Forestry in New Zealand: the Role of Japanese Companies Introduction: Business Field

43rd Joint Meeting of the Japan New Zealand Business Council on 23 Nov. 2016

Forestry in New Zealand: The Role of Japanese Companies Introduction: Business Field

Upstream Midstream Downstream 1691 1950～ 1960～ 1970～ Domestic Forestry & Wooden building Wooden building Housing-related environment business materials distribution materials manufacturing business business business Custom-built home construction & sales business

Domestic forestry Domestic Remodeling, leasing, business manufacturing other housing-related Distribution of timber business business and building materials in Japan and overseas

Overseas tree planting Overseas business manufacturing business

Overseas housing business Overseas

Company-owned forests in Japan Owned or managed overseas plantations 46,443 ha As of March 31, 2016 Approx. 230,000 ha As of June 30, 2016

Natural Plantations Other forest =500 ha =3,000 ha

Hokkaido Indonesia 18,199 ha 160,000 ha

Honshu 4,280 ha Papua New Guinea 31,000 ha Kyushu Shikoku 9,181 ha 14,783 ha New Zealand 36,000 ha

SUMITOMO FORESTRY CO., LTD. ALL RIGHTS RESERVED. 2 General Information of NZ’s Forests 6% • Land area: 27.1M ha 24% 43% (Japan: 37.8M ha) 26% • Forest area: 10.1M ha (Japan: 25.1M ha) Pasture/arable Other (non-forest) • Forest cover: Naturan Forest Plantation Source: NZFOA (2013) / Dana (2014) 38.6% (Japan: 66.4%) • Forest owner: Public 60% Private 40%

SUMITOMO FORESTRY CO., LTD. ALL RIGHTS RESERVED. 3 Plantation Forest in NZ • Almost all logs are produced from plantations。 • There were 3 plantation booms which occurred: in the 1930’s, from the late 1960’s and early 1980’s. • Current plantation area is about 1.75 million ha. This is about 6% of the land area and 20% of all forests areas. (41% of the forest area is plantation in Japan) • 56％ of plantations are FSC certified as at 2014.

• Radiata pine accounts for 90% of plantations. • Radiata pine is suitable for the climate of NZ and it growth relatively fast.

• 1st plantation boom (1925-1935) • Plantation by public and private sector is actively conducted. • 2nd plantation boom (late 1960’s - early 80’s) • Government subsidies for private plantations. • Newly established/expanded pulp mills. • 3rd plantation boom (1991-1999) • Triggered by the privatization of state forests (1989). • Rise in the price of logs accompanying the development of forest industries. • Restoration of tax incentives for plantation investment by revision of income tax law. • Conversion of pasture to plantation.

• Classification of owners; • Forest processing company • Investment fund • Small/medium scale owner • Investment for acquiring forests due to the privatization of state-owned forest since 1989. • Characterized by many large-scale owners. • Acquisition of plantations by US investment fund. • Privatization of state-owned forests and improvement of investment environment lead to the ownership of forests by overseas investment funds.

SUMITOMO FORESTRY CO., LTD. ALL RIGHTS RESERVED. 7 Ownership of Plantation Forest Forest owners (> 50,000ha) Owner Area (ha) Category Hancock Natural Resource Group 200,000 TIMO Kaingaroa Timberlands 175,000 TIMO Rayonier/Matariki Forests 123,000 TIMO PF Olsen 109,000 TIMO Ernslaw One 113,000 Private Global Forest Partners 85,000 TIMO

TIMO: Timberland Investment Management Organization • TIMO: Professional fund manager who owns forest assets backed by investment funds. • Main incomes are 1) gains on sale of logs, and 2) gains on sale of timber land, and plantations are sold after a certain period of time. • 5 of 6 large-scale owners are TIMOs.

2,000 1,800 1,600 1,400 1,200 1,000

1,000 ha 1,000 800 600 400 200 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Radiata P. Douglas fir Other conifer Non conifer • 1.26M ha in 1990 to 1.83M ha in 2003, and has stabilized around 1.75M ha in recent years.

500

400

300 Million m3 Million

200

100

1997 2007 2014 1991 1992 1993 1994 1995 1996 1998 1999 2000 2001 2002 2003 2004 2005 2006 2008 2009 2010 2011 2012 2013 2015 • 233 million m3 in 1991 to 502 million m3 in 2015.

