The development of the New Zealand forestry sector over the past decade has been integrally bound to New Zealand's economic direction. To understand the motivations for substantive changes in forestry during that period, and to understand the frame of reference from which New Zealand's internal and international forest policies emanate, an understanding of the broad thrust of New Zealand's market-led economic strategy is necessary.
During the period 1945-1984 New Zealand's economic performance can be characterized by on-going deterioration in wealth relative to other developed countries. New Zealand emerged from the Second World War with its industrial and agricultural capacities intact in a world facing major shortfalls in agricultural and consumer goods. The opportunities for a country with significant productive potential were such that in the early 1950's New Zealand's Gross National Product (GNP) per capita was second only to Switzerland. However, New Zealand's failure to capitalize on this wealth by developing industrial capacity, and its continued reliance on primary commodity products as its main source of income, saw it enter the 1980's ranked beyond 30th in a list of countries' per capita GNP's. By 1984 New Zealand was heavily indebted and facing a major currency crisis. Government budget deficits and Balance of Payments deficits were endemic and New Zealand had, probably, the most protected economy in the OECD.
In 1984 a change of Government ushered in a period of enormous economic reformation and restructuring. The new Government embraced a neo-classical, market oriented economic philosophy which adopted a handful of core principles and imposed these across every sphere of the economy. The key tenet was that efficiency in the economy would be maximized if markets were allowed to operate with a minimum of Government interference and distortion. The following decade saw an unprecedented drive to remove the hand of Government from almost every conceivable market. All forms of producer and exporter subsidies and incentive payments were removed, systems of import licensing and import quotas were eliminated, tariff protection was slashed, and consumer subsidies were largely removed. The exchange rate mechanism was reformed, moving from a fixed pegged system to a floating system. Government services were oriented along "user-pays" lines and the entire Government sector was restructured to improve accountability, reduce costs and focus priorities. Government-owned industries and service centres were re-oriented to work as closely as possible to a private sector model, often being corporatized with the Government taking a "passive" role as a sole shareholder. Where feasible, industries were completely sold-off to the private sector. Later reforms saw the Central Bank assigned a single role to control inflationary distortion in the economy, and saw labour market flexibility substantively increased through a dissolution in the power of organized labour.
The restructuring process was however, costly, at least in the short-term. Untrammelled exposure to the marketplace illuminated the lack of competitiveness of many New Zealand firms. With Government no longer prepared to support and subsidize inefficiency almost every firm was forced to identify and focus on areas of true competitive advantage and to shut-down or retrench areas outside of core competencies. A considerable number of firms were unable to make this transition and closed down or went broke. With Government concurrently maintaining a tight monetary stance to rein in inflation while also labouring to improve its fiscal situation New Zealand's productive sectors were severely squeezed over an extended period. New Zealand's average annual growth rate of real GDP for the 1980's was 1.5 percent. Meanwhile, unemployment, which had historically remained no greater than 5 percent rapidly accelerated to a peak of 10.9 percent in September 1991.
The forestry sector experience essentially followed the same path, and absorbed the same shocks, as did the general economy. Prior to 1984 the forestry sector was dominated by Government's forestry agency, the New Zealand Forest Service. In 1984 the Forest Service owned 52 percent of the planted forest estate. The Forest Service was partially funded out of tax revenues enabling it to operate as a benevolent supply source to independent processors. Operating with a number of objectives the Forest Service restricted exports of log supplies, provided subsidized wood supplies to the private processing sector, and operated with a general mandate to promote the national interest through forestry as best it saw fit. Beyond the sphere of the Forest Service, the private forestry sector was also eligible for a range of export incentives and business development incentives (available generally to business), received substantial trade protection from a raft of regulatory barriers and, at various times, received targeted Government assistance for forestry development and improvement.
