1. NZ Forest Policy Project Working Party 3 Forest Products Processing and Marketing Led by Marcel Vroege

2. Wood Processing Industry and Markets 1.The Wood processing Industry in New Zealand 2.Key Issues and Opportunities Identified 3.Proposed Policy

3. New Zealand Forest Industry Overview 2014

4. Harvest was 30 Million m 3 in 2014 of which 13 Million m 3 processed in New Zealand Production of sawn timber was 4 million m 3 Production of wood based panels was 1.8 million m 3 Production of 1.4 Million tons of pulp Production of 0.7 Million tons of paper Export of NZD 3.7 Billion of wood products Export of NZD 0.6 Billion of Pulp and Export of NZD 0.4 Billion of Paper Total number of full time employees approx. 10 000

5. Key Opportunities and Issues Industry and Markets

6. Opportunities Log production to increase to some 35 million m 3 /a while current domestic consumption of logs is some 13 million m3/a. There is the potential to process considerably larger volumes of logs in New Zealand! Developing an industry utilising this resource could raise the industry export value from approx. NZD 5 to 12 Billion by 2022. (WoodScape Strategy) Development of the New Zealand market to accept wood products in a wider range of construction applications Fully account for the all the benefits New Zealand wood products present in construction applications. (cost, benefits, environmental attributes, carbon sink etc) Supply export markets with value added products as opposed to logs.

7. Issue 1 – Operating Environment for Manufacturing Industries The New Zealand operating environment could be more friendly and supportive toward manufacturing industries. Key Issues identified by the industry include: The New Zealand Tax Rules, encouraging investment away from (depreciating) manufacturing assets into low yielding, but appreciating real estate assets. Cost of Capital in New Zealand and Exchange rates. The current reserve bank approach towards financial stability has resulted into comparatively high interest rates in New Zealand and a highly volatile New Zealand dollar. Compliance Costs – The high costs (compared to key competing supply countries) for consents and approvals to build new, expand or adjust manufacturing operations

8. % Yield on 10 Year Government Bonds

9. The volatility of the New Zealand dollar is driven by the fact that the currency is traded extensively by banks and financial institutions. Of all the trade, 59% of trade in the NZ dollar is by banks and 26% by financial institutions. Just 15% is traded by importers and exporters. (Source BNZ:RBNZ) Compliance costs – The high costs (compared to key competing supply countries) for consents and approvals to build new, expand or adjust manufacturing. Major difficulties have been encountered with obtaining approvals under the (RMA) Resource Management Act. This has blocked greenfield investment and has significantly increased costs and introduced delays when manufacturers have wanted to expand or change operations. These cost and time delays are not encountered by New Zealand’s competitors. New Zealand Currency and Compliance Costs

10. Issue 2 - Markets The small size of the New Zealand market limits the ability of companies to develop domestically. Increasing the New Zealand’s domestic market for wood products will provide for greater domestic security for the forest industry. Limited desire by designers/architects, engineers and builders to adopt innovative building methods. This limits the ability of New Zealand manufacturers to market innovative products Relatively higher costs of exporting manufacturer products compared to logs.

11. Issue 2 – Markets Cont. Tariff and non tariff barriers hinder and restrict New Zealand's ability to supply competitively into major export markets. Correct compensation for the environmental benefits of wood products. Allowing wood products to take full advantage of the life cycle benefits, and carbon storage of wood products will improve their relative competitive position against non wood building products. Non Payment for the Ecosystem Services provided by the forest estate is resulting in higher log supply costs.

12. Issue 3 – Research and Development Research and Development within the New Zealand forest industry is limited. Greater level of research and development should improve the industries sustainability and long term profitability. New Zealand manufacturers have struggled to invest in R&D as industry profitability has been lagging. Research from NZ research institutes has not always been sufficiently targeted at the issues faced by the industry or has been sold to overseas (competing) companies.

13. Policy Statements and Recommendations Industry and Markets

14. Enhance competitiveness of the New Zealand forest products industry by creating an improved environment for investing within the industry: 1.Increase certainty in relation to the consenting process for both brownfield and greenfield developments 2.Reduce the costs of the consenting process for both brownfield and greenfield developments 3.Address the relatively high cost of capital in New Zealand through more macro prudential and targeted fiscal policies 4.Address volatility in the New Zealand currency through improved physical policy 5.Support the development of long-term domestic supply contracts between forest owners and wood processors Competitiveness

15. Reduce international trade and non-trade barriers: 1.In trade negotiations, take account of forest products 2.Investigate and address non-tariff trade barriers 3.Assist in developing standards and codes in key export countries to allow for use of New Zealand forest products. Trade

16. Promote and support the development of a growing domestic market: 1.Promote use of domestic forest products in construction use 2.Ensure building codes and regulations keep pace with product innovation 3.Recognise the positive environmental benefits of wood products used in construction. 4.Promote and support the design, engineering and build capability with wood and engineered wood products across our national education systems. Promote the Domestic Market

17. Research and development: 1.Research into key areas for the processing industry i.Automation and robots in manufacture ii.Efficiency in processing iii.Upgrade of lower value materials iv.Packaging and transport efficiency v.Market intelligence 2.Research into next generation products and technologies i.Engineered wood products ii.Modified wood products iii.Bio chemicals iv.Bio-fuels Research and Development