DEPRESSED STATE

Evening Post, Volume CIV, Issue 73, 23 September 1927, Page 8

DEPRESSED STATE

TIMBER INDUSTRY

VISUALISING FUTURE

MODERATE ASSISTANCE

The claim for an increased duty on timber on the ground that there is a depression in the timber industry; is exhaustively reviewed in the Eeport of the Timber missionThe Commission Bays it is satisfied that relatively depressed conditions exist in the New Zealand timber industry caused by:— (a) deduction in the demand for building. timber in general. (b) Higher productive capacity in recent yews, as indicated by production, number of mills, and employees in the industry. (c) Beduction in the demand for export. (d) The increased use of wall-board as a. substitute for timber. (c) The relatively high cost of production in certain of the more re-cently-established mills. (f) The relatively high wages paid in recent years. (g) Increased importation. COST OF PRODUCTION. The cost of production of timber is, generally speaking, appreciably greater in the case of mills which have been established in recent years than in the oldest-established milling enterprises. Consequently, the margin of profit secured by the new mills is, on the average; less than that obtained by the older mills, and the evidence shows that aince the decline in demand took place the economic pressure has been such as to force out of business—temporarily, at least—some of the more recently-es-tablished milling undertakings. At the request of the Commission, the Government Statistician compiled figures to show from millers' returns a comparison between tho position of a representative number of new and of old mills over a period of three years ending 31st March, 1927. These figures showed clearly— • (a) That the cost of production per 100 ft of timber produced has been much higher with the new mills than in the older-established ones. The total cost of production per 100 ft over the average of the past three years was 15s 6d in older mills !?« 18s a*d in the new mills. This difference in cost has apparently been contributed to by all tho factors entering into the total cost. It should perhaps be pointed out the differ--100? ln royalty Co3tß is oalv 3a Per (b) Over the past three years the new milla have been unable to make any appreciable-reduction in costs of production, while the older mills have—particularly in the past year— Deen able to reduce costs. The average total cost of production in the case ofcnew mills has boen 19a 2a, a «5,» and 19s in 1954-25, 1925-26 and 1926-27 respectively. The Bimi' !fi «f UI4 S { OL oldsr miUs hav° been 16s 6d, 15s 10d, and 14s 4d. (c) In comparison with the cost of 111 inn / va, lue of th 6 P^ducts i per 100 sup. feet leaves a much hieher margin to older mills than to new mills. Over the average of the past three years the margin in the new m de™L Wlth in tbe taWe Is Selatively high production in recent years and greatly reduced demand dur- " g A * paßt year or mol° may be regarded as conditions of a non-perman-ent nature, says the report. They constitute^ in fact, the conditions il cognised as characteristic of industrial and trading abnormality. There must come about, therefore, some readjustment of productive capacity. No reasonable tariff and possibly not even a prohibitive tariff could obviate the necessity for this modification of local milling capacity to meet either tho present, generally reduced requirements of the markot or what may be regarded as tha probable normal demand of the next lew years. It would certainly not be'i for the economic welfare of the Dominion that, irrespective of fluctuations in the total demand for timber, 1 the tariff should aim at the maintenance or the industry of the whole of the present milling capacity. DIFFERENCE IN GEADES. The evidence broughtout prdminontly the substantial difference which exists between the North and South Islands in the matter of the grades of timber which are allowed to be used tor certain building purposes. The reatrietions in the North Island generally: provide against the use of any local timber other than heart timber i for exterior work and for certain other purposes for which in the South Island clear timber (whether it be sap or heart) it permissible. Tho evidence showed that these restrictions in the North Island were not of recent adoption. The classification of timber followed by sawmillers in the North had *«? years been based upon a general distinction between heart and other qualities, while in the South the main distinction was drawn between clean or dressable timber and lower qualities. As.a consequenco of these facts the heart timbers of the North, by reason of comparatively limited supply and relatively strong demand, have for years past been forced much higher than the lower grade or 0.8. qualities, and this price range has in recent years tended to increase mainly by definite advances, in the list prices of heart lines aad, more recently, by reductions in the prices of 0.8. Conversely the South Island classification, though making provision for the sale of heart as such for limited special requirements (joinery and figured or finishing timbers), has a price range by no means •o wide as in the North. An appreciable price distinction is, of course, drawn between clean or dressable timber and the lower grades, but this does not carry the prices of the clean" timber, which is a large proportion of the whole (apparently over 50 per cent.) to tha same high figures m are charged lor the better quality heart lines listed in tha North, (The proportion of heart rimu produced in the North is apparently, in the average, about 25 per cent. of the total, and of this the rough or defective grade* are ioW at prices little above O.B.) Thesa fundamentally different marketing conditions, which clearly arise out of the difference in building standard* and bylaws, have enabled imported timbers to compete in the North much more keenly than in the South, and more especially for those purposes in respect of which heart is stipulated in Northern centres. The main feature of the increase in importations to the North Island has been the advance of cedar and redwood as competitors of heart, and even though an ample margin of profit is made by distributors of these imported ■woods they are easily able to undersell the indigenous heart timbers offering for such purposes as' weatherboarding. This disparity in price at Auck,l»r»d and Wellington is approximately 10s per 100 ft. The report says that no duty which eonld justifiably ■be imposed would overcome tho price disparity which exists in the main North Island centres between codar or redwood and heart rinro and matai, as sold' for exterior building eonstraatfcm. Any increase in

