I found this little history of forestry’s contribution to the productive sector from a 2005 NZ Treasury Report quite interesting:

When Europeans arrived in New Zealand, much of the country was covered in native forest. This is despite clearance of significant amounts of forest by Maori through hunting activities.

Europeans continued the deforestation trend, both to use the wood for house and shipbuilding and to clear land for farming purposes.

It was recognised as early as the 1870s that the amount of wood produced from these clearances was unsustainable, and the government took steps to reduce deforestation and create plantation forests. Initial efforts were largely ineffectual, but this changed with the creation of the State Forest Service in 1919. Large-scale government planting took place in the 1920s and early 1930s, predominantly of pinus radiata, a species imported from California.

Much of the afforestation of the 1920s and 1930s took place on the pumice lands of the central North Island, which had been found to be unsuitable for agriculture due to stock developing bush sickness.. With the discovery of a cobalt fix for this problem in 1937, this land became suitable for farming, and large-scale afforestation ceased.

The government kick-started planting again in the 1960s, with the wider aim of expanding and diversifying New Zealand.s export production. Expansion was driven both by Forest Service planting, and by both direct and indirect financial incentives for private planting. Planting took place on increasingly marginal land, with planting decisions influenced by a range of factors other than profits, including regional employment, Maori economic development and land stabilisation.

Forestry exports expanded through the 1960s with increasing sales of logs to Japan, plus pulp and paper to Australia and the Pacific. Financial incentives for planting remained in place until the mid-1980s, by which time the size of the plantation estate had tripled, from 352,000 hectares in 1960 to over one million hectares in 1984 (Rhodes and Novis, 2002).

The government took steps in the late 1970s to manage and protect native forests on public land, with this approach extended to private land in 1989. Under the Forests Act there are restrictions on the felling, milling and export of native forests.

Forestry did not escape the wider economic reform that took place in the mid-1980s. The financial incentives for private sector planting ceased, and changes were made to how forestry was taxed. The Forest Service was split up; commercial forests were largely corporatised and then sold through the late 1980s and early 1990s. The management of native forests became the responsibility of the Department of Conservation.

The forest industry has seen significant plantings since 1990, responding to wood commodity price movements and the declining returns from other uses of the land. However in the last few years, a combination of increased international competition, low commodity prices, an unfavourable exchange rate and increasing transport costs have stifled growth.

There have been important new technologies applied in forestry . mechanisation in harvesting and processing leading to reduced labour requirements, improved breeding stock for trees, and improvements in forest management, including forest health and fertiliser application.

New Zealand remains a price-taker on the international market for forestry products, and is vulnerable to commodity price and exchange rate fluctuations. The industry is dominated by  radiata pine, which has advantages as a species (it is very fast growing and it is suitable to our  climate) and disadvantages (it is not as reliable as a building material when compared with  some other woods). Some attempts are being made to diversify into other species and into  more processed products.

And about the future predictions for the industry:

As discussed above, large numbers of trees were planted through the late 1980s and the 1990s. These trees will be reaching maturity over the next ten to fifteen years. This will provide the raw material for growth in the earnings of the forestry sector. The ‘wall of wood’ will arrive at a time of growing global demand for wood and wood products. A number of domestic and international factors will determine what it costs to extract and process the wood, and the prices it will fetch on the international market. These are discussed below.

Domestic Factors

Energy price increases and security of supply issues are key uncertainties for wood processing facilities, which are heavy users of energy. The price of energy is expected to continue to increase in New Zealand from what are, by world standards, low rates. Reasons include the increased demand for electricity by domestic consumers, and for energy more generally internationally (including oil), uncertainty over our gas reserves, plus the new carbon tax which applies from 2007.

Areas such as Northland and the East Coast, which have low populations and significant areas of forests planted, suffer from poor transport networks. These transport problems will be exacerbated as forests mature over the next decade. The government is investing significant funding in improving the roading infrastructure in these areas. This investment will take several years to complete.

Forestry faces labour and skills shortages at various stages in the process (silviculture, truck drivers, processing). These will become more acute as the wall of wood comes on stream. New Zealand.s domestic climate change policies will present both threats and opportunities to the sector. Forest sinks play an important part in the Kyoto Protocol.s accounting, and the large amount of afforestation through the 1990s has aided New Zealand.s net emissions position in the First Commitment Period (2008-12, .CP1.).

Under the Kyoto Protocol, countries gain credits for afforestation. The flip side of this is that harvesting and deforestation entail liabilities. The government has decided not to devolve credits to individual forest owners. Similarly, owners of Kyoto forests (i.e. those planted from 1990 onwards) will not face any liabilities for deforestation. Owners of non-Kyoto forests will also not face any liabilities, so long as deforestation remains within a cap of 21 million tonnes of CO2 equivalent, which is equal to deforestation of 10% per annum through CP1. The government does not expect the cap to be breached, historical deforestation rates are 2-4% per annum. However, if the cap looks as if it will be breached, the government will take steps to manage deforestation within the cap. This will include determining whom to attribute liabilities to (i.e. the landowner or the leaseholder, in the case of forests grown on leasehold land).

The forest industry has been critical of the government.s policy on deforestation liabilities. It has argued that the uncertainty around whether and how liabilities will be attributed is a significant disincentive to investment in forestry, and hence a hindrance to future growth.

Domestic climate change policy settings for forestry post-2012 are unclear; these will become clearer as negotiations on future international climate change commitments proceed. If the value of forests as carbon sinks is to be included in production and investment decisions, the forest industry needs to receive appropriate signals.

Pest incursions pose serious biosecurity threats to the forest industry, with Asian gypsy moth and painted apple moth being examples of recent threats. As our international trade and transport links with other countries increase, so does the risk of an incursion. Having our forestry interests concentrated on one species . pinus radiata . increases the potential damage that an incursion may cause.

At present the industry is fragmented and lacks a cohesive structure. There are a number of representative groups covering various parts of the production process (such as the Forest Owners Association, the Farm Forestry Association and the Timber Industry Federation), but attempts to establish broad representative bodies (such as the Forest Industry Council) have only been partially successful. This has made it difficult for the industry to work together cooperatively on industry good matters, and to engage with the government on policy matters.

The forest industry also faces infrastructure challenges. There has been underinvestment in capital, particularly processing, which will need to be addressed as increased volumes of wood become ready for processing. The forest estate is dispersed throughout the country, which underscores the importance of roading and regional processing facilities.

International Factors

International market conditions play a key role in determining the prosperity of the New Zealand forestry industry. On a number of fronts, recent conditions that are outside the control of New Zealand have not been favourable: commodity prices have been generally low, the exchange rate has been particularly high, and the cost of transport has been especially high. The latter has been largely a result of China.s rapid economic growth driving up demand for shipping, but is also related to the increased price of oil. This has increased the cost of getting our forest products to market. These higher transport costs are expected to continue.

Worldwide demand for logs, lumber and panels is expected to strengthen over the next few years, though New Zealand.s ability to respond will be somewhat tempered by processing capacity constraints. The expected movements in international prices for wood vary across product categories, but over the next few years they are generally not expected to rebound from their current weakness. New Zealand may well also face stronger competition from other forestry exporters.

More work is required to address tariffs and technical barriers to trade in forestry products.

Efforts are being made in bilateral and multilateral trade liberalisation, and work is being done to get radiata pine certified to building standards in various countries, including China.