Bill McCallum: Forestwood 2014 Opening Address

FORESTWOOD 2014

OPENING ADDRESS BILL MCCALLUM, CHAIR, WOOD COUNCIL OF NZ

EMBARGOED UNTIL DELIVERY 9.00 AM 19 March 2014

Welcome…..

For those of you not familiar with the Wood Council of New Zealand, the association, which was incorporated in 2006, is a pan-industry body which represents the common interests of the forest growing and wood processing sectors. The following associations are represented on the Council:

Wood Processors

Pine Manufacturers

Farm Forestry

Forest Industry Contractors, and

Forest Owners

New Zealand’s Plantation grown wood story reads very well….

The production process is environmentally sustainable … and the product we grow is well adapted to a large number of end uses. Although Radiata pine, our most widely grown species, might not be the single “best” species for any particular end use, it’s a very good “all-rounder”.

The species grows well on a wide range of sites throughout New Zealand and efficiently produces fibre which New Zealand processors convert into sawn timber and plywood for both appearance and structural uses, reconstituted particleboard and fibreboard panels and a wide range of high quality pulp and paper products.

On the non-product side, well managed forests enhance water quality and provide a range of recreational opportunities for communities throughout the country.

From each of these perspectives, there is no uncertainty about the extent of our “known” reserves. The trees that forest owners will harvest over the next 25 to 30 years are already in the ground and growing at an average annual rate of about 25 cubic metres (or tonnes) per hectare. As an added bonus, our 1.7million hectares of forests sequester, or lock up, about 42 million tonnes of atmospheric carbon each year.

The forestry industry is New Zealand’s third largest export sector and the Wood Council has a firm plan to contribute strongly to the government’s goal of lifting export earnings from 30 percent of GDP to 40% by 2025.

If we simply continue doing what we do now, the increasing harvest profile which our estate can support will modestly lift our export earnings from its current level of $4.5 billion to just over $6 billion in 2022.

But the Wood Council has set a goal of contributing much more.

Two years ago we developed and announced our objective of achieving export earnings of $12 billion by 2022, a goal which represents a lift of 100% over what the “momentum” strategy would deliver.

It is an ambitious plan, but the building blocks to reach the goal are in place. The trees we need are in the ground and growing… much of the processing and transportation infrastructure is already in place… a world class research capability resides within the Crown Research Institute, Scion, and the vision and determination of our processors on which much of the success of the plan rests are indisputable.

But these building blocks, in themselves, are not enough.

We need help if we are going to increase the profitability, scale and international competitiveness of our processing sector because, to reach our $12 billion goal, about 50% of the logs currently exported will need to be processed domestically into products which can be sold competitively into overseas markets.

Warren Parker, the Chief Executive of Scion shared with us late last year an interesting concept coined “Dutch disease”. This phenomenon occurs where “ …an increased exploitation of natural resources is associated with a decline in the manufacturing sector because increased revenues from natural resources - logs in our case - contribute to a strengthening of the nation’s currency and reduces the export competitiveness of domestic processing.”

The Dutch disease phenomenon occurred in Australia during the recent mining boom and the “2-speed economy” was an Australian feature for several years. In New Zealand, the very hearty Chinese appetite for raw logs and milk powder which emerged a few years ago, could have a similar impact on our industry. We need to be very proactive and deliberate if our wood processing industry is to survive … let alone thrive.

Log export returns right now are as good as they have been for some time, but our domestic processors are struggling, but, to be clear, the Wood Council is not asking for the government to “fix” the exchange rate, fix prices or tax the log export trade.

Such short sighted interventional “fixes” won’t address the fundamental issues.

Nevertheless, there are some things we are asking the government to do. We’ll be looking more closely at the challenges we face and the opportunities we have later in the day, but for now, I want to highlight a few key areas where we think the government can help.

1. Training, Education and Safety

All New Zealand primary sectors face similar challenges in attracting and retaining people in employment. The skill sets required by the industry are changing over time and mutual government and industry support of our industry training organisation, Competenz, will be fundamental to setting and delivering the skills identified through workforce planning.

Funding support for skills training and certification should be strengthened based on an acknowledgement of the health, safety, quality and productivity gains which result from good quality training.

2. Market Access and Competitiveness

First, differential treatment for unprocessed logs and processed materials significantly disadvantages the export growth of value added wood products. New Zealand logs are exported to countries with import policies that favour log imports and their own domestic processing industries.

