A Log Export Explainer
Wednesday 18 Aug 2021
Builders are struggling to get hold of basic building materials and there are warnings that prices – already high – could rise as much as 35 per cent this year. It’s an ugly forecast for builders charged with tackling a chronic shortage of housing. And it is not easily fixed without the government doing a U-turn on the country’s entrenched devotion to free trade.
The problem has its roots more than 10,000km away in Chinese provinces like Shandong and Hebei, known for wood processing - and also in a trade agreement that has heralded significant benefits to our economy while at the same time undermining the country’s wood manufacturing sector over the course of a decade.
Why does so much timber go to China? - Simply, they are able to pay more. But there is more to the answer than just pure supply and demand. Let’s start with the Free Trade Agreement (FTA), which New Zealand and China signed in 2008. This got rid of import taxes on New Zealand logs going to China but did not eliminate those on other wood products New Zealand produces such as plywood (tariffs on many of these will be eliminated when an upgrade to the FTA takes effect).
In short, this means it can be more economical for China to buy logs from New Zealand than other wood products. It also means New Zealand logs are comparatively attractive to logs from countries without FTAs with China. This demand has resulted in higher prices for New Zealand logs.
And Chinese buyers can pay more for these logs even though they have to ship them all the way to China for a few reasons, including that the manufacturing sector in China receives some subsidies. A recent investigation by Canadian authorities into Chinese decorative wood moulding listed possible subsidies that manufacturing companies in China can receive, including: export market grants, significant reductions in corporate tax and other preferential tax policies and rent reductions.
Tava Olsen, a professor at the University of Auckland who specialises in supply chains, adds China’s processors also benefit from being larger and having fewer environmental restrictions such as the chemicals they use and how they dispose of them. She says it's also easier to ship logs than higher value products that would require more care to prevent damage.
The premium that Chinese buyers are often willing to pay has been a boon for forestry owners – many of whom are not New Zealanders but foreign corporations that have invested in land here. A 2019 report for the Ministry of Business Innovation and Employment found that forest owners were selling logs to local sawmills at the same price as they could get when they exported them. “Effectively, Chinese log buyers are setting the market price for New Zealand sawmills,” it argues.
Copyright 2004-2022 © Innovatek Ltd. All rights reserved.