1. Submitter: Aggregate and Quarry Association of New Zealand (Inc.) C/- W.

Bourke AQA Planning and Technical Adviser 4 Taranto Place Glendowie Auckland 1071 Telephone: 09 521 2387 Mobile: 021 738 432 Email: Bill@aqa.org.nz 2. This is a submission on: Residential Construction Sector: Market Study Issues Paper 3. Hearing: The Aggregate and Quarry Association of New Zealand (Inc.) (AQA) wishes to be heard in support of its submission should there be a hearings panel. 4. Background The Aggregate and Quarry Association of New Zealand (Inc.) (AQA), was formed in 1969 by companies involved in extracting and supplying aggregates in New Zealand (e.g. rock, sand, gravel, clay, limestone), in response to the need for an industry group that could represent aggregate suppliers on a range of issues, as well as liaise with regulators and end users of the materials (see www.aqa.org.nz for web site). Membership of the AQA stands at over 50 companies1, which between them produce 85% of the current 26 million tonnes of aggregates and allied raw materials used in NZ.

By comparison internationally we are very small. The European Aggregates Association has some 14,000 members, even though it too has been savaged by the GFC recession.

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AQA members are active throughout NZ in terms of extractive industries and provide necessary materials for National, Municipal, Commercial and Residential infrastructure maintenance and development, as well as the supply of agricultural minerals, such as limestone and dolomite to the farming community. A list of the main end uses for aggregates is detailed in Appendix 1. 5. Submissions 5.1 The Role of Aggregates in the Residential Construction sector 5.1.1The Ministrys Issues Paper does not identify aggregates per se as an essential material in the construction of residential dwellings. Rather it seems that they have been grouped under the general heading of Commodities. (Figure in 2.1, page 5, What is covered in this study?). 5.1.2 The AQA believes that this is an inadvertent oversight, as aggregates (and other minerals) play an important, though often neglected role in the construction of residential dwellings. 5.1.3 The European Aggregates Association calculated that the amount of aggregates used to build an average home totaled around 400 tonnes2. Although a similar detailed study has not been undertaken in NZ, we believe that around 250 tonnes is probably closer to the mark for the type of domestic construction in NZ (Timber frame as opposed to predominantly concrete in Europe). 5.1.4 By way of illustration, aggregates are used in site preparation, foundation construction, floor pad construction (where a concrete pad is used), concrete blocks where specified, backfill for water waste water and electrical services, as a component in plaster board lining, drive way and parking areas, to name the most obvious. 5.1.5 However this can increase several fold for low or medium rise dwellings, such as currently being promulgated in the draft Auckland Regional Plan, via the amount of concrete utilised (of which aggregates along with cement, are the key components) and would therefore be closer to the European equivalent. 5.1.6 New subdivisions also add considerably to the equation via access roads (Sub base, base course and asphalt), curb construction, the backfilling of reticulation or electrical services and in some cases, soak holes or porous paving to retard the run off of storm water. Developers no doubt apportion these costs to the number of sections being offered.

European Aggregates Association, Annual Review 2011-2012

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5.2 Size and Importance of the Quarry Industry in NZ 5.2.1 For the purposes of this paper, aggregates are defined as crushed and graded rock, gravel, sand and fill materials. 5.2.2 It is generally accepted that approximately 65% of aggregates quarried are used in road construction, with 25% in construction and the remainder in other end uses. 5.2.3 The aggregates industry has suffered considerably from the economic downturn and recession. Figure1 below demonstrates the national figures:
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Figure 1: NZ Aggregate Production vs. Population: 2000-2011. Source: Minerals and Petroleum Statistics: AQA Analysis 5.2.4 The key drivers for aggregate demand are population growth, GDP and most critically, investment by either central government, regional, municipal or private sources. The collapse of Finance companies from 2007 on, allied by mainstream banking institutions exiting the market, had a dramatic effect on the residential (and commercial) construction sectors. 5.2.5 It can be seen that aggregate demand began to dry up dramatically from 2008 on, although it has now bottomed out and is rising, particularly with the Canterbury earthquake rebuild and a resurgence of home building in Auckland and some provinces. 3 5.2.6 Consumption per head of population is often used as a key performance indicator for the industry both in NZ and internationally. It can be seen from Figure 1, that at the peak of demand, the consumption per head of population was approximately 11.84 tonnes, reducing to

Statistics collected by the Ministry are a calendar year behind.

