Editorial: Mill redundancies hard but inevitable

Like most towns built on the foundation of one industry, Tokoroa has had its ups and downs. In its boom times, the nearby Kinleith pulp and paper mill employed more than 4000 people. Over the past decade, however, that number has dwindled as the mill confronted an increasingly competitive world.

But no community could become so accustomed to contraction that it could take the latest round of redundancies in its stride. The workforce at the mill is to be slashed from 772 to 369 when Carter Holt Harvey puts most maintenance and stores jobs out to contract and cuts production staff. At best, the net loss may be just over 200 jobs once some of the redundant workers are hired by a maintenance contractor.

Naturally, the company's announcement devastated a town whose declining population has mirrored that of the mill's workforce. Shop closures and a further exodus were forecast. Some community leaders drew the logical conclusion that it was time for Tokoroa to lessen its dependence on the mill. Perhaps, suggested one, it could become a centre for information technology training or, mimicking the success of neighbouring Tirau, a tourist stop. Others, however, simply vented their displeasure at Carter Holt Harvey.

The company may deserve some criticism. In making its announcement out of the blue, it paid scant regard to the impact on Tokoroa. Not only does there seem to have been no prior consultation with staff representatives but the chief executive was in the United States at the time. Those criticisms aside, though, it is hard to deny the validity of the reasons the company gives for the action it is proposing.

Over the past five years, Kinleith has earned Carter Holt Harvey just a 5 per cent average return on investment. Put simply, the mill is not paying its way. That level of return would not be tolerated by an individual, who would quickly seek either a remedy or an alternative investment offering richer pickings. A company is essentially no different.

Several factors have prompted Kinleith's poor rate of return. Most immediately, pulp and paper markets are at the bottom of their business cycles. But more threateningly, Kinleith faces strong competition from new mills overseas. Some of these boast new technology; some, such as in Russia and developing countries, benefit from low-wage workforces. Essentially Kinleith has been kept afloat by the low New Zealand dollar - a short-term proposition - and ongoing modernisation. The staff cuts, part of that process, are designed to cut costs - thereby increasing the productivity per worker - and boost the company's return on capital.

To do nothing was not an option for Carter Holt Harvey. There must be continued reinvestment in Kinleith if it is to be competitive. The present return is not sufficient for that to occur. Yet if the company sat on its hands, the mill would simply wither. Carter Holt Harvey's American parent, International Paper, would inevitably draw the conclusion that it could make more money processing New Zealand wood closer to its markets in China and other high-growth areas. Eventually, Kinleith, uncompetitive and unable to weather the draughts associated with a volatile commodity, would be closed.

Carter Holt Harvey, in fact, softened the blow of the staff cuts by suggesting that the preferred course was to stay in New Zealand. It is important for the national economy that such is the case. Kinleith earns about $500 million of overseas revenue a year, more than twice New Zealand's earnings from wine exports. Equally, it would be a giant step backwards if timber from the maturing forests of the central North Island were to be shipped overseas without value being added.

The issues surrounding Kinleith's long-term sustainability may seem esoteric to workers soon to lose their jobs or shopkeepers fearful of a serious downturn in trade. But just as Tokoroa must seek to diversify its economic base, so must Carter Holt Harvey seek to fashion an internationally competitive mill. If both are achieved, this dark cloud might yet have a silver lining.