APPENDIX 1- FROM FARMING TO FORESTRY IN WAIROA.


ESTIMATE OF EMPLOYMENT AND HOUSEHOLD INCOME

CHANGES IN WAIROA DISTRICT ARISING FROM A

LAND-USE CHANGE FROM FARMING TO FORESTRY

Geoff Butcher

Butcher Partners

EXECUTIVE SUMMARY
  1. There has been continuing conversion of land from farming to forestry in Wairoa during recent years (4 500 ha per year for the last two years), and it seems likely that such conversion will continue.
  2. The Wairoa District Council wishes to obtain and disseminate more information about the impacts on the District of these land-use changes. Impacts will include changes in employment and income as well as changes in such areas as community facilities, social structures and land ownership.
  3. This paper describes the development of a regional economic model to estimate the impacts of these land-use changes on employment and income in the Wairoa District. The model incorporates data from surveys in Wairoa and other areas, these surveys providing detailed data on the mix and sources of inputs used in farm and forestry businesses.
  4. This paper contains estimates only of the likely potential changes in District income and employment in farming, forestry, related processing industries (such as meat processing works and sawmills) and other support industries (e.g. retail trade). It does not comment on associated changes in social impacts, nor does it assess whether the potential changes in employment will be taken up by residents of Wairoa District, or whether they will go to people outside the District.
  5. Changes in income and employment are both direct (a reduction in farm and meat processing employment, and an increase in forestry and sawmill employment) and indirect (a reduction in employment in industries and services supplying farms and families who get income from farms, and an increase in industries and services supplying inputs to forestry and to families who get income from forestry).
  6. To estimate potential net impacts, it has been assumed that 2 000 ha of forestry will be established per year (in line with recent experience and current expectations) until there is a total of 56,000 ha converted from farming to forestry. It has also been assumed that every hectare going into forestry will reduce stock carried in the District by 7.7 Stock Units (based on survey work by Agriculture New Zealand). For the purposes of examining the impacts of wood processing in the region, one processing scenario has been examined. In this scenario, it is assumed that approximately half of the wood produced will be processed by sawmills and an MDF mill in the District.
  7. Using these assumptions and the survey information, it is estimated that once 56,000 Ha is in rotation (2,000 ha undergoing each operation in the planting, tending, and felling sequence), there will be an additional 525 jobs in forestry, logging and log transport, 430 jobs in wood processing, and 350 jobs in other support industries in the District. There will be an associated increase in gross household incomes of $22 million in forestry, $15.2 million in processing and $10.7 million in other support industries in the District. However, note that the employment and income related to forestry increases in a very irregular manner. There is growth for the first 10 years, then no further growth for a further 18 years (year 28), when there is a huge jump in income and employment once logging and processing begin.
  8. Farming declines steadily as land-use is changed at a constant rate. After 28 years there will have been a loss of 147 jobs on farms (including shearing and fencing), 28 jobs in meat processing, and 80 jobs elsewhere in the District. There will have been a loss of $7.2 million in gross farm household income (including farm profits), $0.8 million in meat processing household income and $2.6 million of household income elsewhere in the District.
  9. The total effect of a conversion of 56 000 ha of land from farming to forestry is likely to be an increase of approximately 1 050 jobs and $37 million in household income in the District. This compares with current earned household income of approximately $70 million and 1991 census employment of 2880 people. The nett changes include:

- a loss of 147 jobs in farming, 28 jobs in meat processing and 80 jobs in associated support industries; and

- a gain of 525 jobs in forestry, logging and log transport, 430 jobs in wood processing and 350 jobs in associated support industries.

Total (including indirect) Wairoa District employment impacts of conversion of 56 000 ha from farm to forestry (full time equivalent jobs)
Forestry & Logging Forest Processing Farming Meat Processing Total
Year 1 23 0 (8.0) (1.1) 13.9
Year 10 114 0 (80) (11) 23
Year 28 114 0 (224) (31) (141)
Year 29+

Direct

Total



524

720



430

585



(147)

(224)



(28)

(31)




1050

Total (including indirect) Wairoa District gross household income impacts of conversion of 56 000 ha from farm to forestry ($million)


Forestry & Logging

Forest Processing

Farming

Meat Processing

Total

Year 1

0.6

0

(0.34)

(0.03)

0.23

Year 10

3.1

0

(3.4)

(0.3)

(0.6)

Year 28

3.1

0

(9.7)

(0.9)

(7.5)

Year 29+

Direct

Total


22.0

28.0


15.2

19.9


(7.2)

(9.7)


(0.8)

(0.9)



37.3

A1 INTRODUCTION

In recent years there has been extensive conversion of land from farming to forestry (4 500 ha per year in Wairoa District in the last two years), and the Wairoa District Council wishes to have a better understanding of the likely effects of this conversion on employment and household income within the District. The land-use change generates employment in forestry and forest-related industries including planting, silviculture, logging, log transport, sawmilling and, in the longer term as the log resource increases, other wood processing. However, there is a loss of land available for farming, and this reduces employment on-farm (management, fencing, shepherding, shearing etc.) and off-farm (transport, meat processing). There may be further effects such as a loss of schools and other community facilities and a change in community structure, but this will depend on changes in employment, population and places of residence. There will almost certainly be a change in land ownership, non-resident landowners (e.g. companies and forest partnerships) being the norm in extensive forestry.

