Abstract:
To facilitate policy making and improve understanding of issues facing the New Zealand forest sector, a spatial equilibrium model was developed for log and lumber trade in the Pacific Rim. Regions included in the model were New Zealand, Chile, Australia, Japan, Eastern Canada, British Columbia: Coast and Interior, and the United States. Eight products were recognized in each market, characterized by their species group. Demand and supply relationships were econometrically estimated over the sample period 1966 to 1983; a reactive programming procedure was adopted to solve for annual market equilibrium prices and quantities. Inventory growth and drain models provided the necessary parameters to specify annual marginal cost functions for Radiata pine log supply from New Zealand and Chile. The validation procedure included simulating over a future period, from 1983 to 2010, under alternate economic and policy environments. Specifically, the model was used to investigate the impacts on Radiata pine markets of increased resource availability in New Zealand and Chile; the effects of a lower New Zealand exchange rate, and the indirect effects from a scenario of low growth in United States lumber consumption. Supply and demand for Radiata pine lumber in New Zealand were both inelastic, in contrast to Japan and Australia, reflecting lower substitution possibilities between timber species. Demand and supply behavior varied greatly between species. Baseline projections to 2010 indicated Radiata pine prices in New Zealand will decline by 23 percent, associated with a build up in inventory above the minimum harvest age. This was attributable to the high afforestation rates in New Zealand and Chile from the 1960's on.
