shift in focus from production to markets - from growing trees to satisfying consumers.

That in turn involves paying new attention to building strategic linkages with overseas partners and to investing in downstream distribution and marketing.

This is the core of a new agenda for forestry – placing ourselves more firmly at the consumer end of the forest products value chain and building a pathway from there back into the forest, allowing consumer interests to drive our production decisions and not the other way around.

SLIDE 13 – Building blocks

Someone once said that a vision without a strategy is just a day dream.

Over the last twelve months we have put in place some significant building blocks for securing the future.

Through the Wood Processing Strategy, our successful partnership with central government, local government and the unions, we have been able to target some of the “low hanging fruit” that have obstructed the drive for more value added processing.

Through another significant government/industry initiative, the Forest Industry Framework Agreement, or FIFA, we are close to achieving an agreement with the Government on returning to the industry a substantial proportion of the value of Kyoto Protocol carbon sink credits.

SLIDE 14 – graphic Forest Industry Framework

If the negotiation can be completed successfully, there will be new funding for key infrastructural and market development projects identified under the Wood Processing Strategy.

Slide 15 - Strategy for secure future

To ensure a secure and equitable funding stream from the industry side, able to leverage the government funding becoming available, we launched in January this year an industry-wide consultation process seeking views on a commodity levy under the Commodity Levies Act.

We are also working closely with government agencies to remove the barriers to international trade in forest and wood products.

Tariff and non tariff barriers in forestry penalise added value production and restrict our ability to position radiata pine in higher value market segments.

We need to address these barriers both through bilateral programmes such as the one we have underway in China to build on the new recognition granted radiata pine in the Chinese Building Code and through negotiations in the World Trade Organisation.

The New Zealand industry has been instrumental in developing a common position for the WTO negotiations amongst the international industry.

We will continue to be active as the WTO negotiations recover from the failure of the Cancun meeting last November.

SLIDE 16 – Market development package

With New Zealand Trade and Enterprise we have started to define the parameters of a comprehensive market development package which will focus on initiatives aimed at:

- extending and defending our core markets both domestically and in Australia and Asia by greater promotion and in market activity;

- capturing emerging market opportunities by undertaking market research into new areas whether in the European market for furniture manufacture or the Chinese market for construction materials

- creating viable options for the future by understanding the needs of tomorrow’s markets, consumers and technologies; and

- creating a supporting platform for market development including technical and quality standards.

SLIDE 17 – research and revelations

In February last year the Forest Industries Council’s International Marketing Committee commissioned research from Trade New Zealand aimed at understanding the drivers of demand for New Zealand wood products in some key markets.

We looked at Malaysia, Korea, China and the United States and surveyed importers, distributors and downstream users of New Zealand products.

It was sobering if not altogether surprising to discover that New Zealand radiata pine enjoyed no commanding position in any market segment.

That is to say whereas radiata pine was seen as an acceptable, fit for purpose substitute in a range of markets it had no clearly identifiable source of competitive advantage based on its inherent properties.

This suggests that the industry has work to do to improve the market image of radiata and to make its properties better known to potential users.

SLIDE 18 – And some good news

The research went on to assess perceptions of the positive characteristics of radiata and of New Zealand as a supplying country.

Here the response was rather more encouraging.

New Zealand was perceived favourably on account of the abundance of the resource, its high environmental integrity and its reputation for forest management and technology.

Already around half of New Zealand forests are certified to the standards of the Forest Stewardship Council and a comprehensive, national standard for forest management is under development by the industry.

New Zealand suppliers were also well perceived on account of their honesty and integrity in business practice and the attention they were prepared to show their customers.

SLIDE 19 – Marketing Platform ?

This research has formed the basis of further work by the International Marketing Committee aimed at developing a pan-industry international marketing platform.

The aim was to see whether it was possible to devise a common banner and core values that could provide a vehicle for differentiating New Zealand wood products through enhanced positioning and communication in international markets.

It was our understanding of our competitors’ strategies that prompted us to go down this track.

SLIDE 20 – graphic
Our competitors

Our competitors all consistently promote both their supply region and their industry, using appeals such as sustainability, product specifications and certified quality assurance.

All of them provide extensive in-market support and in-use guidance.

What’s more, a parallel survey by Trade NZ of industry leaders in New Zealand indicated that two thirds of those surveyed saw merit, at least in principle of such a collective approach.

SLIDE 21 – Graphic
Leading sustainability

With the help of branding consultants, Design Works, we have further developed a possible brand positioning around the theme of “leading sustainability”.

“Leading sustainability” starts at the level of New Zealand’s well managed and renewable planted forestry resource.

It encompasses the sustainable business relationships that can be established with New Zealand exporters.

And it contains a stretch element too – through constant innovation New Zealand suppliers can maintain their commitment to sustainability over time.

To be successful the “leading sustainability” market platform will need to be backed up by product and service standards.

Once completed, the national standard for forest management could form an important part of the new platform.

What is becoming increasingly clear is the need for broader and better supported co-operative structures able to implement and manage this strategy as a vehicle for transformation of the industry.

SLIDE 22 – Leadership

I hear a lot about the lack of leadership in our industry.

Our core industry associations – Forest Industries Council, Forest Owners Association, Farm Forestry Association and Pine Manufacturers Association – all co-operate actively and well together.

But their membership is far from universal.

The discussions about a commodity levy are already prompting some new discussion about a more unified industry structure.

That is healthy. That is what we hoped the process would generate.

We have no shortage of talented leaders.

But we cannot lead those who do not wish to be led or who chose to go in another direction.

At the end of the day it will be up to the industry either to come together around the sort of cohesive and deliberate strategy I have presented or to continue doing the same old thing, dogged by the same old industry politics and quite likely the same old level of achievement.

SLIDE 23 - Conclusion – Road to future

At this key stage of the industry’s development, in order to realise improved returns from an expanding forest resource, we have to do a number of things.

We have to position the New Zealand industry more aggressively on the international stage.

We have open new markets by eliminating tariffs and non tariff barriers.

We have to tell the story of radiata pine – ‘the greatest story never told’, if you believe our market research.

We have to move radiata pine into the higher value end of the market through a more consistent and targeted communication and information campaign organised around an intelligent market platform.

We have to continue to remove the roadblocks to increased investment in wood processing – better infrastructure, more competitive processing capacity, more value and less cost.

And for all this we need more representative industry structures and new levels of co-operation and cohesion.

The building blocks I have just described will entail increased investment in both market and product development – which in turn requires initiatives like the Forest Industry Framework Agreement and the proposed commodity levy to bear fruit.

There is nothing altogether new here - in large measure they are the lessons we’ve learned from the trailblazers – meat, wool and dairy.

Becoming the country’s number one exporter is no easy thing to achieve.

SLIDE 24 – Fork in the Road

But I am comforted by a saying from that great American baseball player and philosopher Yogi Berra who once said “If you see a fork in the road, take it”.

As an industry, we’ve come to that fork in the road and now it’s time to take a new direction working more closely together to build the strategy and ensure its achievement.

TITLE – CONCLUDING SLIDE 25

ENDS

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