This paper does not assess these community structure and land ownership changes, considering only the likely impacts on employment and household income. The procedure used was to generate a regional economic input-output model for the Wairoa District using the GRIT technique (Hubbard & Brown 1981; Butcher 1985). The technique for estimating national multipliers is described in section A1. The GRIT procedure for shifting from a national to a regional model is described in section A2. This procedure produces a fairly crude regional model, and more accurate results are obtained by undertaking surveys of the industries of interest within the District. Hence surveys were undertaken in Wairoa of farms, meat processing, and sawmills. Information from a recent survey of forestry in Gisborne was also incorporated into the model (since it was felt that the two regions would have similar industry structures), as was data from out-of-region MDF mills (as representative of likely processing options).

The loss of farm employment occurs as soon as the land is planted in trees, and continued planting means a continued reduction in farm-related employment. However, the employment generated by continued planting of forests builds up over a period of 28 years (a typical forest rotation), the majority of employment not coming until logging and processing begin. For this reason, total impacts of land-use changes have been estimated after one year, eight years (once silvicultural work has reached a plateau) and immediately before and after logging begins. The estimates have been made under the assumption that an area of 2 000 ha per year is converted from farming to forestry over the next 28 years, after which planting is confined to areas logged in the previous year. The cost advantages of processing in Wairoa (typically there is a 50% weight reduction in processing) rather than transporting 100 km to an alternative processing centre means that processing in Wairoa is a likely long-term option. Possible timing of processing plant development is discussed in other parts of this overall study. The processing scenarios developed in this paper are intended solely for illustrative purposes.

A2 ESTIMATION OF A REGIONAL TABLE

This section describes the method by which a simple Wairoa District inter-industry table was generated, and refinements made to improve the accuracy of this table. The section then outlines the way in which economic impacts are defined and estimated.

A2.1 GRIT technique

The GRIT technique (Generalised Regional Inter-industry Tables) for estimating regional inter-industry tables was originally developed in Queensland. The underlying assumption is that the technology used in a particular industry is the same for every region, which means that that industry uses the same mix of inputs, no matter where in the country it is located. However, different regions are more or less self-sufficient in the production of inputs for that industry (for example, Wairoa does not produce resins used in a fibre board plant), and this factor is taken into account by decreasing inputs from the chemical industry (from the region) and increasing inputs from imports (of chemicals to the region). Hence the final input structure of a regional table looks very different to the national input mix.

The GRIT technique is a mechanistic procedure which has strong assumptions, and hence can produce unreliable results. To remove the grossest errors when estimating impacts for a particular industry, it is desirable to survey that particular industry in the region and find out what inputs are actually used and where they come from.

A2.2 Surveys

In Wairoa, detailed surveys were undertaken of farms, meat processing works and sawmills. Less detailed surveys were done of other business. Information from a recent survey of forestry in Gisborne was also incorporated into the model (since it was felt that the two regions would have similar industry structures) as was data from out-of-region MDF mills.

Steps in regional table derivation
  1. Obtain national inter-industry table.
  2. Derive rough regional table using GRIT technique, and taking into account limited district self-sufficiency in some industries.
  3. Adjust rough table using data on industry inputs (type and source) gathered by survey.
  4. Estimate type II multipliers and use these to estimate indirect effects. (Note that the standard input - output nomenclature would refer to these as "indirect and induced effects", but the term "indirect" has been used in this paper as shorthand)
A2.3 Household income and spending

Household income includes all wages, salaries and drawings (including taxes) by owner-operators. In the case of farming, gross household income has been defined to include all capital surplus (profits). No allowance is made for forestry profits (i.e. log royalties or profits to forest owners) being paid to local households, primarily because the evidence suggests that much of the forests will be owned by outside interests.

Note that not all household income is spent within the region. Taxes go to central government (and there is no direct link between taxes paid by a region and Government spending in that region), and savings also do not lead directly to regional economic activity. To take account of these factors, only disposable income is incorporated within the model as having an effect on regional economic activity. Within farming, it is assumed that depreciation is spent on replacement farm capital, and it is assumed that 50% of capital surplus is spent on household consumption, with the balance being spent on out-of-region investment (see section below for impacts of changing this assumption).

A2.4 Error margins

It is not possible to accurately derive error margins. However, previous research (e.g. Butcher 1990) has shown that as long as the inputs for the industries under investigation are reasonably accurate, variations in other industry structures will have little impact on the final estimates of impacts. It is believed that the estimates of direct impacts are probably accurate to within about 10-20%. The existing errors are due to inadequate information from some respondents, and to lack of information about some industries.

