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Forestry exports account for 11% of the total primary industry exports and are significantly impacted by global economic trends and demand from key markets. In the short term, we expect log export volumes to rise slightly as demand from China’s construction and housing sector improves – although this will depend on the overall economic conditions and the effectiveness of the Chinese stimulus measures. However, in the medium term, reduced roundwood harvests will constrain forestry exports, and a lack of domestic value-added wood processing capacity will limit New Zealand's ability to increase export values. Globally, demand will outpace supply, and trade protectionism may further limit market access, driving prices up. As a result, lower export volumes will be partly offset by higher prices, leading to a gradual increase in export value.
The forestry sector is an important part of New Zealand’s economy
The forestry sector encompasses a range of activities, from the management of grown forests to harvesting logs and to processing logs into primary products. These include sawn timber and wood panels (veneers, particleboard, and fibreboard), as well as pulp and paper. Logs and wood products are the country's fourth-largest export earner.
Figure 1 – Forestry export revenue (quarterly, seasonally adjusted)[1]
Source: Stats NZ, MPI, Treasury
The sector is also a major employer and driver of economic activity for some regional areas, supporting a workforce of over 42,000 people. However, the sector's direct contributions to New Zealand's GDP have been showing a steady decline in percentage terms, partly due to competition from other land uses, changes in global demand, and shifts in investment towards more profitable sectors. Forestry export revenue for the year ending June 2024 was $5.75 billion (Figure 1), making up 8.7% of total merchandise exports and contributing 1.6% to GDP.
Harvest volumes are down due to low export demand and a soft domestic market…
Over the past five years, the amount of wood harvested in New Zealand has decreased. Harvest volumes have declined by 10.4% from 36.5 million m³ in the year ending September 2019 to 33.1 million m³ in 2024. In the same timeframe, export volumes and domestic processed volumes are down 6.2% and 17.8%, respectively. China accounts for nearly 60% of New Zealand’s total forestry exports, and recent weak construction activity in China has been a major factor in the reduced harvest volumes.
Demand from domestic residential building construction has also plummeted over the past few years, exacerbating drops in the volume of harvested wood. While an expected increase in export activity will support wood harvesting over the next few years, insufficient planting following the 1990s boom will cause harvest volumes to start declining in the medium term.
... but log export volumes are expected to lift
According to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), roundwood harvesting in Asia is expected to increase by 34 million m³ (8%) from 2020 to 2030. However, this growth will not meet the projected 230 million m³ (45%) rise in roundwood consumption. While this forecast seems optimistic, the shortfall will likely lead to increased growth in roundwood imports into the region, especially to China, making Asia the largest global importer of unprocessed wood products over the next decade, creating an opportunity for New Zealand exporters.
Post-COVID, log export volumes have remained subdued (Figure 2), primarily due to low export log prices. Average log export prices fell by 6% from $162 to $153 per cubic meter between 2019 and 2024. China is the dominant market for New Zealand's logs, accounting for 90.5% of log exports in the year to September 2024. Log exports to South Korea and Japan have been decreasing over the years, and export volumes are anticipated to stabilise going forward. The Indian market is small but an emerging one. New Zealand has resumed its log exports to India following the resolution of the methyl bromide fumigation dispute. This has reopened a crucial market that had previously experienced a significant decline. It is expected that Indian demand for New Zealand logs will remain modest for the time being. Given China’s dominance in the market for New Zealand logs, immediate prospects are closely tied to improvements in the Chinese construction sector, which has undergone a significant contraction post-COVID-19. However, it is anticipated that log export volumes will increase in the coming years as China’s property market stabilizes and starts growing, albeit at a slower pace. Afterwards, log export volumes are forecasted to gradually decrease due to constraints in log availability.
Figure 2 – Exported vs. domestically processed log volumes (quarterly, seasonally adjusted)
Source: Stats NZ, MPI, Treasury
Wood processing capacity has not yet returned to pre-COVID levels
Whilst roundwood exports remain central to New Zealand’s forestry export receipts, sawn timber products are an important source of value add for the sector. Sawn timber volumes have remained relatively static over the past 20 years. Meanwhile, production volumes for other products have trended downwards (Figure 3).
Figure 3 – Production volumes of processed wood products (quarterly, seasonally adjusted)
Source: MPI, Treasury
The decline in wood processing is attributed to ageing infrastructure, reduced investment, mill closures, shifts in market demand, and increased competition. There has been a rise in imported paper products, creating competition for domestic producers. Chinese manufacturers have boosted their paper product exports to Australia, a market where New Zealand also has significant exports. Additionally, Russia's self-imposed ban on the export of logs and lower freight costs have led to an increase in sawn timber exports from Russia to China.
