Sounds like smart thinking

BY ROD ORAM

OPINION: A COUPLE of public meetings in Marlborough last week neatly captured the opportunities and challenges, the optimism and anguish about New Zealand's economic development.

The high point was a two-day economic conference. Delegates considered the region's recent progress and discussed enthusiastically their plans to achieve far more over the next decade.

The region's GDP grew by 26% from 2001 to 2006, the latest local data available, while the nation's grew by 20%; its population grew by 8%, slightly less than the nation's; and employment grew by 25%.

The primary sector is still the main economic driver but the mix within it continues to change dramatically. Viticulture and wine-making have become the dominant employer, accounting directly for one in six jobs. And the sub-sector is still growing while pastoral farming continues to decline. Tourism and aviation services such as aircraft overhaul and technical training are also contributing more to the economy.

But productivity has barely budged. It rose 0.2% a year overall from 2001-06 but has declined 1% since 2004. In other words, Marlborough has grown by increasing the volume of what it does but not the value. Worse, the region is badly buffeted by the high dollar, the main factor behind the recent drop in productivity.

Poor productivity means poor pay. So, for all the investment, achievements and buzz about economic growth in the region, its residents are not much better off.

This is the story of New Zealand. And it looks as though we've learned nothing from our longest recession in 35 years. We're rapidly returning to the debt-fuelled consumption and housing boom that drove much of our growth this decade.

As a nation, we're doing precious little to invest in higher-value activity. Neither are we playing to the seismic shifts in consumer and economic behaviour triggered by the global recession and the intense pressures on energy and other resources.

Is Marlborough any different? Yes, possibly. Its business and political leaders seem to understand some of the great opportunities opening up in the fast-changing world economy, judging by their plans and presentations at the conference.

The wine industry was expected to double in size from 2007 to 2016, according to forecasts done for the Marlborough District Council before the recession began to bite. Higher-performing sectors such as forestry, aquaculture, aviation and tourism were expected to grow 20-50% and emerging sectors such as engineering, ICT and natural products by more than 50%.

But traditional drivers such as pastoral farming, horticulture (net of wine) and fishing were expected to languish at 10-20% growth over the decade.

None of these opportunities is easy. Wine is particularly problematic. The region had 5000ha of vineyards in 2000 but 24,000ha in 2008, of which some 14,000ha were in production. Another 10,000ha will be developed in coming years.

The region, like the country, has done an excellent job over the past decade creating premium products and brands. But prices are under serious pressure thanks to wine gluts around the world and the global recession's impact on consumer behaviour and distribution channels.

Each winemaker will chart its own strategic response. But improving environmental performance is a common driver throughout the industry. It brings two benefits: enhanced consumer credibility (and hopefully a premium price) and greater efficiency.

For example, Yealands, a 1000ha vineyard outside Seddon, plans to use vine prunings to fuel its winery boiler and it is breeding miniature sheep to graze between the vines to save $1.5 million a year of diesel for mower-pulling tractors. And, of course, the sheep will be a valuable crop in themselves.

The forestry sector is targeting the same drivers of value added products and resource efficiency. In productivity terms, it was the best performer in the regional economy from 2001-06. Its contribution to GDP rose 47% while employment rose 22%. In other words, the value created by each employee doubled.

Virtually all its products are traditional ones such as timber and logs. But the conference had a glimpse of the future from Wolfgang Weirer, managing director of KLH, an Austrian pioneer of cross-laminated panels used to build some 2000 solid wood homes a year in Europe. Its tallest structure to date is a nine-storey apartment block in London.

The technology is a big advance on that used in the small number of wood panel homes here. The maximum size of panel made in KLH's climate-controlled factories is 16.5m x 2.95m x 0.5m using cheap sidecuts from logs.

The untreated panels weather well in the harsh European environment, both in houses and other structures such as bridges. In some cases, homeowners might add a facade such as traditional stucco. It is a highly productive building technique and cost-competitive against traditional materials. The structure for two-storey houses is erected in eight hours using made-to-measure panels.

And, of course, the wood panels store carbon. This will be economically rewarding if, as expected, the Copenhagen climate change negotiations in December approve rules for calculating such carbon storage.

This focus on carbon was the over-arching theme of the Marlborough conference. Virtually every company had a story to tell about the opportunities from the world's growing preoccupation with reducing carbon.

For example, Nelson Forests has calculated the carbon footprint of its entire operations and product range. This has helped drive operational efficiencies such as using waste wood in the boiler at its Kaituna sawmill outside Blenheim.

And thanks to the analysis, it can prove that the timber it sells into Spain is carbon negative (storing more carbon than was expended in harvesting, processing and shipping it). Thus the company can compete in the fast-growing European market for sustainable building materials.

Carbon consciousness is widespread in the region.

For example, Paul Kinsett has changed his tomato glasshouse boiler to woodchips instead of burning 1200 tonnes of coal a year. He saves money and he spares his Renwick neighbours the black smoke. Burn woodchips at a high enough temperature and there is no smoke (just steam, if they are wet). They are also carbon neutral because they re-release carbon stored by the trees. Coal, in contrast, releases new carbon.

So many people have converted to cleaner heating fuels in the region that this was the first winter that Marlborough has met the national standard for air quality. It's a good thing its overseas wine buyers didn't know it hadn't in the past.

In fact, the region reduced its greenhouse gas emissions between 2003 and 2009 to some 750,000 tonnes a year, according to Kyoto methodology calculations by Michael Cambridge, a local farmer turned forester and promoter of solid wood construction.

Even better, carbon storage in forests went from 550,000 tonnes a year to 925,000 tonnes, so the region swung from being carbon positive in 2003 (injecting more carbon than it was storing) to carbon negative.

The conference organisers challenged the delegates: By 2020, could Marlborough store twice as much carbon as it emitted by reducing fossil fuel consumption and increasing carbon storage? Could it make money and improve productivity by doing so?

Yes, many of them concluded. Some are well on the way. For example, Ernslaw One, the largest owner of Kyoto forests in New Zealand, recently sold 540,000 tonnes of carbon credits to the Norwegian government at a price believed to be between 10 ($20) and 14 a tonne. It was the world's first international sale of Kyoto-compliant forest credits.

If these were some of the high points of Marlborough's economic ambitions, the low point came Thursday evening. Federated Farmers held a local meeting to whip up support for its campaign against the Emissions Trading Scheme. According to several people who attended, it was an angry, bitter occasion.

FedFarmer local and national leaders, including its president, Don Nicolson, demanded that agriculture be dropped from the ETS. If not, they said, National would lose farmers' votes and thus the next election.

Clearly FedFarmers can't count. Their members are massively outnumbered by other voters in the primary sector such as foresters and winemakers and by urban voters too.

There are great opportunities for agriculture in this carbon-constrained world. But only for those who embrace them rather than deny them.

- © Fairfax NZ News