The estimates of indirect effects are probably accurate to within 20-30%. The higher error margin is due to the uncertainty of industry structures in non-surveyed industries. One area which is not related to the industry under examination but which nonetheless has a significant impact on accuracy is household spending. Much of the downstream impact of farming and forestry is driven by extra household spending and the extra wholesale and retail trade activity that results. Unfortunately there is no comprehensive data on household spending in the District (Statistics NZ will not release data on regional household expenditure because of the high error margins in it), and the costs of getting accurate data are prohibitive. Available data on the size of the wholesale and retail trade sector in Wairoa relative to the rest of New Zealand suggest that households and businesses probably do only about 60% of their purchasing within Wairoa District. Limited survey data supported this assessment, business claiming to do about 50% of their purchasing of goods in Wairoa, and farm families claiming to do about 65% of their purchasing in Wairoa.

One area about which there is likely to be dispute is the proportion of capital surplus that is likely to be spent on consumption and capital improvements in the District. Even if it were all spent in the District (as opposed to the current assumption that only 50% will be spent within the District), the effect would be to increase total farm-related employment and income by only about 4%.

As an overall guide to accuracy, it is expected that total impacts estimated are probably accurate to within 15-20%. However, note that as time passes and technology changes, so will the impacts change, particularly the employment impacts. Hence, over the longer term, error margins increase. However, changes in technology will affect both farming and forestry, and one could expect that the relative scale of impacts will be similar to what it is now.

A3 ECONOMIC IMPACT ANALYSIS

This section includes a brief description of an inter-industry table, and shows how this can be transformed to provide direct input-output coefficients, which can then be manipulated to generate inter-dependency coefficients showing the impacts of growth in one industry on all other industries. Use of employment and household income data permits estimation of the impacts of changes in industry output on total output, income and employment.

A3.1 Inter-industry (input-output) transactions tables

An inter-industry study shows the structure of a nation's economy in a given year (e.g. for the 1990/91 financial year). The information is presented as a transactions matrix (see Table A3.1), each industry having an associated row and column. The row relating to an industry shows the destinations of outputs of that industry, while the column describes the sources of inputs used by that industry.

An inter-industry table requires the collection and arrangement of a vast body of statistical data on production and consumption. The main data sources are the various economic censuses that Statistics NZ carries out. The large amount of data required means that the generation of an inter-industry table is an expensive and time-consuming exercise, and it is carried out infrequently. In the past, an inter-industry table has been prepared for every fifth year, the most recent official table relating to the 1990/91 year. However, the 1990/91 table is only an update of the 1986/87 table rather than a completely new table based on survey data. The regional inter-industry table used in this project is based on a 1990/91 national table developed by Butcher (1994) using a similar methodology to that used by Statistics New Zealand. Butcher's table is preferred to Statistics NZ's national table because it has a larger number of industries, a feature which leads to reduced aggregation bias in the development of regional tables.

The 1986/87 table shows 184 separate industries, but these have been amalgamated to 80 industries for the 1990/91 table. The choice of industries was governed by availability of data and decisions on the relative importance of industries for various purposes.

Table A3.1 Input-output table in transactions format ($millions)

INDUSTRIES

FINAL DEMAND

TOTAL
OUTPUTS

Primary Manu. Services Hhold Govt Other
INDUSTRIES
Primary 2560 6912 624 309 3 2 604 13 013
Manufacturing 1308 9696 9 627 9042 0 13 432 43 104
Services 2362 8273 29 455 27253 12 145 13 781 93 269
PRIMARY INPUTS
Households 1670 5783 21150 0 0 57 28 660
Other Factors 4602 7232 27 397 4342 0 1 504 45 077
Imports 512 5209 5 016 6065 0 3 678 20 479
13 013 43 104 93 269 47 012 12 148 35 056 243 602
A3.2 Transformations

The transactions matrix (Table A3.1) can be transformed into the direct input-output coefficients matrix (Table A3.2) by dividing each column element by the relevant column total. Hence in Table A3.2 the left-hand column shows that 0.197 (19.7%) of all direct inputs into primary industry come from primary industry, 10.0% come from secondary industry, etcetera.

Table A3.2 Input-output table in coefficients format

INDUSTRIES

FINAL DEMAND

TOTAL
OUTPUTS

Primary Manu. Services Hhold Govt Other
INDUSTRIES
Primary 0.197 0.160 0.007 0.007 0 0.074 0.053
Manufacturing 0.100 0.225 0.103 0.192 0 0.383 0.177
Services 0.181 0.192 0.316 0.580 1.000 0.393 0.383
PRIMARY INPUTS
Households 0.128 0.134 0.227 0.000 0 0.002 0.118
Other Factors 0.354 0.167 0.294 0.092 0 0.043 0.185
Imports 0.039 0.121 0.054 0.129 0 0.105 0.084
1.000 1.000 1.000 1.000 1.000 1.000 1.000


A3.3 Multipliers

Multipliers measure economic consequences in terms of output, income or employment resulting from changes to final demand. Expansion of an industry has upstream and downstream impacts. The upstream impacts occur as the expanding industry purchases more inputs from various suppliers who thus have to increase their output. These industries in turn have to increase their output, and hence have to increase their purchases of inputs, creating expansion in their supplying industries. This expansion proceeds in an ever-widening circle of ripple effects. However, the extent of the ripples is limited by leakages from the system in the form of imports, savings and taxes. Downstream impacts occur as increased output generates increased activity in processing industries. In some industries (e.g. farming and forestry) the downstream impacts are greater than the upstream impacts.