Between 1984 and 1987 the majority of this assistance was phased out, concluding with the dissolution of the Forest Service and the corporatization, and later privatization, of the planted forest estate. The extent of the reforms impacted significantly on the forestry sector, particularly in the area most exposed to competition - sawmilling. Annual sawn timber production between 1986 and 1988 fell by 24 percent. Similarly, new forest planting declined by 38 percent over the same period with both private and state planting declining by similar proportions. A number of small, inefficient mills were closed and almost every company went through restructuring and rationalization processes. Staffing numbers were reduced, machinery upgraded, processes revamped and production focused on areas of competitive advantage.
It was not until 1993 that the first real evidence of an economic recovery began to appear. But the appearance was both strong and robust. Real GDP growth accelerated to 6.2 percent in the year to June 1995. Unemployment began to track rapidly downward. In March 1994, unemployment was 9.4 percent. By March 1995 this had reduced to 6.7 percent and by December 1995 had further reduced to 6.0 percent. Meanwhile inflation had stabilized at around 2 percent, compared with 20 percent in the mid-1980's. The New Zealand dollar also began a strong appreciation against the currencies of most of its major trading partners.
The recovery of the forestry sector charted a slightly different path correlated with variables somewhat disassociated with the general economy. Firstly, a rapidly increasing harvest in New Zealand throughout the 1990's has always been seen as likely to reinforce the development of a stronger wood-processing sector and presage an acceleration in the growth of the whole sector. Secondly, a series of price booms, in log markets, for solidwood products and latterly in pulp and paper markets has provided a cash fillip for each sector and enabled firms to consolidate gearing ratios which might otherwise have caused instability in the sector. Separately, the privatization of a large proportion of previously Government-owned forests has provided enhanced access to offshore capital for processing investment.
The future for the New Zealand economy is promising. The economic reformation of the past decade has left a strong foundation for sustainable economic growth. Very few industries are now dependent on Government assistance for survival, and almost all forms of Government protection or assistance have been abolished. The current and forecast macro-economic indicators are generally healthy. The Reserve Bank Act continues to require that inflation be constrained in a 0-2 percent band, unemployment is declining, and the Government debt has fallen from close to 50 percent of GDP to below 30 percent of GDP. As the debt interest burden lessens so the rate of debt retirement can accelerate, even in tandem with less austere fiscal policies. A first round of tax reductions is due mid-1996 with a strong intention for later rounds also indicated by Government. The flexibility to further lower taxes provides Government an additional tool to help combat the onset of recession.
The economic position for New Zealand's forestry sector is also sound. Forest owners are free to sell logs on international markets and are able to openly compete against the agricultural sector for land resources. Despite the absence of significant Government forest planting, record planting levels are presently being achieved. Forest owners are operating profitably in an area of strong competitive advantage.
Free access to export markets allows integrated forest-growing and processing companies to structure their entire business to maximize profits, exporting logs and processed products as desired. However, processing companies without their own forests are in a more difficult situation. These companies must pay the international market price for logs while many of their competitors receive more favourable treatment through log export restrictions. The absence of domestic subsidies and incentives, and occasionally foreign tariffs and import restrictions, mean New Zealand's processing industry is susceptible to being squeezed out of markets by less efficient competitors. Conversely, the industry is not subject to special levies, it is not heavily taxed to provide subsidies to other sectors, nor are its production input and labour costs inflated by heavily skewed domestic prices. This sector's real competitiveness will be enhanced as Government debt retirement enables further reductions in the burden of taxation.
The present New Zealand Government's economic vision and strategy for the coming 15 years are outlined in a series of publications titled Path to 2010, Towards 2010, and New Opportunities. This document reviews Government's agenda since 1990 and specifies economic recovery in three phases; implementation of reform, a period of adjustment, and reaping of the benefits. The Government clearly believes New Zealand has entered the third phase although some areas of reform are still required. Pathway to 2010 identifies a targeted sustainable growth rate of 3 percent per annum to 2010. Government debt is expected to be eliminated shortly after the turn of the century which will in turn free up finance for Government to upgrade social service spending, particularly education and health facilities. Unemployment should stabilize at its natural level, currently probably in the range of 4-5 percent.
