Hon Jim Sutton

Speech Notes
27 January 2004

New Zealand Institute of Forestry, southern North Island section, Wellington

Ladies and Gentlemen: the forestry industry has the ambition of becoming New Zealand's biggest exporter, eclipsing that of the dairy industry.

In the year ended June 2002, dairy exports were more than $5.8 billion and rising. Forestry exports more than $3.6 billion - so there is a way to go.

Like other primary industries, forestry is subject to a commodity cycle. At the moment, the cycle seems near the bottom. There is consequently a lot of anxiety about the future of the industry.

The Government believes the industry has a positive future, and is working to ensure that potential is developed.

Our preferred way of working is as a partner with other stakeholders.

The Government needs effective and properly mandated partners with whom it can work. Your industry needs to maintain top quality representation in Wellington. Even with the best intentions in the world, governments simply can not be as effective at responding to the needs of an industry unless that industry's views and needs are being effectively and reliably communicated.

When it comes to addressing industry-good issues, the Government is also looking for partners who can bring ongoing and appropriate levels of resources to the table.

Access to government funding is usually contingent on funding commitments from industry as well. If it is not important enough for you to fund a particular project or activity, is it worthwhile for the Government to invest taxpayers' money into it?

The best bet we have of making a positive contribution - of getting the best value for New Zealand - is to invest in things industry is prepared to invest in itself.

I sense that right now the forest industry has its best chance in years to secure a commodity levy to fund its industry-good activities - and there are plenty of them. Remember, that a commodity levy under the Commodity Levies Act must be voted on every five to six years, and levypayers must be provided with audited accounts annually. That provides very clear accountability to levy payers that their money is being spent to their best advantage.

I urge the forest sector to set aside whatever prejudices it might have about levies, to think about where it wants to go, to understand the reality that making progress means making investments, and to appreciate that increasingly public funds will only be available if they are complemented by private funds. Once you have done this - then consider where you all stand on a commodity levy.

Right now the sector faces many challenges. Underlying all of them is the essential truth that the forestry sector (forest growing and wood processing) must be profitable at every level if we are to have a sustainable and growing industry. This means it must be internationally competitive.

There are several initiatives through which the Government and industry are working together to ensure this. Notably, these are the Forest Industry Framework Agreement and the Wood Processing Strategy.

During this year, my colleagues the Minister of Economic Development, the Minister for Climate Change, and myself intend to complete the FIFA process, with the memorandum of understanding being signed and the Budget bid for new initiatives achieved.

The FIFA is the treaty between the Government and industry on work that will be done to benefit the industry and the nation using a proportion or an equivalent value of the forest sink credits and associated liabilities, at least for the first commitment period of the Kyoto Protocol.

The initiatives most likely to directly enhance the maintenance and creation of forest carbon sinks are being progressed thorough the government budget system for the 2004/05 Budget. Because they are in the Budget Process, those initiatives cannot be discussed any further outside of government until the Budget is announced.

The Government's implementation of the Kyoto Protocol has been controversial, but much of this controversy has arisen in many cases because of a basic lack of understanding of the policy and because of an unwillingness to engage in discussions with the Government from somein the industry.

Many people act as if this policy came out of nowhere and hit them between the eyes, without notice.

In fact, there have been many years of consultation before any policy was implemented.

As ministers have emphasised many times, climate change is a reality and it needs to be addressed. New Zealand is doing its part through its participation in the Kyoto Protocol, and its implementation of policies that enable us to meet the obligations that will become legally binding if and when the treaty comes into force.

But that does not mean that the policy as announced last year is fixed in concrete.

Situations can change, and the Government recognises this. If better ways of achieving our targets emerge, we can adopt them. Policy work is continuing in this area, and I am hopeful that we can refine the policy in the future.

Work is also continuing through the Wood Processing Strategy.

Various working groups within the WPS framework have been active on labour and skills issues, trade access issues, transport, market development, energy and climate change issues, employment, and processing.