The amount of downstream economic activity that the multiplier measures depends on the categories of effect that are taken into consideration. These can be either the initial effect, the first-round effects (i.e. purchases of direct inputs), the industrial support effects (i.e. the expansion of other firms to meet the increased demands of the initial input-supplying firms) or the consumption-induced effects (i.e. the expansion of industry to meet the increased demand from households as income increases). While conceptually there could be further impacts arising from increased profits and increased payments of taxes, these are usually ignored since it is presumed that investment and Government spending decisions are unlikely to be affected by normal levels of expansion.

The multipliers can be calculated by performing matrix algebra on the direct coefficients matrix and generating the "Leontieff Inverse Matrix", named after the originator of the technique.

A3.4 Leontieff inverse matrix

The upper-left quadrant of the direct coefficients matrix (generally termed the A matrix) can be manipulated to generate the Leontieff Open Inverse Matrix (I-A)-1, which identifies the direct and indirect effects of output changes. A row i column j element of a Leontieff Open Inverse matrix shows the direct and indirect increase in output of industry i arising from a one-unit initial increase in output of industry j. Summing all elements of a column j gives the total direct and indirect increase in output across all sectors arising from a one-unit initial increase in output of industry j. When the upper-left quadrant is expanded to include household inputs and household consumption, manipulation yields the Leontieff Closed Inverse Matrix (I-A*)-1. The elements in the Closed Inverse identify the direct, indirect and induced increase in output of industry i arising from an initial one-unit increase in output of industry j.

A3.5 Type I and Type II multipliers

A multiplier is the ratio of the total effect to the direct effect. Typically, two types of multiplier are calculated. A >Type I= multiplier takes into account only the direct and indirect impacts, while a >Type II= multiplier also takes into account the induced impacts triggered by increased household consumption. A Type I output multiplier for an industry is calculated by adding up the elements of the relevant column vector of the Leontieff Open Inverse matrix. The effect on income can be calculated by multiplying the Leontieff column vector by a vector representing income:output ratios for each industry. Similarly, the effect on employment can be calculated by multiplying the Leontieff column vector by a vector representing employment:output ratios for each industry. Type II multipliers are calculated by carrying out the same operations on a Leontieff Closed Inverse matrix. In this report, only Type II multipliers and impacts are reported, since there is general acceptance that increased household spending will generate substantial changes in regional economic activity. Multipliers are usually calculated for output, income and employment. In the current economic climate, the latter is often of most interest.

A3.6 Limitations

There are a number of limitations to the accuracy of simple multiplier analysis, and these are described in some detail in Butcher (1985, pp.6-7). The greatest limitation is at a macro-economic level. Multipliers are based on the assumption that the only restriction on output is a lack of aggregate demand. However, there may be other limitations, and Government may wish to restrict aggregate demand (through monetary or fiscal policy) to meet other objectives such as inflation or balance of payments objectives (although the last has become largely irrelevant with a free foreign exchange market). In such circumstances, expansion of one industry may inhibit the potential expansion of other industries, and hence the multipliers may be overstatements of the increases in activity that will actually occur. The analysis also makes assumptions of linear production functions which imply constant returns to scale and to levels of capacity utilisation.

It should also be realised that some supplying industries have relatively inflexible outputs. For example, the construction of a new meat processing works will probably not generate additional on-farm employment because it is unlikely that farm production of meat will increase (although there may be a change in where it is slaughtered). Even if meat production does increase, there is likely to be a decline in other farm production.

A4 IMPACTS OF SILVICULTURE, LOGGING AND PROCESSING

The estimates of employment opportunities in forest roading, planting and silviculture, logging, and log transport are based on 1994 survey data from Gisborne forestry contractors. The information on their expenditure patterns was adjusted to fit into the Wairoa economic model and to recognise the very limited manufacturing, wholesaling/retailing and business services base of Wairoa. The additional spending that does take place in Wairoa will be concentrated primarily on repairs and maintenance and on household expenditure. Estimates of employment and income in log cartage are based on industry average figures and likely distances from forest to port in the context of Wairoa. No estimate has been made of the impacts of forest management and nurseries, primarily because it seems probable that management services will continue to be located in Gisborne and Napier, which are only 1.5 hours drive away, while existing nurseries are quite capable of supplying seedlings to the Wairoa District.

Employment is given in FTEs, or Full Time Equivalent jobs. Results are given on both a per hectare basis and for one planting scenario (of the many possible). This scenario assumes that planting will continue at 2 000 ha per year until there is a total of 56 000 ha converted from farming to forestry. This level of planting is reasonably consistent with recent history and current proposals, but may differ greatly from final outcomes.

