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Contractors losing homes over industry lull

New Zealand’s forestry contractors are approaching breaking point, and some Wairarapa businesses are already in liquidation – with many more at risk of losing their livelihoods, according to industry insiders.

Operators are leaving the industry as the price for an A-grade log has dived as low as $95 per cubic metre, which often isn’t enough to cover their operating costs, Forest 360 director Marcus Musson told the Times-Age.

More than one local contractor has called it quits in the past year, Musson confirmed.

A number of local forestry industry members were contacted by the Times-Age but were unwilling to comment for fear that doing so would worsen their businesses’ situation.

Spokesperson for the Forest Industry Contractors Association [FICA] Ross Davis, said contractors in Gisborne have been losing their homes when their businesses fail because they’ve used them as equity, and warned that this could happen in Wairarapa too.

“They’ll lose everything,” Davis said.

“Quite often to borrow money, they’ve put their house into the pot. The finance companies have been really good, but they’re over it now. They can’t see any light at the end of the tunnel for a lot of these guys, so they’re winding them up, and they’ll take everything.”

Some accountants are advising business owners to “walk now” to avoid losing everything, he said.

The likelihood of contractors losing their homes will depend on how long they have owned their businesses, Davis said – those who have more equity in their equipment can hold on for longer.

The pressure felt by contractors has been exacerbated by Cyclone Gabrielle, Davis noted, but was already high due to a tough three years that featured covid-19, fuel hikes, high inflation resulting in significant interest rate rises, and continuous wet weather.

A recent survey of FICA’s members showed a widespread reduction in production over the past year, Davis said, with 57 per cent of respondents indicating their production had been reduced by 20 per cent or more, while 16 per cent were down more than 30 per cent.

“When asked if they could survive at an 80 per cent production level for a year, only 26 per cent of respondents indicated that they could.”

The current forestry system is unsustainable for contractors, Davis said: “What happens at the moment is that the price climbs up, everyone goes harvesting, the opportunity of a high price tends to put too much wood on the market, and the next minute the wood price is coming down again.”

When the price falls, contractors will be out of work.

Musson echoed Davis’ sentiment that the industry model needs to change, and suggested more sawmills being set up in New Zealand is part of the solution.

While Davis agreed this would be desirable, he is sceptical it will ever happen: “The reality is that the big [internationally owned] forestry owners do not want to commit to long-term supply contracts to the mills.”

Musson said Wairarapa is lucky to have sawmill Kiwi Lumber, which can take both pruned and unpruned logs, keeping some local production going.

He said companies like his are doing all they can to help contractors, including vouching to finance companies that there is long-term work. happen in Wairarapa too.

“They’ll lose everything,” Davis said.

“Quite often to borrow money, they’ve put their house into the pot. The finance companies have been really good, but they’re over it now. They can’t see any light at the end of the tunnel for a lot of these guys, so they’re winding them up, and they’ll take everything.”

Some accountants are advising business owners to “walk now” to avoid losing everything, he said.

The likelihood of contractors losing their homes will depend on how long they have owned their businesses, Davis said – those who have more equity in their equipment can hold on for longer.

The pressure felt by contractors has been exacerbated by Cyclone Gabrielle, Davis noted, but was already high due to a tough three years that featured covid-19, fuel hikes, high inflation resulting in significant interest rate rises, and continuous wet weather.

A recent survey of FICA’s members showed a widespread reduction in production over the past year, Davis said, with 57 per cent of respondents indicating their production had been reduced by 20 per cent or more, while 16 per cent were down more than 30 per cent.

“When asked if they could survive at an 80 per cent production level for a year, only 26 per cent of respondents indicated that they could.”

The current forestry system is unsustainable for contractors, Davis said: “What happens at the moment is that the price climbs up, everyone goes harvesting, the opportunity of a high price tends to put too much wood on the market, and the next minute the wood price is coming down again.”

When the price falls, contractors will be out of work.

Musson echoed Davis’ sentiment that the industry model needs to change, and suggested more sawmills being set up in New Zealand is part of the solution.

While Davis agreed this would be desirable, he is sceptical it will ever happen: “The reality is that the big [internationally owned] forestry owners do not want to commit to long-term supply contracts to the mills.”

Musson said Wairarapa is lucky to have sawmill Kiwi Lumber, which can take both pruned and unpruned logs, keeping some local production going.

He said companies like his are doing all they can to help contractors, including vouching to finance companies that there is long-term work.

Grace Prior
Grace Prior
Grace Prior is a senior reporter at the Wairarapa Times-Age with a keen interest in environmental issues. Grace is the paper’s health reporter and regularly covers the rural sector, weather, Greater Wellington Regional Council, and coastal stories.

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