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  • November Report

    6 November at 08:24 from atlas

    Change in Government attracts international comment on proposed forest policies

    A Reuter's article published just after the election raised concerns among forest owners and investors about proposed changes to NZ's long standing free market approach to doing business. According to the article some New Zealand forest owners are suspending replanting of trees and re-thinking investments as the country's third-largest export earner finds itself targeted by what they called "maverick politician Winston Peters' protectionist agenda".

    His plan includes a possible quota system which would force growers to favour local mills over a higher-paying export market.

    New Zealand's plantation forests, like much of the country's industry, were opened up to private investment in the early 1990s after sweeping economic reforms the previous decade. Peters' comments signal a stark change from New Zealand's role as a global test-bed for free market reforms since the 1980s.He is pushing for significant curbs on migration, restrictions on foreign ownership of land and favours more central bank intervention in the foreign exchange market.

    The idea is a quota-system would force more logs to be sold and processed locally, adding value to the NZ$270 billion economy.

    Sawmillers would generally welcome the idea of a quota: 'The industry could process around 20 percent more than the current 8 million cubic metres each year with more reliable supply' said Kevin Hing, deputy director of the New Zealand Timber Industry Federation, which represents sawmillers.  

    Log supply has been critical in some parts of the country as high export prices divert logs to ports that might otherwise be processed locally. Domestic log processors have to pay prices which have to match those being paid for export. Exacerbated by felling of forests as young as 18 years there is real concern that future log supplies could be jeopardised and a quota system might be a popular short term move but may in fact have a perverse effect in deterring long term forest planting and investment.

    Peters called the high concentration of foreign ownership "crazy" in an August speech on his plans for the forestry sector. Just over half of the country's forests are owned by offshore companies, according to the New Zealand Institute of Forestry.

    All of this is however making some overseas investors nervous.

    "Overseas forest investors will start looking at New Zealand ... and say: 'Do we, long term, want to continue investing in here or do we slowly start withdrawing?'," said Warwick Searle, the head of agribusiness at investment consultant CBRE.

    An official for state-owned China Forestry Group, which owns about 22,000 hectares of New Zealand forest, said overseas ownership was already carefully regulated by the country's authorities and quotas would also make it harder to operate. 'We hope that New Zealand remains open for business' said Steve Walker, the firm's local CEO.  (

    A new Forest Service (again)?

    Meanwhile the new Government policy is to re-establish the Forest Service which closed down some 30 years ago. Ironically the forests were sold off by the then Labour Government in 1987.

    Among the other proposed policies to be carried out by the new Forest Service are:

      • Plant 100,000ha per year of commercial forests itself on Crown land for the next 10 years
      • Split the Minsistry of Primary Industries into farming, fishing, and forestry divisions (as it used to be)
      • Require the sale of logging rights on land over 50 hectares to be approved by the Overseas Investment Office for overseas purchasers (previously this was only required if land was sold)

    Many in the industry will welcome the greater Government's recognition of the importance to the national economy of forestry but will be sceptical of the creating a Government department that becomes directly involved in commercial forestry and starts to place restrictions on forest businesses ability to operate.

    Log markets stable

    The export log market remains relatively flat. There are signs the China autumn demand surge has arrived, though it's being matched with very high supply. Freight rates continue to surge, currently offset by a dramatic fall in the NZ dollar. Domestic demand is steady, though there is no shortage of supply. Uplift from China sea-ports has lifted to approximately 81,000m3 /day, an increase of 6,500m3/day in the past 3 weeks.

    The NZ dollar has plummeted 2.5% since the election. According to analysts, this is due to speculation that Govt spending and borrowing will increase, and that restrictions will be placed on overseas investment. At present the lower dollar will compensate for higher freight rates. Domestic demand remains strong but sawmills are well supplied and have very full yards.

    Market prices are expected to remain relatively stable over the next month or so. The China economy is strong, and demand for wood products is healthy. However China inventories must come down as we approach year end; China's focus will soon shift to that of Chinese New Year on Feb 16. (Info courtesy Nelson Forests Limited)

    NZU price rises strongly

    The latest price at $18.95/NZU (the unit of trading in the Emissions Trading Scheme or ETS) is up from last month's price of $18.10. Brokers anticipate that prices could reach $20 by year end. The new Governments intention to introduce Agriculture to the ETS and to be net carbon zero by 2050, are all factors that are underpinning price.