A4.1 Employment and income opportunities in planting and silviculture

The cost of establishing and tending a forest depends on the current state of the land and the proposed end-use of the logs. The majority of new forest being planted is extensively pruned and thinned, the objective being to produce high-value pruned sawlogs, with residue and poor-quality logs used for MDF (Medium Density Fibreboard) or similar. The costs of planting and pruning are approximately $1 700 per ha (three prunings and one thinning, with scrub clearance on some land and a fourth pruning in some forests), of which 75-80% is labour. The labour involved is estimated at 10.5 days per ha. Costs and times are based on survey data from silvicultural gangs and from managers of forests in the region. The $1 700 and 10.5 man-days is spread over the first ten years of the tree's life. From year 10 (after forest establishment begins), there is a constant level of planting and silvicultural work, with every year some 2,000 ha being treated.

The direct employment and household income generated by this is of the order of 95 FTEs (10.5 days/ha x 2000 ha / 220 days work / year) and $2.5 million (10.5 days/ha x 2000 ha x $120/day) gross household income. In addition to this there are indirect effects, primarily in areas such as repairs and maintenance and retail trade. The regional economic model suggests that for every 100 direct jobs created in the District in planting and silviculture there are a further 15 indirect jobs generated in the District, and for every $100 of direct household income there is a further $15 of indirect income. Hence from year 8 on there will be an additional 110 jobs and $2.9 million of gross household income available in the Wairoa District.

Table A4.1 Employment impact of planting and silviculture
Year Operation Days/ha % of forest affected Effective time (days/ha) Direct FTEs per 2000 ha Total FTEs per 2000 ha
1 Clearing

Planting

Releasing

3

0.8

0.5

15

100

100

1.8

16.4

19

4 Pruning 1

Thinning 1

2.1

1.0

100

100

3.1

28.2

32

6 Pruning 2 2.2 100 2.2 20.0 23
8 Pruning 3

Thinning 2

2.4

0.5

100

35

2.6 23.6 27
10 Pruning 4

2.4

35

0.8

7.3

8

Total Direct 10.5 95 110
Total Direct & Indirect 12.1 110
A4.2 Employment and income opportunities in logging

Approximate production at maturity is estimated at 700 m3/ha. The costs of logging are expected to be approximately $20/m3 on average. Productivity in logging is approximately 25m3/person/day or 5,000 m3/person/year (considerably lower than on the easier country in some other areas). Wages (including management and administration) form from 35-50% of logging costs, depending on whether the logging is ground-based or hauler-based. From year 28, production logging of 2000 ha (1 400 000 tonnes) per year will generate directly approximately 280 jobs and household income of $12.7 million. The regional economic model suggests that for every 100 direct jobs created in the District in logging there will be a further 35 indirect jobs generated in the District, and for every $100 of direct household income there is a further $22 of indirect income. Hence from year 28 on there will be an additional 380 jobs and $15.5 million of gross household income available in the Wairoa District.

A4.3 Employment and income opportunities in log transport

Transport costs are approximately 15 cents per tonne-km, and average transport distance is likely to be approximately 100 km (from forest to port at Napier or Gisborne). Hence freight costs will average $15 per tonne or $21 million annually for 2000 ha logged per annum. Using total road transport industry average figures for income and employment, it could be estimated that log transport should generate directly 163 jobs and $6.9 million of gross household income. However, the true employment opportunities are likely to be somewhat lower, log freight having different characteristics from general freight, and drivers working long hours. Limited survey data suggests that transport of 1 400 000 tonnes of logs would generate directly 135 FTEs (1.4 million tonnes / 28 tonnes/trip / 2 trips/day / 240 days/year x 1.3 factor to allow for administration staff and mechanics = 135) and $6.3 million of gross household income. The regional economic model suggests that for every 100 direct jobs created in the District in transport, there will be a further 48 indirect jobs generated in the District, and for every $100 of direct household income there will be a further $33 of indirect income. Hence from year 28 on there will be an additional 200 jobs and $8.4 million of gross household income available in the Wairoa District from log transport.

A4.4 Employment and income opportunities in forest road construction

Discussions with forest managers in the region suggest that there will be 1 km of tracks ($5000 / km) for every 30 ha planted, while at logging these will be upgraded to feeder roads ($25 000 / km) and there will be 1 km of arterial road ($50 000 / km) for every 100 ha of forest logged. Hence in years 1-28 there will be expenditure of $0.33 million, and in years 29-56 there will be expenditure of $2.7 million. Direct employment impacts of this are estimated at 1.7 FTEs in years 1-28 and 14.3 FTEs in the next 28 years. Direct gross household income impacts are estimated at $70 000 in years 1-28 and $0.54 million in years 29-56. The regional economic model suggests that for every 100 direct jobs created in the District in road construction, there will be a further 125 indirect jobs generated in the District, and for every $100 of direct household income there is a further $114 of indirect income. Hence in years 1-28 there will be in total an additional 4 jobs and $0.14 million of gross household income in Wairoa District from forest road construction, and in years 29-56 an additional 32 jobs and $1.2 million of gross household income associated with forest road construction. Subsequent loggings will involve road reinstatement only, at a much lower cost.