duty would, however, tend to limit the field over which the imported timbers can successfully compete, and should tend also, both directly and indirectly, to assist the sale of local 0.8. timbers. THE PRICE QUESTION. It is important, continues the report, that consideration should be given to the question whether prices charged by millers have in the past been reasonable. It is well recognised that associations of producers, both by districts and nationally, have been in a position to exercise a considerable influence upon prices. These associations can ni doubt claim to have done a great deal of beneficial work in relation to such matters as uniform classification and selling conditions, and their formation and continuance has doubtless been encouraged by our labour laws. Associations of a similar character are common in this industry in other countries—presumably for similar reasons. At the same time it has to be remembered that price competition among local producers has by no means been eliminated. . Tiere are apparently a number of producers in each of the timber areas who stand outside any association and who fix their prices quite independently. Moreover, there is always the potential competition of mills which might readily be established if prices ■ were raised much above a reasonable level. The Commission says that it is quite clear that the influence of associations has not been such as to make profitable the operations 'of all mills, and that the relatively high profits of certain mills have been secured as a result of their satisfactory location and relatively low royalty (or "stumpage") costs —conditions which arise from the fact that these mills are now cutting Btanding timber purchased or leased years ago at the low values which then prevailed for standing timber comparatively easy, of access. Viewing the matter in its long term aspects, it seems inevitable that costs and prices in this industry must tend to increase. Even if wages and prices of all 'necessary supplies and services were Btill at the level existing ten or fifteen years ago, costs would be higher by reason of the greater distance from the market of the bulk of the supply now as compared with earlier years, coupled with the inevitable tendency' for production to take place first from level and easily worked country, and later from rougher sections of the tim-ber-bearing lands. This general ten-d-ncy towards increased costs had not until quite recently appreciably affected the industry in its competition with overseas supplies. Now, however, when imported timber prices havo fallen the margin of profitable local production has contracted, and milling undertakings previously able to carry on must now find themselves outside* tho possible competitive field. MODERATE INCREASE NECESSARY. In conclusion, tho report says that, if the tariff on timber be not increased it may well mean that large portions of bur timber resources cannot be utilised for very many years tb come, and some (if import prices bo not increased or local production costs be not substantially reduced) will never como within tho reach of market possibilities. The tariff should not, however, be used as an instrument to place upon standing timber unreasonable values, or to' mako possible production from areas not yet reasonably required to meet national needs. The Commission bolieves that the importance of tho industry, its relation to the general economic wolfaro of the Dominion, and tho necessities of the position justify a moderate increase in tho tariff on timber. The existing duties are relatively low in amount, and almost any increaso would therefore appear substantial in relation to the existing tariff. It is recommended that tho duty on rough sawn timber be increased to 4s per 100 sup. ft, provided that on timber of a minimum Bectional area of 150 sq ins or more and also of a length of not less than 25ft tho duty shall be 2b per 100 sup. ft. This latter provision is recommended to meet the position in rolation to largo-sized timbers required for special uses. It is further recoramendod that tho duty on sawn dressed timber be increased to 7s per 100 sup. ft. Tho increase of 3s per 100 sup. ft in the caso of dressed timber (as compared with the increase of 2s recommended in the caso of rough sawn timber) is suggested for the reason that dressed timbor is usual- r ly imported in comparatively thin sizes,' and consequently on a superficial footage basis bears a duty relatively low in relation to its finished value.