In terms of strictly economic dimensions, forestry reforms are currently reaching the end of a chapter. In March 1996 the Government announced its firm intention to privatize the Forestry Corporation of New Zealand (FCNZ), the State-owned enterprise operating the majority of Government's remaining planted forests (12 percent of the national planted forest resource). It is likely FCNZ will be sold before the end of 1996. Government's arm will then rest only very lightly across the forestry sector. Government will own less than 4 percent of the planted forest resource. These are all forests with indigenous people's (Maori) claims against them or forests subject to special environmental agreements. Government will also retain leasehold forests totalling an additional 4 percent. Some sectors will retain minimal, and reducing, tariff protection. New Zealand was a proponent of the zero-for-zero tariff proposals for forestry in the GATT Uruguay round and agreed to eliminate pulp and paper tariffs. Beyond this, Government's primary economic role, assuming no dramatic policy reversals, will be to maintain the current "climate of enterprise".
The major economic challenges facing industry over the coming decade, again assuming consistent government policy, will be to retain export competitiveness in the face of likely exchange rate appreciations and a possible post-GATT proliferation of non-tariff barriers to trade. A major challenge will be to continue to attract investment capital in processing industries thereby enabling more of the benefits of the increasing forest harvest to be captured within the country. While some difficulties remain, there is little doubt that the forestry industry in New Zealand is in good shape. This should be expected. There is little doubt that economic imperatives have dominated social policy objectives for the past decade in New Zealand. However, both the political and policy environment in New Zealand are changing and changing priorities may be less business-oriented relative to the current environment.
For the past hundred years New Zealand has operated an electoral system modelled on the Westminster system whereby party-affiliated candidates are voted to represent regional electorates in a Parliament. The party representing the majority of electorates is invited to form a Government, appointing Cabinet Ministers and, through a (generally) absolute majority in Parliament, enacting legislation and setting policy. In theory, with no limits to the number of parties eligible to stand for election, such a system will not necessarily yield a clear majority. In practice, in New Zealand only two parties have realistically contested Parliamentary control at any time. This system will change in the elections to be held in late-1996. A referendum held at the time of the 1993 general election gave majority support for a Mixed Member Proportional Representation (MMP) system.
In retrospect, the speed of economic reform in the 1980's carried with it the seeds of electoral reform. Successive Governments with large majorities and a will to reform implemented change at a level unprecedented in New Zealand. The reforms, which perhaps now are bringing new prosperity also brought widespread pain and disillusionment with Government. A perception grew that the existing electoral system conferred too much power to the ruling party, and within that party the Cabinet, or a small group of Senior Ministers within Cabinet, effectively wielded that power without adequate checks.
Consequently, the political situation in New Zealand is at its most fluid this century. Politically, there are four major players, with the present National Government representing the status quo to the Centre-Right of the political spectrum and the other three parties taking more Centre-Left stances. The most likely scenario for the coming election is for the current National Government to take 40-50 percent of the vote and to select the most acceptable coalition partner thereby remaining in power. It is unlikely under this scenario that a "bride-price" which involved significant deviation from the present core economic tenets would be acceptable. The alternative scenario is the formation of a more unwieldy Leftist coalition which might substitute more spending on social programmes at the expense of debt retirement and bring the process of privatization to a halt. Such a coalition would, however, probably find it difficult to agree on dismantling too much of the underlying economic framework in the short run.
In the medium term, through to 2010, it should be expected that in economic terms New Zealand will drift leftward with market-led economics being compromised to a greater or lesser extent to provide an enhanced network of social support. This expectation is based solely on the judgement that it is unlikely the current Government will retain power for the entire period and, in any case, its programme of economic reform is largely complete. Consequently, there is little probability of further reform to the Right. Essentially, the extent of economic reform initiated during the next 15 years is likely to be largely dependent on the country's ability to afford whatever level of social spending a particular Government determines.
