Logging contractors are letting staff go or are working on reduced hours after the sudden fall in log prices earlier this year, and some are having trouble meeting their loan repayments on capital equipment, the Forest Industry Contractors Association said.
The association, which has 200 members who are responsible for about 75 per cent of the annual harvest, said the sudden fall had caught many unawares.
Many forest owners have put their harvest on hold in the hope that prices will soon recover.
Chief executive Prue Younger said about 20 per cent of the association's membership had made workers redundant, were working on reduced hours, or were struggling to make capital repayments on their equipment.
About 3000 people are employed by the association's members, which tend to be the bigger contractors.
Each member has one to eight crews, and each crew comprises eight to 10 people.
The sector is no stranger to market downturns - there have been three over the last 20 years, but Younger said this one is different.
"It's such a rapid drop this time," she told the Herald.
New Zealand log prices in China have improved a little after slumping earlier in the year on the back of reduced demand.
"A" grade logs last traded at US$112 per JAS metre after last month hitting a low of US$105/metre.
Still, they remain well short of the US$140/metre achieved this time last year after a five-year-long run of strong prices.
Younger said labour shortages and an increased emphasis on health and safety had led contractors to invest heavily in capital equipment in recent years.
As an example, so called "processing heads" - which do the job once done by people with chainsaws cutting logs to length - sell for $1 million apiece.
She said the downturn would "take out" a number of smaller players - particularly those catering for woodlot plantations.
The hardest hit regions were the ones with little or no sawmilling facilities, such as Eastland and parts of Taranaki
"A lot of contractors are losing their men because they can't hold on to them - they can't continue to pay them," she said.
"Now they are losing them to other industries.
"We doubt that we will get them back - it's been such a rapid drop this time.
"Because contracts have been cut, it means they can't pay guys or meet capital repayment obligations on their equipment."
Younger said the sector had been quite buoyant for the last 10 years, so many players were ill prepared for the sudden fall in prices.
The decline in the market is against the background of the Government's programme to have one billion trees planted by 2028.
Younger said New Zealand needed more domestic mills to provide an offset for when international prices drop.
"If they are looking at putting in 1 billion trees, they have got to look at how they make this industry more sustainable with more wood processing mills," she said.
The log price slump showed up in yesterday's Stats NZ's export data for July.
Exports dipped 7.3 per cent in seasonally adjusted terms in July, led by a 5.8 per cent drop in forestry over the month, Stats NZ said.
Log exports fell $67 million or 19 per cent in July after a period of relative stability.
Values to China fell $39 million (15 per cent) as prices fell, after a period of relative stability but the quantity exported to China rose 5.9 per cent.
In New Zealand dollar terms, average value of logs sent to China has dropped from almost $180 per cubic metre at the start of the calendar year to less than $140 per cubic metre in July.
Eighty per cent of logs exported in the last year went to China.