Forestry For The Future

  • Max Bradford
Enterprise and Commerce

Speech to New Zealand Institute of Forestry Conference
Park Royal Hotel, Wellington

I'm pleased to be here this morning.

I am particularly delighted to be able to speak about the theme of your conference: "Leadership in the New Zealand Forestry Industry".

Only a few years ago a similar conference might have been entitled: "Why Government should lead the Forestry Industry", as people expected Government to have the solutions and subsidies to help them prosper.

Today's theme shows the increasing confidence and maturity in your industry, and marks you as an industry with success in its sights.

What is leadership?

Leadership is about having a vision, it is about working to shape, perhaps control your destiny.

Leadership also encompasses the idea of striving to be in the lead, of pushing for excellence.

As the Eskimos say of their huskies:"if you're not the lead dog, the view is always the same."

New Zealand's Forestry industry has already shouldered the mantle of leadership.

In moving from a Government-owned or led to private-led industry you now have a strong commercial imperative to strive and thrive.

And thrive you have.

New Zealand's planted forest production is projected to increase from 16 million cubic metres to 30 million cubic metres per annum within 10 years.

Forestry has the potential to become New Zealand's largest export earner - our economic strike bowler in the first decade of the new millennium.

The Government applauds this achievement.

For our part we are committed to ensuring you have the economic and trading conditions you need to prosper in the knowledge-based economies of the 21st Century.

As a Government we have spent the past few years getting the economic fundamentals right.

We have focused on five key elements:
-developing an open, internationally competitive economy;
-lowering inflation and interest rates,
-reducing tax rates,
-fiscal prudence and reducing debt; and
-flexible labour markets.

The results speak for themselves:

During the last nine years of National or National-led governments, the growth rate has doubled from the indifferent growth under the last Labour government.

The exchange rate has devalued by over 16 per cent since June 1996, presenting a tremendous opportunity for exporters.

Interest rates are now at their lowest level in 30 years, while inflation levels are nearing record lows.

Taxes have been cut, meaning more money in your pockets at the end of the day and our debt to GDP ratio has halved, reducing the debt burden you and your children must repay.

Petrol prices have fallen after we encouraged new competitors to enter the market.

Electricity reforms will also deliver greater choice and lower costs of doing business, when they have had time to bed in and monopolistic lines companies have been reined in by price regulation.

Finally, thanks to the Employment Contracts Act we now have one of the most flexible labour markets in the world.

Remember the 1970s, when the forestry industry - particularly pulp and paper - was wracked by debilitating industrial strikes?

In the worst year 1976, the industry lost 488,000 working days of production.

It nearly brought the industry to its knees.

The ECA, with its emphasis on focusing employer/employee relations at the enterprise level in a true partnership, has played a pivotal role in getting rid of such destructive behaviour.

So much so that last year, New Zealand had the lowest level of industrial disruption since 1935.

What there was, was largely concentrated in the public sector.

The ECA works and will continue to work.

In this month's Budget the Government will be allocating $157,000 to fund one new Employment Tribunal Member to ensure that current and former employees who have a grievance do not have to wait too long for a fair hearing.

The extra member will focus on mediation and adjudication work in Hawke's Bay, New Plymouth, Palmerston North and Wanganui, where individual case backlogs and waiting times to hearings are longest.

More than anything else the ECA has been good for growth.

Since the Act was introduced in 1991, more than 270,000 new jobs - more than all the jobs in Canterbury - have been created.

These are not the signs of a troubled economy.

The success of the National Governments' reforms can be seen in the way we weathered the Asian economic storm in 1998.

While other countries plunged deep into the red, we came through quickly.

After only two quarters of negative growth all indicators have rebounded strongly.

The recovery has begun.

I appreciate, however, that the past 18 months have been perhaps more difficult for your industry than for some others.

Forestry has borne more of the brunt of the Asian crisis than most, with the decline in the Korean market for logs and the Japanese market generally. Despite this, the development of new markets for processed wood is continuing.

New opportunities are emerging.

Companies like Fletcher Forests and Wanganui-based NDG Pine are direct marketing processed timber into the competitive North American market.

This is where our future must lie, in higher value-add exports, based around a thorough research and development strategy to achieve it.

While the signs for future of forestry are positive, we must make sure we have learned lessons from the recent past.

The Asian crisis has helped underline the dangers of dependence on commodity products.

While industries such as farming and forestry have long been the economic backbone of our country, mass producing and exporting largely unprocessed commodities will not generate the wealth we need in the future.

Real commodity prices for primary products have been falling on a trend line for three years.

As you know, New Zealand Forestry currently relies largely on the export log market to take our increasing harvest surpluses.

However, these markets are generally low value end uses and have been unstable.

Prices for logs have been declining over recent years and there is little evidence that we can expect real price increases in the future.

This blunt economic reality means that even if you continue to do what you've always done, you cannot be sure of getting what you've always got.

It gets more difficult to extract value, and create wealth for the community.

Forestry needs to develop new products and new ways of doing things to meet the challenges of the 21st Century.

This is why you are here today.

Similarly, at a Governmental level we have recognised that we too need to do things differently - if New Zealand is to continue to enjoy the high standards of living that we have become accustomed to.

For years New Zealand has tried to soften the effect of falling commodity prices by promoting competition, cutting costs and becoming supremely efficient processors.

While this has been successful, further gains from this are limited.

Continuing to get the five 5 fundamentals right will underpin New Zealand's economic growth in the future.

But it will not be enough.

We need a better approach.

We need to to lift our sights and lift our game.

