The trouble with timber

The abrupt announcement from Carter Holt Harvey to cut structural timber supplies to some merchants has caused a shock. But, given the complexity of modern business and the small size of the New Zealand market, it is surprising similar instances do not occur more often.

This has come when the building industry is frantically busy and new housing desperately needed.

It follows Labour’s big housing announcement. Bad news for builders is not what they would have ordered.

Various reasons are ascribed, and the Commerce Commission is asking questions.

The building supplies company most affected, ITM, is outraged, particularly citing the fact CHH will continue to supply Carters (which CHH partially owns) and Fletcher Placemakers.

ITM says it is the second-biggest supplier to the industry (after Placemakers) and has been a 30-year client. The retail giants, Mitre 10 and Bunnings, say they are not directly impacted, although some Mitre 10 stores could be.

CHH claims it will still be fulfilling its contractual obligations and the shortfall in demand is small.

A few critics have pointed to the comparative lack of wood processing in this country and the mass export of logs.

It would seem, however, that local mills have been able to secure logs, albeit at high prices because of the booming demand overseas.

The chief executive of large mill Red Stag, from Rotorua, has explained that CHH shut its Whangarei mill before it could get its larger Kawarau plant fully redeveloped. Post-Covid, even more house building and renovation then came on top of what was already peak demand. CHH just could not supply.

Supposedly, in a few months, more capacity and the uptake of other options will rectify matters.

Timber supplies for the likes of decking, fencing and landscaping were already under pressure. Retail margins can be high and, in such situations, they are likely to stay that way.

Covid supply chain issues have also caused problems with other building products.

One suggestion has been that CHH was more playing a power move to resist the low prices insisted on by the power of Bunnings, Mitre 10 and ITM.

As it is, the Government wants to investigate New Zealand’s high costs for building materials. But its supermarket cost inquiry has come first.

It is a wonder of today’s world that, generally, goods are available quickly and from all over the world. Competition often sharpens costs.

The Suez Canal blockage of the past week illustrates the intricacies and interdependence of global trade. Mostly, it works and works well.

In theory, supply and demand create markets and opportunities and proper rivalry.

New Zealand, though, is handicapped by small scale and limited competition. Capitalism, for all that it has raised living standards — although not for everyone — and for all that it delivers the goods, needs to be fettered.

Rules, watchdogs and occasional controls are required.

Compare a shortage of structural timber under a free market for perhaps several months to other options.

The New Zealand era of import licences was a recipe for monopolies, high prices and shortages.

The lack of competition in parts of the economy fostered inefficiency, inflexibility and high margins.

Those aged under 70 would find it hard to imagine the rigmarole to acquire a car and the exorbitant costs of previous times.

China only surged economically after its capitalist changes. The Soviet Union was an extreme case study into the inefficiency of state planning.

Governments, while setting those frameworks and rules and enforcing them, must stand back from the complexities of everyday commerce.

In the meantime, mistakes will be made, as CHH appears to have done as the largest player in a small and challenging business.

It failed to pick the extra flood of demand for structural timber and its Kawerau development appears to have struck difficulties.

While the shortage is unfortunate, this will rectify itself.

But imagine a Wellington bureaucracy endeavouring to pick business trends and making such decisions.

Comments

Complexity of business = Denial of Resource.
Rationing = Soviet bloc (archaic).

China likes capitalism, but also gets things done, by order. We let market operators do what they like, despite social needs.

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