A levy on log exports and the proposal to plant a billion trees?
From New Zealand Tree grower February 2018
The pre-election intentions on forestry of the New Zealand political parties were ably summarised by Hamish Levack on pages 12 to 15 of the August 2017 Tree Grower. All except the National Party responded to his request − I cannot accept that this major party has no policy on such an important export earner. Log exports feature in the intentions of some parties. Most significant was that of the Labour Party spokesman Stuart Nash. The Labour Party proposed to implement ‘...an export levy of between one and five dollars a cubic metre on all wood exported without value added, in other words on logs’.
In 1957 the Japanese first came to New Zealand to buy our logs.The Japanese offered a stumpage of around two shillings and six pence a cubic foot − nearly nine dollars a cubic metre.This price represented a premium of 10 times the then average stumpage of three pence a cubic foot or 88 cents a cubic metre.
The domestic price had been ‘unintentionally’ set by the long-term government contract to sell wood from Kaingaroa forest to Tasman. Similar to today there was much discussion then along the lines of why not add value by processing within New Zealand and export a finished wood product. Typical of the time is a quote in the 1958 Annual Report of the New Zealand Forest Service ‘...it is very much in New Zealand’s interests that the export of forest produce should be undertaken in its most elaborate form, viz, in paper rather than pulp and in processed rather than rough sawn timber’.
Although there was a small increase in domestic wood processing the log trade has continued to increase and be more profitable to the plantation owner than domestic processing. This has been despite local processers having the advantage of not exporting round logs with about 50 per cent of their weight being water.
There were many reasons why we appear to have exported costs rather than increased our overall profits or export earnings including our high labour costs as well as the long delay and distance from the actual market place. This meant we were unable to quickly respond to changing markets. Most important of all were the increased tariffs and non-tariff restrictions on the import of processed wood products. New Zealand wood processors then, as now, could get all the wood they want by simply matching the log export price.
A levy on log exports is in effect a subsidy to local processors − not paid for by the government but unfairly deducted from the earnings of the forest grower. Is not a levy on log exports effectively a tax on exports? Governments should be aware that private investors could be very reluctant to invest in an industry, such as forestry, where the government can reduce final returns simply by imposing an export levy.
A billion new trees
Since the 2017 election New Zealand has been governed by a Labour/New Zealand First/Green coalition. To provide regional employment, as well as increase the nation’s carbon sink, it is proposed to plant a billion trees over the next 10 years. Not all will be new planting − about half of the trees to be planted are to be the replanting of harvested plantations. Even so, this ambitious proposal appears attractive.
However, to be successful, much more is involved than just planting pines and other tree species. Where is the land to come from? Are the sites suitable and available for plantation forestry, especially given that some sites are more suitable than others for tree growing? Will the forest be highly productive? Site location greatly determines profitability as well as its carbon sink potential. Who will own the plantation? Where are the trees to come from? There are not enough trees currently available from our nurseries to immediately start an additional planting effort.
At least eighteen months of advance commitment is required before nursery owners could be expected to produce the extra millions of trees required each year. However, a recent report suggests that one nursery could supply five million trees this coming winter - see Timber and Forestry E News 493 for 15 December 2017.
Is the plantation to be tended? Peter Clark, CEO of the consultancy P FOlsen, in his comment in Wood Matters of 9 December 2017 asked ‘where will the labour come from? ’This is relevant since many unemployed are totally unsuited, as well as being most reluctant, to be employed as tree planters or for other forestry work. Who will pay for the many and considerable overheads – site preparation, rates, insurance premiums for fire or wind damage, pest and disease control, mapping, the measurement of growth, the maintenance of roads and fences, annual inspections and project management?
Plantation forestry is very capital intensive. Over a rotation the cost of trees and their planting may be only 20 to 40 per cent of the total plantation management cost. To an outsider the proposals may seem to be simple but much more is involved than simply planting. More policy development needs be done before the proposal proceeds.
The proposal is achievable but until these questions are answered there must be doubts about the proposal ever achieving its ambitious target. Forestry would be the loser if the scheme is abandoned or fails.
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Disclaimer: Personal views expressed in this blog are those of the writers and do not necessarily represent those of the NZ Farm Forestry Association.