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5.83 in 2011. The European average for 2010 was 5.5 tonnes per capita, down from 7 tonnes in 2006 4. 5.2.7 It can also be seen that population increases do not necessarily transmit into aggregate demand. Two key components until recently were missing - the availability of finance and the growth of GDP. The latter has yet to go a long way to get back on track (Figure 2). NZIER comment that a growth rate of 10% would be required to bring the trend back to norm. Consensus of forecasters is in the range of 2.5 3%

Figure 2: GDP Recoveries from Recessions. Source: NZIER AQA Board presentation May 2013 5.2.8 The net result for the purposes of the Ministrys paper has been either, the reduction in the price of quarried aggregates or at best, little or no price increases for several years 5. 5.2.9 As commented in the Issues paper, the quarry industry in NZ, like the building industry, is very fragmented compared to international equivalents. Estimates vary in the number of quarries currently active in NZ, as a number are either in a mothballed condition, or comprise small scale operations on farms or in forestry units where the uprisings are self- consumed. A best guess therefore is in the vicinity of 600, with perhaps 200- 300 actively involved in supplying aggregates on a regular day to day basis. 5.2.10 While there was some rationalisation in the 1970s, there are very few large scale hard rock aggregate quarries in NZ and certainly no mega quarries such as are more common in Continental North America or Europe, processing in excess of 10 million of more tonnes per year. The largest aggregate quarry in NZ until recently, was the Winstones operation in Mt Wellington, Auckland (c.2million tonnes PA), which has now been closed as the available resource has been exhausted.

4 5

European Aggregates Association, Annual Review 2011-2012 Indeed production output is possibly down to 1991 levels. See Figure 3 and Table 1

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5.2.11 The average size of a provincial quarry in NZ and in the current economic climate is in the vicinity of 150 200,000 tonnes with many below this figure in the 30,000 50,000 tonnes range. 5.2.12 Further, it is a golden rule in this industry that the price of aggregates doubles each additional 30 km they must be transported. Therefore having a quarry close to the end use is axiomatic in providing the lowest cost possible to the buyer. Unfortunately this equation is now coming under stress in some areas for reasons that will be discussed below.

5.3 The Cost of Aggregates 5.3.1 It is contended that Fragmentation of the industry in NZ does not mean that the price of aggregates is out of kilter with their Australian counterparts. Indeed an upside of fragmentation means that there are a number of quarries in most provincial centers and competition between them is fierce. 5.3.2 An analysis of statistics (Table 1) from 2006 to 2011 indicates an average price of $14.45/tonne for Rock Sand and Gravel for Building over the last 6 years with little price movement over the recessionary period. Year 2006 2007 2008 2009 2010* 2011 Tonnes (M) 8.518 9.601 9.743 7.198 7.448 6.000 $(M) 118.33 133.21 139.00 97.39 97.00 108.85 $/t 13.89 13.87 14.27 13.53 13.02 18.14

Table 1: Rock sand and Gravel for Building. Source NZ Petroleum and Minerals/AQA analysis. Notes: a. The dollar figures for 2010 in the NZP&M table look to be incorrect b. Figures rounded

5.3.3 The increase in the average price in 2011 is attributed to the rising demand for concrete in the Canterbury area as a result of earthquake reconstruction commencing. Concrete aggregates by their nature are more expensive to produce, with tighter specifications than those for drainage, fill or base course etc.
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5.4 Critical Issues Facing the Industry Going Forward 5.4.1 Lack of up to date or incomplete data and forecasting (a) A number of one off studies have been conducted over the years, many as a result of submissions to Regional Plans, particularly those conducted by Twelfth Knight Consulting. (b) Similarly, the GNS conducted a major study of minerals including aggregate for the then Northland Region 6. The original plan was for the whole of NZ to be covered but no further studies have been undertaken due to a lack of finance and resources. 5.4.1.3 An investigation by the late Jim OBrien into the demand parameters for aggregates in NZ 7 has unfortunately not been continued since his passing, though it has been recognized as a base case and important study: but is rapidly becoming dated. An example from his 2006 study is detailed below in Figure 3. 5.4.1.4 It is contended that a paucity of up to date data is crucial to the Construction Industry (both domestic and civil) and by implication, to the new Ministry with its overseeing role. Lack of detail by region of aggregate and mineral resources as documented by the GNS study, means that Regional Council and Municipal Council planning staff are often oblivious of deposits which will be become critical in some places over the next 30 50 years. 5.4.1.5 The funding of such studies is beyond the modest resources of the AQA, but need to be reactivated with some urgency for reasons detailed below.

