Saturday 30 May 2020

Reader Mailbag: the proposed forestry legislation

Back in April, BusinessDesk warned about some pending legislation around logging; I went through some of it then at Newsroom:
BusinessDesk last week reported that Jones is considering levies on log exports to fund some kind of “re-setting” of local industry, or a variety of regulations to ensure domestic lumber processors have their needs met before logs are exported.

The story noted how local lumber processors are struggling to compete with processors elsewhere when international prices for logs are high. Jones viewed protections were necessary to ensure a viable domestic log processing sector in New Zealand.

But it’s worth explicitly stating what that means. Jones, as Minister, would effectively be setting a price cap on logs, restricting exports whenever international demand is high. This would be a transfer of money from timber farms, which would otherwise profit from higher prices, to sawmills.

It would also mean a substantial shift in New Zealand trade policy. If another country banned the export of raw materials to New Zealand to subsidise its own processors, New Zealand’s processors might see that as basis for a complaint about unfair trade practices. New Zealand’s trade negotiators can boast about New Zealand’s clean record in following trade rules. If Jones has his way, those negotiators will have New Zealand’s trade restrictions in lumber thrown at them any time they object to trade practices which disadvantage Kiwi companies.

So it is misguided on pragmatic grounds that it will disadvantage New Zealand as the world leans toward greater protectionism – New Zealand has more to lose than most from a weakened rule-based international trading system. Wellington should be working to support that system rather than help tear it down.
The legislation is working its way through now. And it looks to be a complete disaster. BusinessDesk again had some excellent reporting from the Select Committee hearings, and on consequences like cancelled plans for lumbermill expansions.  

Stephen Layburn emails me today with more on the legislation:
Here’s one live example – the Forests (Regulation of Log Traders and Forestry Advisers) Amendment Bill

The submissions on the Bill are illuminating. Sadly, they are much more illuminating than officials’ reports.

IMHO, this has to be amongst the leading contenders for the worst piece of emergency legislation promulgated by the Government.

A glance at the regulatory impact statement elicits some truly worrying signs, in terms of both:
  • strained application (or disregard – depending on your point of view) of the most basic of economic concepts; and
  • a fundamental misunderstanding of the economics of domestic wood processing – and the nature of the NZ wood resource and its uses. 
Where, for example, is the comparative analysis of the over-arching policy espoused in support of the Bill - and the investment policies of the Provincial Growth Fund? Both are overseen by the same Departments.

From where I sit, the much-needed restructuring of domestic processing must be part of a much wider analysis of the wood resource, its uses and the new technologies coming on stream. To take just one example, surely, a key part of that study must include what New Zealand is going to do about important issues such as social housing. On the latter score, the appalling spectacle of clusters of campervans being used, during the COVID-19 lockdown, to house families in rural Northland – because they provided a better solution to the leaky, cold, houses available to those affected families must be a wake up call that technology such as prefabricated housing (using available domestic timber resource) needs to be applied urgently to address a problem that most New Zealanders would (if asked) agree needs to be addressed – right now.

Instead, we have another go at occupational licensing and more regulatory hurdles - that will hobble an industry and stifle innovation.

What next, legislate to require the coarse wool industry to prop up ailing carpet mills? Or force fine wool growers to supply the local craft industry rather than pathfinders like Icebreaker?

This is just a subsidy disguised as public good legislation and should be confined to the dustbin.

I am sure that it was Bernie Galvin who said (30 years) that past Presidents of the Manufacturers Association were buried 3ft under – so they could still get the next hand out.

I am not an economist or an industry expert, I have just spent a lot of time saving or closing down processing facilities. One issue that simply isn’t mentioned is that one of the reasons I am advised the economics of LVL plants are “challenging” – is that the resource isn’t stiff enough.

So you have the PGF, Scion and NZTE putting a huge amount of $$ into new technology (which will fix the stiffness issue) – and then the (same) Govt implementing a protection racket for old world technologies. Just terrible.
Could the government perhaps consider, well, not doing this?

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