Forestry reforms a risk to investor confidence - Timberlands

Forestry Minister Shane Jones. Photo / John Stone

New rules being rushed through Parliament to regulate forestry advisers and log traders are too broad and risk-reducing investment confidence in the sector, one of the country's biggest forestry groups says.

The licensing regime proposed by the government would capture not just firms advising and trading logs for small lot holders as intended, but even major groups processing their own logs or managing their own exports, said Kaingaroa Timberlands, a venture owned by the New Zealand Superannuation Fund, Canada's public sector pension scheme and iwi interests.

The regulatory powers of the proposed Forestry Authority also appeared to duplicate management requirements already set out in the national standards for plantation forestry, and crept into areas of pricing and form of contracts, .

"One of the fundamental objectives of the bill is, as we understand it, to increase investor confidence in commercial forestry," the company said in a submission to Parliament's environment select committee, which is holding two days of hearings this week on the Forests (Regulation of Log Traders and Forestry Advisers) Amendment Bill before it is reported back to Parliament on June 5.

"There is a risk that the legislation as drafted will have the opposite effect were it to apply to forest owners.

"A number of the broad powers which are designed for intermediaries/advisers would have a very different and much more significant and intrusive impact when applied to forest owners."

The bill was announced by Forestry Minister Shane Jones as part of the Budget package of legislation on May 14 and is part of a wider strategy he is pursuing to create domestic industries from locally grown timber and reduce exports of unprocessed logs.

It will create a register and set standards to improve the quality of advice available to smaller private forest owners and, potentially, the prices they receive.

Officials estimated that, after allowing for set-up and operating costs, the new regime could deliver net benefits of up to $103 million over five years through higher log prices.

The register also aims to ensure more predictable log supply for saw mills and Jones has said the government will use the regime to ensure mills get affordable logs if the industry doesn't come up with an accord to make it happen.

Crown research institute Scion said in 2019 that the processing industry had failed to adapt to the country's changing harvest profile, with up to 40 percent of logs expected to come from small lot holders in coming years, up from 14 percent in 2007.

Agents buying for export were actively sourcing logs from small lot holders – those typically with less than 1,000 hectares of trees – whereas mills were not, it found. Officials said that farm-foresters were not part of the industry and were vulnerable to poor outcomes in the absence of a transparent and informed market.

The Forest Owners Association has acknowledged log supply issues in some regions, particularly Northland, but believes the industry is generally meeting local demand well. President Phil Taylor earlier this month said the register proposal was a "blunt" instrument that wouldn't deliver the increase in processing capacity the government is also seeking to accompany its 10-year, one billion tree planting programme.

Parties were given one week to make submissions on the bill ahead of this week's two days of public hearings.

Kaingaroa Timberlands is the country's second-largest forestry manager. Its Kaingaroa forest covers about 180,000 ha in the central North Island and is described on the firm's website as "one of the crown jewels of international forestry and one of the oldest and largest softwood plantations in the world."

Timberlands said it can see the rationale for registering advisers and log traders dealing with small forest owners. But it said companies like itself didn't need the protection the regime is intended to provide.

Nor was it "necessary or appropriate" for professional foresters to be captured by potentially broad regulations that could include the creation of standard industry contracts agreed by participants.

Timberlands noted that the bill wasn't clear on whether such agreements were intended to be a model document of good industry practice or would be mandated for use by certain players.

"We are concerned how this agreement will be developed and when it will be required to be used and by whom. Even if the development of the agreement is subject to a consultation, it will be difficult to reach a consensus amongst the various industry participants."

Timberlands said both domestic processing and export are important for a vibrant forestry industry.

While processors like Red Stag and Carter Holt buy high-quality logs for structural timber, every tree harvested also produces lower-grade logs which need to find a market.

Paper and packaging makers like Oji Fibre Solutions need very low-cost fibre and generally only get logs not easily exported.

Timberlands said about 60 percent of the 4.5 million tonnes of wood it harvested in the June 2019 year was used locally.

Structural grade saw logs went to local processors, pulp logs went to packaging makers and lower grade saw logs were exported.

"Without this mix of customers, KT is unable to profitably sell all of the products from each individual tree. It is KT's approach to consider local mill demands first, then utilise the 'export' customer to ensure the full tree is utilised in the most profitable way."

(BusinessDesk)