Figure 3 Per Capita Aggregates Production and Real GDP per Capita

Mineral Resource Assessment of the Northern Region New Zealand, A.B Christie R. G. Baker, GNS Science Report, 2007/06 May 2007. 7 Obrien J, 2006 Planning for Growth? The Determinants of Aggregate Demand in NZ. IPENZ engineering TreNZ 2006-0422. ISSN 177-o422

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5.4.2. Sterilisation of Future and Existing Aggregate Resources 5.4.1 It is an inescapable fact of this industry, as noted in 5.2.10 above, that for every 30km of additional distance aggregates are carried, the price doubles - The Tyranny of Distance. In practice this can have a major impact on the cost of infrastructure and end use, including domestic, municipal and agricultural. 5.5.3 By way of example, an examination by a consultant at time of the Canterbury Regional Councils Draft Regional Policy statement, indicted an additional $500million additional cost in the price of aggregates over 30 years if their aggregate sources moved from a proximity of 15km to 30km from the point of end use 8. 5.5.4 Many regions of New Zealand are currently reasonably well off with existing aggregate resources that are within economic distance from their key markets. The prime exception is Auckland, where substantial aggregate resources have gradually been sterilized by encroaching urban development post WWII and more recently, by the growth of Rural Residential life style blocks. 5.5.5 The latter in particular can be and often are, vociferous neighbours to quarrying activities vis a vis Reverse Sensitivity. 5.5.6 Similarly, the encroachment of urban development on existing quarries imposes similar constraints on the extension of the quarrys existing activitys or the imposition of new constraints, which in some cases begin to make the operation marginal. 5.5.6 In the case of Auckland, Council Staff adopted a proactive stance in examining the regions requirements for aggregates over the life of their Draft Unitary plan, with a time horizon of 30 years. Unfortunately with some exceptions, the Horse had long ago bolted, with major resources of ancient volcanic eruptions now sterilized. As a result, it is forecast that Auckland will have to import a growing percentage of its aggregate requirements during the life of the plan, over distances of 100 km or more 9. This obviously will have an impact on the costs for Residential Construction. 5.5.7 This is not a unique problem to Auckland or to NZ. The exhaustion of available resources, the sterilisation of potential resources and reverse sensitivity are key issues faced by the aggregates industry internationally. For example some West Coast Counties in the UK are importing aggregate requirements from Norway. London imports aggregates from an Island off the coast of Scotland, the

Submissions and Further Submissions By Fulton Hogan Ltd, Winstone Aggregates Ltd and the Aggregate and Quarry Association of New Zealand, Statement of Evidence by Richard Spencer English, Proposed Canterbury Regional Policy Statement, December 2011 9 Ibid Richard Spencer English