Investment in the wood processing sector has lifted…
The flat production growth in the wood processing sector reflects low investment to expand wood manufacturing capacity. Investment in processing peaked in the early 2000s and subsequently fell until 2017, while the forestry and logging sector saw considerable investment and growth. Since 2018, investment in wood processing sector has been on the rise (Figure 4), primarily driven by investments in the sawmilling sector, which has led to higher production of sawn timber. Looking ahead, additional investment in wood processing is likely to be supported by initiatives such as the Wood Processing Growth Fund. These initiatives aim to enhance onshore wood processing, increase the value of the forestry sector, and reduce reliance on log exports.
Figure 4 – Gross fixed capital formation (annual)
Source: Stats NZ
...productivity is increasing, although more significantly in the forestry and logging sector
Investment in the wood processing sector in the late 1980s and 1990s boosted productivity. Since 2000, forestry and logging productivity grew faster than wood processing over the same period (Figure 5). Productivity in forestry and logging depends on soil, climate, tree management, and harvesting technology, with harvesting costs making up about half of production costs. Future improvements are expected with the adoption of innovative tools and techniques for log felling and extraction. As harvest volumes decline, harvesters will strive to extract as much value from the available volumes as possible. Wood processing productivity is expected to rise with increased investment and new technologies like automated machinery and advanced processing techniques.
Figure 5 – Total factor productivity (annual)
Source: Stats NZ
Exports of sawn timber are expected to increase…
Sawn timber is New Zealand’s leading export earner among processed wood products (Figure 6), accounting for around half of all processed export volumes. Currently 40% of the sawn timber produced is exported, primarily to the USA, Australia, and China. However, there's growing demand from Asia-Pacific countries, which in time could lift export demand and shift trade flows. However, with growing local demand for sawn timber, the sector’s ability to take advantage of newer export markets is likely to be constrained.
Figure 6 – Export volumes of processed wood products (quarterly, seasonally adjusted)
Source: Stats NZ, MPI, Treasury
...but pulp, paper, and panels exports are likely to continue struggling
New Zealand exports about 40% of its wood panels, 60% of its wood pulp, and 60% of its paper products annually with wood panels, pulp, and paper contributing 18%, 22%, and 11% to total export volumes, respectively. Key markets include Japan for wood panels, China and South Korea for pulp, and Australia for paper. Demand for paper products like newsprint and printing papers has fallen due to the shift to digital communication. Several mills closed in 2024, with some contemplating halting production in 2025, largely due to high operational costs, including energy prices, raw materials cost, and labour costs. As a result, exports are likely to continue to decline. Pulp production faces several challenges similar to those in the paper sector. Although export demand is anticipated to be strong, production constraints are likely to keep export volumes subdued. Wood panels are less affected by energy costs since some mills generate much of their energy by burning wood waste. However, since 2022 export volumes have declined as capacity in the sector has fallen. With no planned reductions in domestic production export volumes are expected to level off.
Global supply is forecast to rise moderately…
In recent years, global roundwood removals have averaged around 4 billion m³ annually. Approximately half of this amount is utilized for fuel, either directly as fuelwood or in the production of charcoal and pellets. The remaining 2 billion m³ primarily serves as raw material (industrial roundwood) for producing sawnwood, wood-based panels, and woodpulp. Most of the woodpulp is used in the production of paper and paperboard. The Food and Agriculture Organisation (FAO) forecasts a 4-8% increase in global roundwood production from 2022 to 2030, which indicates a slowdown in the growth of supply in the coming years. Various trade restrictions and policies including export bans and tariffs, and measures to process more logs domestically could limit the amount of roundwood available for international markets, thereby putting upward pressure on prices.
...while global demand grows faster…
Global consumption of roundwood is projected to rise by 6.4% between 2025 and 2030, based on projections by ABARES. Global demand is expected to outstrip supply primarily due to robust economic and population growth, which drives construction activities and increases the demand for wood products. This includes increased urbanization, the rising use of wood as a renewable energy source, the transition to a bioeconomy where wood plays a key role, and stricter environmental regulations promoting the use of sustainable materials like wood.
… and global prices increase slowly
Whilst the net impact of various factors driving global roundwood demand and supply is uncertain, the projected rise in demand, combined with constrained supply, will support increased price growth. Based on ABARES projections, international prices of roundwood are expected to increase by 9.2% between 2020 and 2030, with an average increase of 5.5% from 2020-2025, and 3.5% from 2025-2030.
Forestry export revenue will grow at a slower pace
The performance of New Zealand’s forestry exports will continue to depend on China’s construction and housing market, as well as global economic conditions. While the outlook is uncertain, total export volumes are expected to rise slightly in the next few years before declining due to log availability constraints. Additionally, the industry is likely to increase domestic log processing, redirecting some exports to local markets. The outlook for processed export volumes remains uncertain, as some categories may see an increase whilst others may experience a decrease. Despite the decline in export volumes, moderate price increases are expected to partly offset this, resulting in higher but more gradually increasing export revenue in the medium term.
Note
- [1] Other forestry products include chips, panels, paper and paperboard, and other forestry products.