A4.5 Source of forestry labour

There is a major uncertainty as to the proportion of jobs which will actually accrue to residents of the Wairoa District. A survey of those employing forestry contractors (for silviculture and logging) revealed that only 20-25% of the forestry employment in the District is going to local work gangs, the rest going to external gangs. The problems appear to be that Wairoa lacks sufficient skilled people (planting and pruning are no longer regarded as jobs for unskilled labour) and managers of contracting gangs to take advantage of available opportunities. Unless this situation is rectified, the majority of forestry employment will go to people who live outside the District. The figures reported here relate to potential employment arising from forestry developments in Wairoa District. No attempt is made to estimate what proportion of these jobs will finally come to Wairoa.

Discussions with meat companies and sawmillers in the District reveal that very little of their outward freight is carried by local carriers. The reason appears to be, at least in part, that the opportunities for using a truck for alternative routes and products are better if trucks are located in larger centres. However, this is less likely to be a factor with specialised vehicles such as logging trucks, and it seems more likely that logging trucks could be located in the District.

A4.6 Employment and income opportunities in wood processing

Once felling of 2000 ha per year starts in year 28 (under the scenario being used here for illustrative purposes), the annual wood volume will be some 1.4 million m3 / year. Once these large volumes of wood come on stream, it is almost inevitable that serious consideration will be given to processing more wood in the District because of the resulting economies of freight (two tonnes of raw wood is converted to approximately one tonne of processed wood). Production of this quantity of wood could support a range of processing plants. To demonstrate the potential impacts of processing, it is assumed that approximately half of the 1.4 million tonnes will be processed in the region, 550 000 m3 / year going to large modern sawmills and 400 000 tonnes (150 000 tonnes of small size pieces and low-quality trees and 250 000 tonnes of sawmill residues) going to a large-scale MDF (Medium Density Fibreboard) mill.

A4.6.1 Sawmills

The estimates of the impacts of sawmills are based on information from major sawmillers, and incorporate some expectations of developments in labour productivity. Small-scale sawmills, such as are at present operating in the District, directly employ around 3.5 persons per 1000 m3 of sawn timber ("sawmilling" being taken to include sawing, kiln drying and treatment) and generate direct household incomes of the order of $80 000 per 1000 m3 of sawn timber. Indirect effects increase these impacts and total impacts are estimated at 4.2 jobs and $100 000 of household income per 1000 m3. Larger mills generate in total only 0.95 jobs and $31 000 of household income per 1,000 m3 of sawn timber, and this number is likely to shrink even further in future. For the purposes of this comparison between farming and forestry impacts, it seems appropriate to base sawmill impact estimates on current large-scale technology.

The total impact on Wairoa District of 550 000 m3 of logs being sawn each year (300 000 m3 of sawn wood at a 55% conversion factor) would be the direct generation of 190 jobs and $6.6 million of household income. The regional economic model suggests that for every 100 direct jobs created in the District in sawmilling there will be a further 50 indirect jobs generated in the District, and for every $100 of direct household income there will be a further $40 of indirect income. Hence from year 28 on there could be an additional 280 jobs and $9.3 million of gross household income available in the Wairoa District as a result of sawmilling.

A4.6.2 MDF Mills

MDF mills employ approximately 220 persons for 100 000 m3 of output (although there are significant economies of scale, and doubling the output increases direct employment by only 10%). The associated direct household income is estimated at $7.8 million. Indirect effects increase these figures by over one-quarter, and total District impacts of a 100 000 m3-output MDF mill in Wairoa are estimated at 280 jobs and $9.8 million. However, from this total one must deduct the impact of the reduced transport of logs, which travel a short distance to the MDF plant rather than a long distance to alternative destinations. The approximate total effect of a reduction of 100 000 tonnes of product transported (100 000 tonnes of MDF rather than 200 000 tonnes of logs) is a loss of 15 jobs and $0.6 million in household income. Hence the total impact of a 100 000 m3 output MDF plant in Wairoa District is estimated to be 265 jobs and $9.2 million in gross household income.

A 200 000 m3 mill would generate greater impacts. Direct impacts would be 240 jobs and $8.6 million in household income while total impacts would be 300 jobs and $10.6 million in household income.

A4.7 Total forest-related employment and income opportunities in Wairoa

As is shown in the tables below, development of forestry generates a limited number of jobs in the initial years of forest establishment and management, but a very large number once harvesting begins. To put these numbers into context it should be noted that total employment in Wairoa District at the 1991 census was approximately 2800.

