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Wood-processing plunge sees return

Editorial

News of a $30 million investment in a new production line and factory for Wood Engineering Technology Gisborne Ltd (WGL), and a planned $200m expansion in total — to eventually have six production lines at the former Prime sawmill site — appears to vindicate the strategy Trust Tairawhiti adopted six years ago to subsidise wood processing opportunities in the district, along with central government support for that to the tune of about $20m each now plus a $12m Provincial Growth Fund loan for the new facility.

At a launch event on Thursday, WGL chairman John Rae said the history of the Prime site and WGL’s existence was a “fascinating study in market failure”.

A report commissioned in 2014 by then newly-formed economic development agency Activate Tairawhiti identified wood processing as “clearly the highest priority” for this region, with the mechanism to provide high-value, skilled work.

There had been a clear market failure in the sector, he said — private interests did not see economic returns being available from additional processing but Activate did, given time.

When Eastland Community Trust (now Trust Tairawhiti) purchased the Prime site in 2015, Wood Engineering Technology — formed in 2003 by a group of Auckland-based investors with the aim of turning weak, low-value wood into high-value, structural-strength lumber — was looking for a facility in Northland. Activate managed to convince them the Prime site was the place to be, and the trust and WET formed the WGL joint venture with a 50/50 $9.4m investment to prove and refine the technology.

(For the $30m expansion announced on Thursday, Trust Tairawhiti is investing in the factory building but not the operation.)

Mr Rae said this co-investment model here should be seen as the exemplar for regional investment, where market failure existed.

He also said he was especially excited that WET’s technology could be a game-changer for Maori forest enterprises, because it offered the opportunity to bring processing closer to their forests — limiting the need for costly transportation of logs — as well as the opportunities to offer high-skilled jobs to attract talent, and incentivise planting more whenua in production forestry.

When our community trust first decided to foster wood processing, its equity was $263m; so the $20m it has invested since amounts to 7.6 percent of that. Trust equity has continued to grow and as of March 31, 2020 was at $377m.