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The projected peak in the wood supply - A need for action

From New Zealand Tree grower February 2013



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About Tenco
Tenco is one of New Zealand’s largest exporters of forest products. We have built to this position since 1991 when the company was set up to export lumber to growing Asian export markets.  Experience and reputation count; from small beginnings Tenco has become the largest independent exporter of New Zealand lumber and New Zealand’s 4th largest log exporter.  Tenco has a regular shipping program of their own log vessels and in combination with these and other ships currently calls  at 7 New Zealand ports (5 North Island and 2 South Island).
 
Tenco buys standing forests.  Tenco currently has a number of forests which they purchased at harvestable age to log over a number of years for export and domestic markets.  Tenco also regularly buys smaller tracts of forest to harvest immediately or immature forests to hold until harvest time.  Tenco is interested in broadening  the  base of owners from whom it purchases forests and stands of trees.  A deal with Tenco is a certain transaction.  The owner and Tenco will agree on a value of the tree crop and then Tenco will pay this amount to the owner either in a lump sum amount or on rate per volume unit out-turn from the forest depending on the nature of the tree crop.
 
Tenco knows there are a lot of farmers who have trees that are close or ready to harvest and will be asking themselves how they should proceed with the sale of their trees.  For some farmers the kind of certain transaction with money in the bank could well be appealing. Tenco is actively interested in buying harvestable forests or trees from areas including all the North Island (except the Gisborne and East Coast districts) and Nelson & Marlborough in the South Island .
 
If you own a forest in this area (16 years and older) and are ready to enter into this kind of agreement Tenco is interested to develop something with you.
Please contact: Josh.Bannan@tenco.co.nz 
Work: +64 7 357 5356  Mobile:  +64 21 921 595  www.tenco.co.nz
Logging

The rate of new plantation establishment was low in the late 1980s but became exceptionally high in the early to mid 1990s. In the late 1990s and in the first decade of this century there has been almost no new planting. The result of this very uneven rate of new planting was well documented in the paper by Chris Goulding and Hamish Levack in the November 2012 issue of Tree Grower.

Because of the very uneven rate of new planting in the past there could be a flood of wood in the 2020s which will be followed by a major wood shortage in the 2030s and 2040s. In recognition of the seriousness of the problem, an NZFFA working group has been established to consider what might be done to resolve the matter − see the article by Howard Moore and Hamish Levack.

Coordination vital

Unless there is a co-ordinated effort, forest owners of the plantings of the 1990s will all be trying to market their wood at the same time. Without a co-ordinated wood supply there will be very serious consequences for New Zealand. Wood prices will inevitably decline as overseas buyers increasingly become aware of the wood surplus. Without a co-ordinated effort, overseas wood buyers will be able to play one forest owner off against another. The result could be not only reduce the returns of both forest owners and the New Zealand economy, but also result in a lack of investment in new planting. Who will be attracted to invest in plantations when the current wood price is so poor?

The prices for pruned logs will decline the most. The current price for pruned logs is so low that pruning is now considered a marginal investment. If the market is flooded with pruned logs and New Zealand is the only significant global supplier, the price could fall even more and there would be even less interest in pruning than there is now. That in itself will have serious consequences for the industry. If framing timber is to become the basis of New Zealand forestry, and not the production of clears, then there will be less international interest in New Zealand forestry because South America offers greater potential for investment in framing forestry.

Learn from the past

The annual global harvest of industrial wood is about 1.5 billion cubic metres. Therefore the New Zealand harvest of about 20 million cubic metres is not globally significant, but we are a significant exporter of logs. An increased supply from New Zealand could reduce the global price for logs as buyers play us off against other international log suppliers. Unfortunately we would be seen as being the cause of a decline in global log prices.

A concentrated planting effort, followed by almost no new planting, happened in the past. In the period 1925 to 1935 most of the older plantations were established. In the period 1935 to the mid 1950s there was almost no new planting.

If the earlier plantings had been harvested at about age 35, then considered to be the average rotation length, there would have been a peak wood supply in the late 1960s and the early 1970s. This peak in the wood supply would have been followed by a very serious decline in the wood harvest for the next 20 years. That this did not happen was because of a co-ordinated effort to smooth out the wood supply.

Some stands were left to grow on rotations far longer than originally intended. Other stands were late thinned to further lengthen the rotation. This very important co-ordinated effort has been poorly documented. For example, I can find no reference to it in the annual reports of the Forest Service. The big difference between what happened in the past and the present situation is that, while most of the plantations were originally owned by either the Forest Service or large companies, many of the new plantations are owned by about 20,000 of small-scale owners – forest partnerships, farm foresters and individuals.

Flattening the peak

To prevent what could be a disastrous development for the whole New Zealand forest industry there has to be urgent discussion of possible actions to flatten the peak wood supply of the 2020s and so prevent the inevitable wood supply shortage that will follow. To leave the matter to the free market is a certain way to invite the decline in faith in plantation forestry as well as the New Zealand economy.

As a responsible forest organisation whose members will almost certainly be adversely affected it is our duty to find a solution to the problem. With a co-ordinated effort we could turn, what if left to a free market, will be disaster into one in which forestry sector is a real winner.


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