Table A4.2 Total Wairoa District employment impacts of forestry development, based on 2000 ha per year for 28 years (Full-time equivalent jobs).
Roads Plant, prune, thin Logging Log freight Processing Total
Year 1 4 19 0 0 0 23
Years 10-28 4 110 0 0 0 114
Year 29+

Direct

Total



14

32



95

110



280

380



135

200



430

585



955

1,305

Table A4.3 Total Wairoa District gross household income impacts of forestry, based on
2000 ha per year for 28 years ($million).
Roads Plant, prune, thin Logging Log freight Processing Total
Year 1

0.14

0.5

0

0

0

0.6

Years 10-28

0.14

2.9

0

0

0

3.1

Year 29+

Direct

Total



0.5

1.2



2.5

2.9



12.7

15.5



6.3

8.4



15.2

19.9



37.2

47.9

A4.8 Employment Opportunities in Wairoa

The rate of forest planting in the future is expected to be similar to that of recent years. As is shown in the above tables, forestry employment steadily picks up in the first few years until it reaches a plateau in about year 8 (once there is no further silvicultural work being done on the oldest trees). Employment continues at this level until harvest at year 28 when employment rockets with logging, transport and processing. On the face of it one might expect that opportunities for employment in Wairoa have already got to the first plateau and will not increase until large-scale harvesting begins in about 20 years (logs harvested in earlier years are already committed to existing processing plants in other centres). While it is true that there is likely to be little growth of employment in forestry in the District, it is not necessarily true as regards employment in forestry of people from the District.

As has been mentioned earlier, there is a great deal of work being done in District forests by people from outside the District (although indications from the survey of forestry companies are that this is changing). The District residents have a natural locational advantage in obtaining employment in the District, but they will need to ascertain why they have not yet been able to more fully utilise this natural advantage. Having identified the reasons, they will then need to develop and adopt a strategy for addressing these reasons.

A5 IMPACTS OF FARMING AND MEAT PROCESSING

Data on on-farm employment and farming purchase patterns (what inputs farmers purchase and where they purchase them from) was obtained from a survey of farmers in the District. Data on meat processing employment and purchase patterns was obtained from AFFCO Wairoa works. All this information was incorporated into the District economy model, and total farming and processing impacts on the District were estimated. The impacts were then converted to a per thousand Stock Unit basis, and these impacts were applied to the estimated reduction in Stock Units flowing from conversion of land from farming to forestry. The estimates were calculated on the basis of the amount (2000 ha per year) and carrying capacity (7.7SU/ha ) of land going into forestry.

A5.1 Employment and income impacts of farming.

The farms in the sample were split into two groups, large and small. The survey expenditure, income and employment data were calculated for each group, and then a weighted average was calculated, the weightings being based on the total area on each sort of farm.

On average, direct employment on farms (including working owners, employees and contract workers such as fencers and shearers is 0.34 FTEs per 1000 SUs (Full Time Equivalent jobs per 1000 Stock Units), and gross household income which includes wages to permanent and contract workers and cash surplus of farms, is $16 800 per 1000 SUs. Of this, approximately $9500 is spent on household consumption. There are significant indirect income and employment effects, primarily in the area of agricultural contracting, transport, retailing, and local government services. The regional economic model suggests that for every 100 direct jobs created in the District on farm (including contract work such as shearing) there will be a further 55 indirect jobs generated in the District, and for every $100 of direct gross household income there will be a further $33 of indirect income. Hence the total impact of a 1000 LSU reduction is the loss of 0.52 FTEs and $22 400 of gross household income.

A5.2 Employment and income impacts of meat processing

The AFFCO plant in Wairoa has expanded output dramatically since the closure of Weddel's Kaiti plant in Gisborne, and the Wairoa plant is now running at full capacity. Since the break-even cost of the plant is considerably below full capacity, there would have to be a very large reduction in slaughtering to cause plant closure - much greater than the decline estimated in the scenario under examination in this paper.

AFFCO split their costs into fixed costs (those independent of throughput) and variable costs (those which vary directly with numbers slaughtered). In looking at the impact of a decline in slaughter arising from land-use changes, marginal cost data has been used. However, total cost data has also been used to estimate the impact on the District of complete closure of the AFFCO works.

Fixed costs in the AFFCO works are high, and a 10-30% reduction in throughput would have no significant impact on these. The major elements of these fixed costs are administration, a significant proportion of maintenance, property costs and depreciation. Variable costs are primarily wages, processing materials, packaging, freight, energy and water, and a proportion of maintenance.

For every 1000 lamb equivalents processed (a lamb equivalent is 1.08 sheep or 0.13 cattle), direct marginal employment and income are 0.22 FTEs and $6100. Indirect effects arise primarily in the electricity, water, and wholesale and retail trade industries. The regional economic model suggests that for every 100 direct jobs lost in the District as a result of a marginal decline in meat processing there will be a further 13 indirect jobs lost in the District, and for every $100 of direct household income there will be a further $15 of indirect income. Hence total Wairoa District impacts of an increase or decrease in throughput at AFFCO are estimated to be 0.25 FTEs and $7000 of household income per 1000 lamb equivalents.

The effects of AFFCO closure (compared to a throughput of 1.6 million lamb equivalents) would be the direct loss of 381 FTEs and $12.9 million in gross household income. Total effects on the Wairoa District would be the loss of 440 FTEs and $15 million of gross household income.

