Setting the stage
The economic future of the B.C. forest industry holds great promise. Industry is cost competitive, produces green sustainable products, generates thousands of well-paying jobs and has a great story to tell about the role of wood in society.
Market expansion and diversification in Asia has been successful, and new high-tech solid wood and bio-economy products are emerging. Housing starts in the U.S. are starting to creep up, as are lumber prices. As The Economist put it recently, there is a “new world order” in the B.C. forest industry.
But what happened to drive the forest industry in this new direction? Was it all planned in advance or was it a natural progression? Actually, it was neither. Rather, it was a strategic response to the impact of a number of provincial and global policy-driven events.
Events of 2006
In April 2006, Canada and the U.S. announced an agreement in principle to end five years of litigation over Canada’s exports of softwood lumber to the U.S.
While Canadian exporters had paid US$5 billion in cash deposits (duties), they had also recorded record levels of lumber production and exports in response to an extremely robust U.S. housing market. The random lengths framing composite index (RLFCI) was US$367 per thousand board feet (MFB).
In that same month, the B.C. government introduced revised Interior log grades and quickly followed with a new market based Interior timber pricing system.
These policy changes subsequently proved to be of critical importance as they were grandparented in the 2006 Softwood Lumber Agreement (SLA) but are now the subject of an arbitration under the agreement.
Over the summer of 2006, the forest industry led the overall economy into what eventually became a recession as the U.S. housing sector began its long and deep collapse.
Lumber prices fell dramatically and hit rock bottom in March 2009, with the RLFCI at $195/MBF. From 2006 through 2009, the industry strived to reduce costs while conserving cash. For most of this period, industry operated on a cash negative basis.
Market diversification
The China story is now well known. Under a federal and provincial government/industry partnership, exports from B.C. have grown from a few hundred thousand board feet to over three billion in just three years as China discovers the many attributes (carbon sequestration, seismic performance and energy efficiency, for example) that wood has as a building material.
This increase in shipments has offset about 75% of our lost U.S. market (where Canada’s market share has fallen from 34% to 25%) and has started us well down the road of market diversification.
British Columbia mills are now dedicated to serving the China market, and our earlier investment in working with Chinese officials on building, fire and safety codes is paying off.
It is important to realize that we were only able to increase our shipments because we had earlier developed the technical groundwork and government was assisting in opening the door a bit wider.
The Japanese market is evolving as the population ages. As a result, our focus has switched from 100% single-family home construction to about 50% housing and 50% multi-storey public buildings, apartments and retirement homes.
The Council of Forest Industries’ (COFI) technical work on fireproofing has been of great assistance in making this transition.
Korea values wood highly as a building product with strong environmental values as can be seen from its “Low Carbon, Green Growth” legislation. COFI’s technical work on fire and acoustic issues is assisting in development of four-storey wood-frame apartments. We also look forward to negotiations on a Canada/Japan free trade agreement.
Bio-economy
Bio-economy opportunities also hold almost unlimited promise. Not widely recognized is the strong presence that the forest industry already has in this field, particularly in the area of cogeneration.
So with an established track record, ample feedstock and an active technology sector, the forest industry and its partners will reap significant benefits from future economic growth in the bio-economy space.
Green building
In addition to strong support and leadership in expanding overseas markets, the B.C. government has also demonstrated strong leadership with its Wood First agenda. Wood has so many positive attributes as it is the natural green and sustainable building material of choice. On a life cycle basis, it is a clear champion over concrete and steel. Wood’s energy efficiency, carbon sequestration and seismic performance attributes are second to none. Industry’s challenge is to now take this message not only to other countries but to the non-residential sector and to develop next-generation wood building systems.
Cross border
Recently, Canada and the U.S. announced a two-year extension to the SLA to October 2015. This extension has the support of the industry as it will provide increased cross-border certainty and a clear planning horizon through to the time period when U.S. market recovery is expected.
Conclusion
But is it all good news? The softwood lumber arbitration and market fluctuation challenges remain. The devastating impact of the mountain pine beetle on interior pine timber supply, replacing the HST, the future of the carbon tax, and the competition green buildings face from substitute products also speak to the need for industry and government to keep focused on our relative competitiveness. However, the pattern has been set and industry is clearly fixed on being in a far superior position by 2015 than it was from 2006 to 2010. In many respects industry has seized the future. •
