Bruce's Blog

New Zealand’s timber industry faces familiar challenges, writes Bruce Larsen, president of New Zealand Timber Industry Federation.

In the 1980s, New Zealand experienced a seismic economic shift under the Lange government, introducing ‘Rogernomics,’ a free-market revolution that dismantled tariffs and subsidies. This forced industries, including timber manufacturing, to compete on the global stage without government support. Today the timber industry faces similar challenges - albeit in a different context.

The sector is currently grappling with high production costs, declining domestic demand and fluctuating international markets. New house-builds in New Zealand have significantly decreased from their 2022 peak and construction timelines are extending. Non-residential projects are particularly sluggish, with some taking nearly three years to complete. This slowdown has bred uncertainty within the construction sector, which is already reeling from high interest rates and cuts in government spending.

Amid these challenges many timber manufacturers are looking beyond New Zealand's borders to sustain their businesses. However, international markets come with their own set of difficulties. Low global product prices and supply chain disruptions, exacerbated by the lingering effects of the COVID-19 pandemic, persist. Additionally, the push for sustainability is adding financial pressure.

New Zealand's geographic isolation further complicates matters. Its ports are less attractive to global shipping lines, compared to those in more central locations. The distance from major markets in Asia, Europe, and North America often results in higher shipping costs, reducing the frequency and volume of visits from international shipping lines. Moreover, New Zealand ports face higher operating costs compared to their international counterparts, due to factors like labour costs, regulatory compliance and infrastructure maintenance. These higher costs make New Zealand ports less competitive, deterring shipping lines sensitive to operating expenses.

Energy costs are another significant challenge. Since 2021, wholesale electricity prices in New Zealand have surged from around $100 per megawatt-hour (MWh) to a staggering $700/MWh by mid-2024. This spike is attributed to low hydroelectric reservoir levels, limited gas supplies and insufficient investment in new generation. Companies like Winstone Pulp International have seen energy costs balloon to over 40% of production expenses, forcing them to halt operations and leading to job losses.

The parallels to the 1980s are striking. Back then, the removal of tariffs and subsidies exposed the timber industry to international competition. Today, high production and shipping costs, coupled with the pressures of a globalised market, again threaten the sector's viability. However, a key difference this time is the role of government in shaping the industry's future.

Under the previous government, the New Zealand Forest Industry initiated a Forest Industry Transformation Plan, aimed at enhancing the sustainability, productivity and value-added potential of the country's forest sector. The plan focused on shifting the industry’s emphasis from exporting raw logs to increasing value-added processing within New Zealand. It encouraged the development of new technologies and processes to produce higher-value wood products, such as engineered wood, bioproducts and advanced materials. The objective was to retain more economic value within the country, creating jobs and boosting regional economies.

The new coalition government has opted not to continue this programme in its original form, raising concerns about the future direction of New Zealand's forestry strategy. Without strategic support, many in the industry fear a return to the same vulnerabilities faced during the Rogernomics era.

Industry leaders are advocating government support, possibly even the reintroduction of subsidies, to keep operations afloat. But is this the right path forward? While it's clear that New Zealand's energy infrastructure needs urgent attention, reverting to protectionist policies could stifle innovation and long-term competitiveness.

As the country navigates these complex challenges, it is crucial to strike a balance between supporting the timber industry and fostering an environment where it can thrive independently. The lessons of the past are clear: while short-term fixes may offer relief, sustainable solutions will require a more nuanced approach. Whether through increased infrastructure investment, smarter regulations or targeted assistance, the future of New Zealand’s timber industry hangs in the balance — just as it did 40 years ago.