30,000

25,000

20,000 m3 Natural log Planted log

15,000 1,000

10,000

5,000

1954 1987 1951 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1990 1993 1996 1999 2002 2005 2008 2011 2014 • Resource volume is increasing based on expansion of plantations. • Production volume has also continued to increase.

30 000 Export Domestic use 25 000

20 000

1,000 m3 1,000 15 000

10 000

5 000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: NZ MPI • About half of the logs produced are exported as logs.

$48,044M $50,075M $48,974M

$3,859M $3,668M Dairy Products Meat$=NZDForest (FOB) Products Special categorised(8.0%)Fruits Others (7.3%) Dairy Products Meat Dairy ProductsForest ProductsMeat Forest$3,518M Products Fruits (7.2%) Dairy ProductsSpecial categorisedMeat Fruits ForestDrinks ProductsOthersFruitsSpecial categorised Others Drinks Special categorised Others

• Forest products are the 3rd biggest export value. • Forestry is an important industry next to dairy farming.

4,000 3,500 3,000 2,500

Million Million USD 2,000 1,500 1,000 500 0

Industrial roundwood Sawnwood Wood-based panel Wood pulp Source: FAOSTAT • Despite the fact that log exports are increasing, the export value of products such as lumber, wood panel & pulp are flat. • New Zealand needs to increase exports of value-added products.

Company Group Area (ha) Location Pan Pac Forest Products Oji 35,000 Napier Juken NZ Wood One 32,000 East coast Wairarapa Tasman Pine Forests, Sumitomo Forestry 36,000 Nelson Nelson Pine Industries (SFC) Summit Forest NZ Sumitomo Corp. 24,000 Northland Southland Plantation Forest Oji, Itochu, Fuji 10,000 Invercargill Company Xerox

• Japanese companies have not only plantations but also factories (pulp mill, MDF factory, sawmill) in NZ.

SUMITOMO FORESTRY CO., LTD. ALL RIGHTS RESERVED. 15 Forest Industries Company Group Location Business Oji Fibre Solution Oji Auckland Pulp, paper Daiken NZ Daiken Rangiora MDF Juken NZ (JNZ) Wood One Kaitaia, Gisborne plywood, LVL, Masterton sawn wood, PB Marusumi Whangarei Marusumi, Whangarei Wood chip Marubeni Pan Pac Forest Products Oji Napier Pulp, Lumber South Wood Export Itochu Invercargill Wood chip Nelson Pine Industries Ltd. SFC Nelson MDF, LVL

• Forest management (upstream) and manufacturing (downstream) tie up.JP companies are exporting added value from NZ. • JP companies aim to maximize the value of plantations from a long- term perspective and conduct forestry management rooted in the region.

SUMITOMO FORESTRY CO., LTD. ALL RIGHTS RESERVED. 16 Top 5 Export Destinations China Australia Korea Japan India (NZD FoB) $ 1,969 M $ 693 M $ 462 M $ 434 M $ 271 M Logs & 80.5% 0.3% 69.6% 21.6% 87.5% poles Sawn 6.5% 21.8% 7.4% 6.3% 0.8% timber Wood pulp 9.2% 12.3% 16.6% 14.0% 2.7% Paper & 2.3% 16.3% 4.6% 0.1% 2.9% paperboard Panel 0.9% 12.5% 1.7% 43.9% 1.6%

Others 0.6% 36.9% 0.1% 14.1% 4.5% Total 100.0% 100.0% 100.0% 100.0% 100.0% • China, Korea & India are mainly importing logs. On the other hand, Japan imports products. • There is no added value in logs. SUMITOMO FORESTRY CO., LTD. ALL RIGHTS RESERVED. 17 Creation of New Value: LVL

LVL Large scale building with LVL under construction by SFC • LVL (Laminated Veneer Lumber) is excellent in strength and dimensional stability, and attracts attention as a structural material. • In Japan, construction of large buildings using LVL has also been started. • It is expected to be a new value-added product. SUMITOMO FORESTRY CO., LTD. ALL RIGHTS RESERVED. 18 Conclusion

Tasman Pine Nelson Pine Export Forests Ltd. Industries Ltd. Domestic use

Export and Forest domestic use management Processing in NZ the added value rooted in region products • Forest management by Japanese companies involves high value-added products processing such as pulp & MDF. • Add value in NZ. Protect industries in NZ. • Japanese companies & NZ companies work together to develop the forests and the forest