However, the overall plantation area had fallen by about 5% over the last 10 years, leading to concerns about the long-term supply of wood beyond 2030, he said in a report arguing the case for more investment.
The fall in planting coincided with a period of weaker returns and what was seen as a less favourable emissions trading scheme, though that was turning more supportive.
It had become an unloved investment class among landowners and there was no sign of a change, except in some small pockets of land in the North Island.
Deforestation had also led to restricted investment in new wood-processing facilities able to produce higher-margin building products.
The main trends boosting the market and likely to extend for several years were:
# Steady demand from China;
# Restrictions on harvesting native forests in countries that were leading markets for New Zealand;
# Low shipping costs;
# A domestic building boom in NZ and;
# A supportive exchange rate when added to in-market pricing.
As well, a range of new upmarket applications was emerging for the versatile pinus radiata wood on which the NZ forestry sector was based, Williams said.
Recent industry returns suggested good to excellent forest blocks within 200km of a port or processing mill could make a pre-tax real rate of return of up to 7.9% a year, increasing to up to 11.25% after allowing for carbon credits. The average returns were 6.3% and 9.9% respectively.
They were competitive with dry stock farming, a solid diversification strategy and could help farmers meet tighter environmental regulations.
Forestry brought in about $5.3 billion of export revenue a year, 11% of total 2016 exports.
In contrast to the supply fears from about 2030, harvesting over the next decade (long described as the wall of wood) would be at high levels, from the latest peak of plantings in the mid 1990s.
Given the long investment period for forestry, forecasting returns was difficult, Williams said.
Rightly or wrongly, investors used current market conditions and a smoothing out of recent returns alongside their other yield and cost assumptions to assess their prospects.
That required “a leap of faith that current returns will be within the ballpark of future returns”.
Like most investments, probably the best time to invest was when returns were lower because land and establishment costs might be lower than when current returns were very good.
About 55% of forest products were exported and 45% sold domestically with the domestic market dominated by sawn timber, which was expected to continue achieving good returns because of the strong housing construction market.
There were challenges in the sector but a shortage of housing and strong population growth pointed to ongoing support.
The top 10 markets took 91% of forestry exports and the top six – China, Australia, Japan, South Korea, the United States and India – took 83%.
That was a consolidated marketplace compared to many other export sectors.
China took 38% of exports, mainly in logs, sawn timber and pulp and demand for softwood lumber imports reached record highs last year.
The country would require a lot of new housing and other infrastructure in coming decades though there would be ups and down in the market.
On the supply side, China’s forestry production was constrained by restrictions and even bans on logging native forest over a very widespread area.
NZ was the biggest supplier to China, narrowly over Russia.
The next biggest market for NZ was Australia, taking 15% of exports in a wide range of products used mostly for housing, notably sawn timber, wood pulp, paper, paperboard and plywood.
Like China, Australia was expected to have ongoing housing construction above long-term averages, Williams said.
As encouragement for forestry planting, the carbon unit prices had increased since the start of a gradual phasing out of the one-for-two ETS surrender obligation and banning of foreign carbon credits and NZ was required to reduce emissions under international agreements.
The ETS was under review and given that the industry was heavily regulated, there is a lot of political risk, Williams said.
“Things could easily change with each election cycle – favourably or unfavourably.”
However, long-term forestry prospects crucially depended on how the international carbon market developed.
