Looking forward, many of the factors mentioned above are expected to continue to support housing construction activity. While now rising, borrowing rates are expected to remain historically low.
Given New Zealand’s solid economic performance and political upheavals globally, we expect net migrant inflows to remain strong for some time yet. The demand outlook is strong.
In addition to being competitive with drystock farming, forestry is a solid diversification strategy and can also help farmers meet new environmental regulations coming into force.
China accounts for 38 per cent of New Zealand’s total forestry export returns. Overall Chinese lumber and log imports have trended higher in recent years on the back of strong construction sector activity and a tightening in commercial harvesting of natural forests.
All up, market dynamics combined with an opaque supply chain make it challenging to forecast what might happen to the demand for and price of New Zealand radiata pine in China over the long term.
However, with pine being very good for a wide range of end-use applications it is very versatile. This should serve it well in meeting current applications in the housing and construction sectors.
The other potential revenue stream from forestry is carbon, with the introduction of the emissions trading scheme in 2008.
NZ’s commitments mean there is a need to reduce domestic emissions, increase forestry carbon-removals (i.e. plant trees) and/or purchase credible international units.
Given the market is heavily regulated there is a lot of political risk. Things could easily change with each election cycle – favourably or unfavourably for the forestry industry.
The real long-term prospects crucially depend on how the international carbon market develops. Globally there are an increasing number of schemes, suggesting continuity and possible new opportunities.
There are a number of different ways to view the potential revenue from carbon units. The 20 per cent to 25 per cent deemed permanent can be sold fairly easily if the land use is intended to remain forestry.
The remaining trading pool is trickier and depends on the price movements in the carbon and forestry markets over its growth cycle and at the time of harvesting.
Perhaps most importantly, carbon units provide forestry owners with an earlier cashflow option over the growth cycle of the forest.
Con Williams is a Rural Economist at ANZ NZ
You can read the full ANZ Research report HERE