Employment issues in forestry are prominent in the public mind at the moment, as the industry goes through a downturn in harvesting.

A downside of the severely reduced harvest has been significant laying-off of harvesting and haulage contractors (the second such event in 5 years).

One outcome of this is that the forest harvesting sector is losing staff.

Under different economic circumstances, this would have been socially catastrophic, but fortunately it appears that many workers affected by the current layoffs have been successful in finding other work at a time when unemployment in most regions is at historically low levels. This means however they may well be lost to the forest industry forever.

Contractors too will be lost to the industry if they are unable - or unwilling - to remain in business in the current environment. This raises the issue of what companies will do when market conditions improve and how they will meet their future contracting and employment needs.

The current situation will also have a negative long-term impact on the reputation of the industry as a stable and secure job/career choice. There are initiatives operating in many regions to encourage school leavers and job seekers to consider employment in forestry. Such initiatives are less likely to be successful when people are aware of recent job losses in the industry, and are also aware that this is the second such event in five years.

A worse-case outcome out of all this would be that the lessons of the last two crises (this current one and the one five years ago) are not learned and acted on, and the same things happen in another five years time.

While the Government may be able to provide some assistance, only the industry itself can fix this problem.

I attended a meeting of contractor and worker representatives in Rotorua on 29 October last year where the issues around the recent lay-offs were discussed, including the shortage of business risk management skills among harvesting contractors.

One outcome was that I invited the Forest Industry Contractors Association to submit a proposal to organise risk management workshops. The Association agreed to look at this, as part of the "working smarter" series of workshops it provides for contractors, and it has put forward a proposal. Officials are looking at how this can be best funded.

There is room for more activity within the Wood Processing Strategy, and I hope the WPS will be re-invigorated through a 'way forward' workshop in May. The WPS could also provide the forum for implementing any relevant new initiatives agreed under FIFA.

Throughout this year, there will be ongoing work internationally on behalf of the forestry industry. Improved market access for forest products is a high priority for our trade negotiators, both within the Doha Round of multilateral negotiations and within bilateral negotiations.

Next week, I am leading a forestry trade mission to South Korea, China, and India, all key markets for our wood products.

India is a developing market with immense potential for increased trade. Currently it is only a log market because of prohibitive tariff and non-tariff barriers on imports of value-added wood products.

Wood export trade to China is increasing dramatically, e.g. in the two years up to September 2003 log exports to China have increased a whopping 217 percent to 1.9 million cubic metres.

China did have high tariffs on value-added wood products, but since accession to the World Trade Organisation has made great strides in reducing tariffs, unlike India which is also in the WTO.

There is enormous potential for increasing lumber exports to China, now that New Zealand radiata pine is included in the new Chinese building code. The mission will assist in raising Chinese awareness of the good structural uses of radiata.

Korea is also only a log market, and we need to raise the profile of value-added radiata products.

There has been some good news on the trade front in that prices for log exports to Korea jumped US$20 per cubic metre in October last year, the biggest increase in a decade. Unfortunately the growers aren't seeing too much benefit from this increase, as a lot of it is eaten away by the strong Kiwi dollar and by shipping charges, which are inopportunely at a cyclical high.

The purpose of this trade mission is to further increase knowledge of the versatility and capability of the wood processing industries in New Zealand. In particular, we would like discussions to lead to partnerships between New Zealand forest industry companies and businesses involved in the trade mission, and Asian users of forest products.

This is the most senior group of forestry representatives ever to travel overseas together and reflects the importance we in New Zealand attach to building our relationship with these key markets which, between them, take about 40% of New Zealand's exports of forestry products.

Ladies and Gentlemen: there are a lot of issues within the forestry portfolio. I don't pretend that the Government has all the answers. However, I am confident that by working in partnership, the Government and industry can find solutions for many of these complex issues.

It is through co-operation that other industries have achieved significant growth, domestically and internationally. I encourage participants in this industry to fully investigate those options as well.

Thank you for your attention tonight, and I welcome any questions.

ENDS

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