We need to continually grow the size of the pie, not skimp on the ingredients.

The future for New Zealand is to be small and smart - to become a Finland of the Pacific.

Finland is a particularly good example of where we could be.

Finland has moved from being a commodity trader, like New Zealand, dominated by forestry, farming and fishing, to a value-added high-tech export leader.

In the last two decades the proportion of high-value Finnish exports has quadrupled.

This focus on adding value helped Finland weather one of the worst economic recessions in the industrialised world since the second world war, in the early 1990s.

With their significant commitment to research and development the Finns bounced back quickly.

Since 1994 Finland has enjoyed excellent economic growth- about 5% per annum.

Exports as a percentage of GDP are over 30%.

.Finnish Government research supports high tech industries in Finland. But, the real difference, lies in the private sector funding.

While the Finnish Government provides a comparable sum to New Zealand on research and development, Finnish industry contributes nearly twice as much to R & D as New Zealand industry.

So, while New Zealand currently languishes near the bottom of an innovation index of OECD developed by Professors Porter and Stern, Finland is estimated to rise from 9th place in 1980 to 2nd in 2005.

I believe New Zealand can and should be near the top of the table for innovation as well.

To provide the leadership needed to build a knowledge-based, innovation-led economy in New Zealand, the Government has embarked on a series of 23 business forums called Five Steps Ahead.

The Five Steps Ahead frame work is :

Lifting New Zealanders' skills and knowledge.
Using both publicly and privately funded research to generate more valuable ideas for New Zealanders to use.
Improving New Zealanders' chances of getting the risk finance they need to turn good ideas into reality.
Ensuring regulations and laws support, not frustrate, innovation.
Promoting success and backing New Zealanders with creative ideas.
These goals are all inter-linked and must be thought of holistically.

They are about getting the best from our people and our resources.

We are looking at how we spend $2.2 billion a year on tertiary education, and establishing greater accountability for educational outcomes from universities and polytechnics.

New Zealand has fewer researchers, scientists and technologists in our workforce per head of population that most OECD countries.

Science and technology graduates - who will be one of the keys to innovation and economic growth in the new economy - are a smaller proportion of university graduates in New Zealand than anywhere else in the OECD.

On the other hand, we educate more lawyers and accountants than any other country in the OECD, which is not the way to create wealth.

These are the facts.

Unpleasant as they may be, we have to acknowledge and do something about them.

As Minister for Tertiary Education I am committed to ensuring that our industry training system is meeting the needs of industry and students alike.

That is why I have recently written to all ITOs and key stake-holders seeking feedback on the success of the Industry Training Strategy.

I note that in your industry, the number of forestry industry trainees increased by 55% between June 1996 and December 1998, so clearly there is a demand for skilled workers from your industry.

I would therefore welcome your views on what, if any, enhancements could be made to the strategy.

We spend $600 million a year on research and development, but are we spending it in the right strategic areas?

If so, are we spending it on the right kind of research?

Are industry and research institutions working together to find innovative solutions to today's problems?

A few are, but the vast majority are not.

One excellent example of the sort of thing I believe we should be doing has been the development of a resource-based logistics system by Rotorua's CRI, Forest Research.

This allows foresters to pick the best logs for each order and establish the most cost-effective manner of processing and delivering the logs to market.

Not only is this estimated to save the New Zealand Forestry Industry approximately $300 million per annum at current harvest levels, but there is strong commercial demand from overseas for the system.

The Government is working hard on initiatives to increase inward investment and its associated benefits of bigger and better ideas and employment.

Your industry is a good example of one that has benefited from inward investment as witnessed by the substantial commitment firms such as Rayonier, Weyerhauser and Juken Nissho have brought to New Zealand.

We are also committed to cutting compliance costs, red tape and getting Government out of the way of business.

We have come a way in this area but it is clear that we still have some way to go to improve taxation regulation and some labour market legislation such as the Health and Safety in Employment Act and the Resource Management Act.

Finally, and most importantly we are committed to celebrating success.

New Zealand's tall poppy syndrome is a major barrier to establishing a culture of innovation, motivation and a forward strategy.

The 23 regional 5 Step Ahead forums are a key element in changing this attitude.

They are bringing the business, education and research and development sectors together to learn from each other's experience.

The key to our future prosperity is forging real working partnerships between sectors that build of each other's strengths.

The conclusions of the forums will be incorporated into a new business policy that will be built around a commitment to partnership.

It will be comprehensive and integrated.

The 5 Step Ahead formula is not a magic bullet - it's good economic sense.

It's about lowering taxes and business costs, not increasing them as some political parties would.

It's about supporting winners, rather than picking winners.

This does not mean subsidies, as some political parties would have us return to.

Those policies have been tried and failed.

We do not want to go back to the days of the DFC and Matai Industries.

Nor is it about providing government guarantees.

Overseas experience shows this is expensive and risky for Government.

Nor is it about creating extra layers of bureaucracy.

We want less bureaucracy, not more.

It is not about weakening the ECA, and strengthening unions again.

The 5 Steps Ahead formula is about making New Zealand the best place in the world to live and do business.

The vision may be Government-led, but it requires all sectors to work together to make it happen.

We all have to take the next critical steps to make the concepts like 5 Steps Ahead work in practice.

There are of course risks in defining a strategic direction for New Zealand and for sectors like yours.

But, without taking risks and daring to do things differently, there will be no rewards - unless the rewards we are seeking are those of mediocrity and we are prepared to leave our destiny in the hands of others.

The Government I belong to is not prepared to see this happen.

And I can see from this conference that you aren't either.