Trade policy development should be aimed at achieving progress across all sectors rather than agreeing to trade-offs that favour one sector over another. The FTA agreed with China is not delivering what it should for the wood products industry.

The China FTA favours logs over processed products and this weakness needs to be redressed.

Second, the Wood Council believes that there is inadequate recognition in public procurement policies for sustainably sourced domestic wood products.

The independently audited, international certification schemes under which the forest growing industry largely operates provide unequalled levels of sustainability assurance compared with other construction materials but, frequently, there is inadequate comparison of the full life cycle benefits of wood versus other products.

The government could develop and adopt a procurement policy which evaluates the whole of life benefits of wood and encourages the use of wood in commercial buildings;

3. Building Standards

The current complicated and duplicative system of building standards is acting as an impediment to the use of timber products, particularly sophisticated, high-value, engineered timber that is well suited for pre-fabrication systems that lower building costs. Over 600 building standards are over 7 years old and are obsolete.

The standards and codes need to be reviewed and rationalized and a system implemented to ensure they remain current and easy to use.

4. Sustainable Land Use

The devolution of the environmental regulatory framework in New Zealand has resulted in Regional and District Councils adopting highly inconsistent approaches to the regulation of forestry activities. Some of the differences can be explained by regional variations but mostly not.

Most of the variation appears to be simply due to different planners… holding different views… on what should be regulated and what not.

The government needs to ensure that policies designed to achieve good environmental outcomes (or discourage bad practice) treat all land users equitably, and, where appropriate, attach a monetary value to land use activities and ecosystem services so that their true value to the economy is recognised.

When setting limits on water pollutants, policies need to apply equally to all land use activities rather than allocating based on historical output levels.

The Ministry of Primary Industries is taking a strong leadership role in evaluating whether a National Environmental Standard can be adopted to remove some of the inconsistency in this arena and the Wood Council supports this initiative.

Before closing, I want to return to the very important topic of health and safety in the forest industry.

While a main objective of the Wood Council is how the industry - in partnership with government - can significantly increase the sector’s contribution to the New Zealand economy, we cannot fail to address a more immediate and significant issue which threatens our sector’s license to operate.

Ten men working in our forests were fatally injured in 2013. Sadly, another 2 men have lost their lives so far this year.

It is simply unnecessary and unacceptable for anyone to be killed or seriously injured at work and the Forest Owners, Farm Forestry and Forest Industry Contractors associations are determined to work together with WorkSafe, our suppliers, and their employees to create a common mindset and vision that Zero Harm workplaces can be achieved.

Building on the findings and recommendations of the government’s Independent Taskforce on Workplace Health and Safety, our 3 associations have initiated a process to undertake a far reaching independent Review of Health and Safety in the Forest Industry.

This Review, was formally announced in January this year, and 3 very high caliber individuals have accepted our invitation to join the review panel.

• The panel chairman is George Adams, an accountant and company director who in 2013 was awarded the NZ Business Leaders Health and Safety Forum Leader of the Year.

• Hazel Armstrong is a Wellington based lawyer who specialises in health and safety and employment law; and

• Mike Cosman is a health and safety expert who brings with him the experience and knowledge he gained as a member of the government Taskforce on Workplace Health and Safety.

The Panel members have a broad mandate and widespread stakeholder support and over the next few months will be working toward the overall objective of identifying and recommending a package of practical measures to reduce injuries and fatalities in the forest industry.

The panel has adopted a broad and far reaching consultative process and I urge you to participate in this important undertaking. There is more information about the review in your conference pack and or you can go to the panel’s website … www.ifsr.co.nz.

In closing, the forest and wood products industry has the ability to deliver renewable and resilient growth and I have touched on a few of areas where the government can, and should, have an interest, and play an active role in facilitating the development of the sector.

It can do this by delivering better policy, minimising regulatory barriers and publically committing to and communicating the value which the industry adds to the New Zealand economy.

The status quo alternative provides ample incentive for action - a continued focus on commodities, reducing forest cover, an economy tied to the fortunes of the dairy sector, a degrading rural environment with ever increasing clean-up costs, slow erosion of international clean green credibility, loss of ground to competitors in the technology revolution, continued reliance on fossil fuel, and a continued over reliance on environmentally expensive and non-sustainable construction materials.

The overall government position in relation to forestry needs to be aligned with the Wood Council of New Zealand strategy if we are to achieve the goal of trebling our export earnings by 2022.

Thank you

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