Likely political issues which would have substantive impacts on the forestry sector are; taxation reform, tightening of foreign investment controls, Maori land claims settlement, log export bans, and more stringent environmental controls. At present, however, it is difficult to seriously contemplate suggestions that the privatized forest estate might be compulsorily nationalized. At the macro-economic scale, reform of employment legislation and relaxation of the sole monetary policy target would not generally favour the forestry industry, or business in general, in the long run.
Forests are an intrinsic part of New Zealand's cultural and societal identity. New Zealand, with a population of 3.6 million, is one of the world's least populous countries particularly considering almost the entire land area is potentially habitable. The small population, associated with relatively recent colonization, means New Zealand still has a considerable expanse of readily accessible wilderness areas. The scenic and landscape values of these areas are a fundamental cultural tenet and source of national identity and esteem. Many New Zealanders take pride in the image of a country which is clean, unpolluted, and unspoiled. The natural forests, covering a quarter of the land area, in their own right and inherently contribute to these values and image. There is little doubt that the preservation of these values will be an imperative for New Zealand for the foreseeable future. Certainly, over the next fifteen years the likelihood is that New Zealand's environmental performance will improve rather than deteriorate, and that forest regeneration will dominate degeneration.
At a less esoteric level, the forests make important contributions to a range of social values and activities. Naturally, employment in the forestry and supporting industries is one aspect of these contributions. However, forestry is not a major employer of people (i.e., 28,000 jobs in 1994). There are, however, a number of small communities dependent on forestry to maintain their viability. The level of employment in forestry has in fact been declining since late 1980s as a consequence of increasing plant automation and deregulation. Between 1988 and 1992, for example, 3,000 jobs were lost in the sawmilling and remanufacturing sector while timber output increased by 40 percent. Over the same period employment in the pulp and paper sector declined by 16 percent while output showed an increase. Prospects over the next decade are, however, for increasing employment in, at least, forest products processing industries. This will be in response to the commissioning of new mills to cope with the increased harvest in a number of areas. Nonetheless, despite the potential for significant employment expansion through the development of a strong remanufacturing industry, the evidence to date suggests the forestry sector will continue to be a relatively minor employer in New Zealand.
Outside of the forest industry there is also a significant, but largely unquantified, forest-dependent labour force. Building, tourism, recreation and conservation are all activities to which forests make an employment contribution. Naturally, forests also contribute a separate core dimension as a focus for tourism and recreation. Activities such as trekking, climbing, camping, hunting, photography and sight-seeing are all dependent or extensively enhanced by New Zealand's forests. Forests are also important in a wide range of other recreational activities such as diving, fishing, horse-riding, bird-watching, orienteering, mountain-biking and motorcycling.
The forests also have a range of cultural values which include artistic, heritage, and spiritual values. The Maori dimension of these values is an important component. Historically, the Maori culture had strong forest associations. One of the principal Maori gods was Tane, the forest god, and the forests were a primary source of food, fuel, housing materials, clothing, and tools as well as providing carving, weaving and drawing materials for religious and artistic purposes. More recently, the impact of forests on the New Zealand lifestyle has been reflected in the prominence of forests in the post-colonial culture. New Zealand art, literature, and films almost invariably have strong natural and forestal themes.
In general most forest management agencies have assumed educational and research roles. The educative role covers a range of participants from school-children to adults and in some cases includes interpretation facilities to ensure that visitors can understand the role of forests in their surroundings. Visitor and Field Centres operate at sites throughout New Zealand. The Forestry Industry Training and Education Council (FITEC), a joint partnership arrangement between government and industry, is working to further educate New Zealand schoolchildren on forestry issues through its Forestry Insights programme. This programme aims to provide all schools in New Zealand with free-of-charge quality technical information about forest growing and processing. The material is fully integrated into the existing school curricula and provides a forestry context and examples across a wide range of core school subjects. The purpose is to stimulate school children's interest in forestry.