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greater Toronto area in Canada has to import around half of the 61 million tonnes of its requirement 10 and it is forecast that California will run out of aggregates in 30 years 11. 5.5.8 It is in our view obvious, that unless a much more rigorous discipline based on sound data, is imposed on National, Regional and Municipal planning with regard to the protection of mineral resources (including further streamlining of the Resource Management Act), costs are going gradually increase as the Tyranny of Distance begins to take a hold. (Resource Management applications for quarrying currently average 4 years and can take up to 10). 5.6 Other Factors A. Recycling 5.6.1 Recycling of aggregates plays a growing feature if the international aggregates industry, primarily centered around the processing of construction and demolition materials principally non reinforced concrete. 5.6.2 There are currently no reliable NZ statistics available on the contribution recycling makes to the availability of aggregates. The AQA is working with the Ministry to begin better gathering of this information via their annual production surveys. The current feeling is a figure of between 2 5%, the industry norm in Europe being around 15% with one or two countries reaching 25%. 5.6.2 While recycled aggregates can certainly play a part in Residential Housing Construction their opportunity to significantly reduce costs is a misnomer. Processing recycled materials is an expensive business with equipment in some cases being on a par with quarries particularly if higher quality materials are required. 5.6.3. Similarly, the industry is fragmented in NZ with uprisings of available material dictating the viability of operations. Mobile rather than fixed plant is the norm. The industry also chaffs at unreasonable specification requirements for material that ironically has its origins in premium aggregates. Recycling can play a part but on current evidence it is not a total replacement for extracted material. B Transport 5.6.4 A feature of the international industry is the greater (and rising) use of rail and water transport via barging on canals or by sea, often to Mega Quarries. 5.6.5 This in part has been driven by the rise of Mega Quarries wherein it is now economic (due to the sterilisation or exhaustion of local resources) to transport large quantities of material to one site for processing and distribution.
State of the Aggregate Resource in Ontario, Study Paper 1: Aggregate Consumption and Demand, Altus Consulting, December 2009 11 Construction Aggregate Supply Limitations: Some Estimates of Economic Impact. Office of Transport Economics, Division of Transportation Planning, California Department of Transportation, March 2008
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5.6.6 A number of studies have been carried out by NZ operators over the years in to the use of rail but the economics have never made sense. Rail is efficient in transporting bulk materials from production unit to production unit, utilizing purpose built rolling stock, and loading and unloading facilities: all very capital intensive. In Auckland urban timetables can get in the way. 5.6.7 The rail network in NZ is not as highly developed as it is in Europe. Neither do we have canals. 5.6.8 Even with a custom designed processing and handling systems, processed aggregates then have to be taken by road to their end use destination. I short, the economics in NZ currently do not stack up. C. Specifications 5.6.9 For Domestic Construction the key specifications are for concrete aggregates. These are currently under review although the requirements of the former Standards NZ for the processing and publication of same has been met with disbelief by the wider industry. The Ministry recently called for submissions on the future of Standards NZ and the AQA, along with other key industry bodies have made submissions. The key area of disagreement is costs and who should bare them. 5.6.10 Other specifications are generally covered by those generated by the NZ Transport Agency or industry guidelines such as those produced by Roading New Zealand or by Municipal authorities. 5.5.11 As a general observation, specifications for domestic construction are not particularly onerous and therefore not an area for major cost reduction. However there are anecdotally, examples of Councils changing speciations which have since barred the use of co-products from mainstream quarry operations, which have previously given satisfactory performance. 6.00 The Way Forward 6.1 It will be apparent from this submission that currently, the cost of aggregates is not a key driver in the costs of domestic construction, although their supply close to their end use is a growing concern. 6.2 It is therefore submitted, that led by the Ministry of Business, Information and Employment: That the study and report produced by the late Richard OBrien be updated by a suitable contracted agency on an annual basis and widely promulgated to all stake holders Government, Regional and Municipal Authorities and relevant Industry stakeholders. That the study planned by GNS into the minerals of New Zealand be resurrected, funded and completed in a time frame for the rest of NZ as quickly as possibly (5 years)? That studies of Aggregate supply in individual regions that are determined At risk for aggregate supply be undertaken by an experienced consultant and results promulgated That all Government Agencies, Regional and Municipal Councils (where applicable), be required to review their policies as to the restrictions existing or planned, that may sterilize future aggregate resources.
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That a comprehensive study be undertaken in to the use both existing and potential of recycled materials. That funding should be led by the Ministry, but contributions from key stake holders (Regional, Municipal, Industry and other stake holders e.g. DoC, be investigated to ensure the work is carried out on a Sober, scientific and sustainable basis. That Planning time horizons be required of all Central, Regional and Municipal Authorities with a regard to critical resources to a minimum of 30 and preferably 50 12 years.

7.00 In Conclusion 7.1 This study by the Ministry, although directed solely at the residential construction industry, has highlighted a key issue for the supply of an often ignored, but crucial construction material, which will have an impact on all infrastructure in the coming years, much of which will be the subject of the Ministrys oversight. 7.2 Aggregates, as with all Minerals, must be extracted from where they lie. They are a finite material for which no substitute is currently known. While our Association is not seeking carte blanche access, it believes that current regulations and policies, commencing with the RMA on down to Regional Council and Municipal Authorities, need close scrutiny to ensure that the resources are protected for further use and not compromised by inadvertent planning misadventure. 7.3 In pursuing this objective only sound data, which it is contended is currently lacking, must form the basis for informed decisions by the above. 7.4 We are available be heard on these submissions either singularly or in a joint case with others making a submissions at any hearing. Signature: Aggregate and Quarry Association of New Zealand (Inc.) W.S Bourke

Planning and Technical Adviser Date: 11th June 2013

Sent and received by email

It is understood that the Federal Gov. in Australia have adopted a 50 year planning time horizon, the first cab off the rank being their 42 ports. Planning time horizons in NZ are far too short, anecdotally being driven by the 3 year election cycle.

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Appendix 1: Some Principal End uses for aggregates

Quarried Aggregates play a major role in modern societies. Some of the more common uses include:

- Roads, Footpaths, car parks and driveways

- Farm tracks, bases and foundations for implement sheds, dairy sheds etc. - Filter material for pasture plus municipal and domestic drainage systems - Concrete for industrial, commercial, civil, rural and residential construction - Concrete pipes and culverts - Pipe and cable trench bedding - Railway Ballast - Airport runways and surfacing - Water purification and sewage treatment plants - Filling, embankments and retaining wall construction - Asphalt and chip seals for road surfacing

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