A5.3 Total farm-related impacts of land-use changes

Using the approximation of 2000 ha of land going into forestry for 28 years and assuming a decline in carrying capacity of 7.7 SUs per ha, there would be a loss of 15 400 stock units per year and an estimated decline of 11,000 lamb equivalents per year being slaughtered. John King (MAF Policy, Napier) has also estimated that a 1000 LSU reduction in carrying capacity will be associated with a decline of 290 lamb equivalents being slaughtered in Wairoa (this figure embodying assumptions about the final destination of store stock and the percentage of stock going to slaughter which are slaughtered in the region). Farming-related employment in Wairoa District would steadily decline by 9.1 jobs per year and household income would decline by $0.37 million per year. After 28 years the total losses would be 255 FTEs and $10.6 million of gross household income.

Table A5.1 Total Wairoa District employment impacts of farming reduction, based on 2000 ha per year and 7.7 su/ ha for 28 years. (Full time equivalent jobs)
Farming Meat processing Total
Year 1 Direct

Total

(5.2)

(8.0)

(1.0)

(1.1)


(9.1)
Year 10 Direct

Total

(52)

(80)

(10)

(11)



(91)
Year 28+ Direct

Total

(147)

(224)

(28)

(31)



(255)
Table A5.2 Total Wairoa District gross household income impacts of farming reduction based on 2000 ha per year and 7.7 su/ ha for 28 years. ($million).
Farming Meat processing Total
Year 1 Direct

Total

(0.26)

(0.34)

(0.02)

(0.03)



(0.37)
Year 10 Direct

Total

(2.5)

(3.4)

(0.2)

(0.3)



(3.7)
Year 29 + Direct

Total

(7.2)

(9.7)

(0.8)

(0.9)



(10.6)

A6 COMBINED IMPACTS OF LAND-USE CHANGES

Using the approximation of 2000 ha of land going into forestry for 28 years, and the above assumptions about declines in stock capacity, the total potential employment and household income effects in Wairoa are as shown below. There is a steady increase in available employment and income over the first 10 years of the planting cycle, as planting and silviculture build to a peak, but for the next 18 years there is a slow decline in total employment as forestry employment remains constant (older trees have no silvicultural work done on them), and farm employment continues to decline as farmland continues to be converted to forestry. By the end of the forest expansion and before the onset of harvesting, available employment has fallen by approximately 140 jobs relative to the position before the start of the planting cycle, and household income has fallen by $7.5 million. Once harvesting begins there is a dramatic increase in employment and income opportunities. The total potential impact of conversion of a total of 56 000 ha of land in the District from farming to forestry, and processing of half that wood within the region, is an overall increase of 1050 jobs and $37 million in gross household income.

To put all these figures into context, it is noted that total employment in Wairoa District is currently of the order of 2800 FTEs, and earned household income is of the order of $70 million. (Note that this figure excludes all transfers from Government, and the increase in earnings estimated above ignores the reduction in transfer payments as people shift off benefits and into the workforce.)

Table A6.1 Total Wairoa District employment impacts of conversion of 2,000 ha per year (56,000 ha in total) from farming to forestry (Full time equivalent jobs).
Forestry & logging Forest processing Farming Meat processing Total
Year 1 23 0 (8.0) (1.1) 13.9
Year 10 114 0 (80) (11) 23
Year 28 114 0 (224) (31) (141)
Year 29+,

Direct Total

524

722

420

585

(147)

(224)

(28)

(31)



1,050

Table A6.2 Total Wairoa District gross household income impacts of conversion of 2000 ha per year (56,000 ha in total) from farming to forestry ($ million).
Forestry & Logging Forest Processing Farming Meat Processing Total
Year 1 0.6 0 (0.34) (0.03) 0.23
Year 10 3.1 0 (3.4) (0.3) (0.6)
Year 28 3.1 0 (9.7) (0.9) (7.5)
Year 29+,

Direct Total


22.0

28.0


15.2

19.9


(7.2)

(9.7)


(0.8)

(0.9)



37.3

A7. DEVELOPMENTS IN WAIROA

To date there has probably been a decline in farm-related employment in the District much along the lines of the figures given in earlier sections. In contrast, the increase in forestry-related employment has been much less than the potential increase. As was earlier outlined, Wairoa has been able to develop only about a quarter of the available employment opportunities.

The figures displayed in earlier sections show the potential impacts of changes in land-use. There has already been significant planting in the District, and limited logging is already taking place. Within the next 5-10 years there will be a significant increase in logging, and this will generate additional employment opportunities. It is unlikely that there will be wood available for large-scale processing within the next 10 years, but beyond that period it is quite possible that large-scale processing will begin within the District. Wairoa needs to ensure that training is available for local residents so that they are in a position to take advantage of the available employment opportunities. The District Council should also consider reviewing the location options for processors and comparing Wairoa with alternatives, with a view to ensuring both that no unnecessary impediments to location in Wairoa exist and that potential processors are fully aware of any advantages of locating in Wairoa.

TOC

Contact for Enquiries

Rural Affairs Coordinator
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND

Phone: +64 4 894 0675
Fax: +64 4 4 894 0745
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