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Forest growers’ proposed commodity levy

Ian Jackson, New Zealand Tree Grower November 2012.

A proposal to introduce a compulsory commodity levy on logs and other forest products at the time of harvest is expected to be voted on by forest growers during March 2013. The NZFFA is working with the NZ Forest Owners Association (NZFOA) to spearhead a promotional campaign before the referendum, so that all growers are well informed about the implications of a levy.

Why the forest industry needs a levy

At present, the forest industry has no co-ordinated or universal approach to funding its organisation or science activities. The introduction of a levy aims to solve this problem.

The two main forest owner organisations, NZFFA and NZFOA, are the voice of the forest industry. They promote wood, instigate research, lobby local and central government and provide general direction.

Members of these two organisations account for more than 80 per cent of the plantation forest area. However there are many forest growers, perhaps 10,000 or more, outside these two organisations who gain the benefits of the work of the NZFOA and the NZFFA, but do not contribute and could be considered as ‘free-loaders’. The challenges and opportunities that lie ahead for the forest industry need the commitment of all growers, not just the enthusiasts.

Forest research funding past and future

Historically, much of New Zealand’s forest research has been funded by government. Current total science spend for forest research is around $25 million a year, and covers many research areas. Scion, formerly the Forest Research Institute, is the major research provider. The voluntary subscriptions and efforts of growers who join either NZFOA or NZFFA, have, for many years, complemented government funding. In addition, in recent years funding has come out of a fund set up as partial compensation for the incomplete dissolution of carbon credits in the initial stages of the ETS.

These funds have now disappeared, and the government has made it plain that future research funding for forestry will be much reduced and be contestable. Unless the forest sector is prepared to step up and backs its own science, research activity will definitely decline. The industry will not develop to its potential, and its international competitiveness and profitability will be at risk.

The bigger industry picture

The New Zealand forest industry is worth around $4.5 billion to the export economy, the third biggest export sector and a large employer. Forestry is important to all New Zealand. A levy would provide a funding base for research aimed at producing higher yields of better quality timber and harvesting that timber more efficiently.

The industry has set itself some bold targets. For example, the NZFOA’s science and innovation plan aims to increase mean annual increment of radiata pine from the present day level of 18 tonnes per hectare to 35 tonnes a hectare by 2025. The science and innovation plan will be the basis of future research, aimed at doubling production by genetic improvement and growing healthier trees. Already, the major corporate industry members have committed to inject in excess of $5 million each year for research, up from the current $1.7 million.

The owners of New Zealand’s major forest companies have thrown their collective weight behind the implementation of a forest levy as they see benefits of research for their businesses. These companies may have the most to gain from a levy, but they would also be contributing the largest proportion of the levy money.

What is in it for farm foresters?

A more productive and profitable corporate forestry sector is good news for all growers, large or small, because it means an active, healthy industry, with plentiful resources and infrastructure and good marketing strategies. An active research sector also provides nationwide industry-good benefits to all growers, not just members of industry organisations.

The levy would also support research into alternative species, environmental protection, fire protection, biosecurity and forest health as well as new harvesting techniques. These are all important to all forest owners, whatever the size of their operation. The proposed levy governance structure gives representatives of small-scale forest owners a very significant influence over levy expenditure, which can only be good news for farm foresters.

Levy governance

If the levy gets the go-ahead following the referendum, a seven-member Forest Growers Levy Trust Board will be established. This board would be made up of an independent chairman, two NZFFA-appointed members and four others, voted by all forest growers. The board will represent a coherent industry voice for organising priorities and lobbying government.

It will administer the levy fund and be responsible for its allocation. A research committee will work under the board, to be set up with a terms of reference, to govern the research spend. Between 60 per cent and 70 per cent of the levy funds would be used for science funding. The remainder would be spent on wood promotion through Woodco, programmes run by NZFFA and FOA, and about 10 per cent for levy administration and collection.

The levy rate and collection

A compulsory levy would be collected on all harvested forest products, excluding firewood. Collection would be done in a similar way to that of other levies, at the point of sale. However, if ownership does not change, the collection would be when a log enters a mill or is accepted on to a wharf.

The levy rate has not yet been finalised but is likely to be around 40 cents a tonne. The total forest harvest in New Zealand in 2011 was 25 million tonnes. This gives a total potential levy collection of around $10 million a year at current harvest levels.

The referendum

The Commodity Levies Act controls the establishment and administration of levies. The Act has strict rules about representation, voting and transparency. For a forestry levy to succeed, it must have grower support comprising more than 50 per cent of the area and 50 per cent of the growers.

A grower, for the purposes of the forestry levy, will be anyone with over four hectares of forest. If a levy is approved, a substantive consultation and vote must be conducted every five years afterwards. The agreement of small growers is very important to get the levy vote across the line.

Conclusion

The mention of a producer levy does not always sit well with farmers, but there are plenty of successful current examples. They include NZ Kiwifruit Growers, the Foundation for Arable Research, Horticulture NZ and the Deer Farmers Association, so farm foresters can take lessons from these.

The NZFFA believes that a forest levy will not just benefit large-scale foresters. Small-scale growers stand to gain just as much proportionally from having a cohesive and healthy thriving forest industry which realises its potential.

Ian Jackson is the President of NZFFA

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