Moving Toward a Globally Competitive Forest Industry

8/14/2019 Moving Toward a Globally Competitive Forest Industry

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THE REPORT OF THE WORKING ROUNDTABLE ON FORESTRY

Moving Toward aHigh Value,GloballyCompetitive,

SustainableForestIndustry


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WORKING

ROUNDTABLE

ON FORESTRY

MARCH 2009

Moving Toward a

High Value,GloballyCompetitive,SustainableForest Industry

1 Executive Summary 5

2 Opportunities for the BritishColumbia Forest Industry 11

3 Vision, Priorities andRecommendations 15

4 Summary49

5 Working Roundtable on ForestryMembers 53


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Executive Summary e Working Roundtable on Forestry (Roundtable) was tasked

by the provincial government to consider the long-term futureof the forest industry, taking into consideration global changes,and to make recommendations for a vibrant and successfulforest industry for future generations.

For more than a century the British Columbia forest industryhas made a signicant contribution to the provincial economyand society. In addition to providing a wide variety of jobsfor tens of thousands of British Columbians, the forest sector

is a large contributor to government revenues, enablingexpenditures on essential public services. Forest productscontinue to be British Columbias largest commodity export.In British Columbia, whether you derive your income directlyfrom the forest sector or not, the forest sector is vital to yourlivelihood.

e British Columbia forest industry is facing a worldcharacterized by signicant, fundamental global shifts thatwill require changes in the way it operates. Even before thecurrent economic crisis, these changes were evident. Climatechange and changes to the natural environment such as

water shortages, evolving world economies, altered marketsand consumer preferences, new technologies, changingdemographics and societal expectations for the forestresource and the forest industry present both challenges andopportunities. In order to be successful for the longer term,the British Columbia forest sector needs to change.


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Since the Roundtable was formed in March 2008, the worldhas been impacted by a global economic crisis that has a ff ectedthe British Columbia forest industry today it is facing themost severe downturn in its history. All British Columbiansrely directly or indirectly on the jobs, economic activity andrevenue that the forest industry creates, and all are a ff ected bythis downturn.

e Roundtable recognizes the dramatic impact the economicdownturn is having on the forest sector and has acknowledgedin its recommendations for the long term the need toprovide immediate assistance for forest industry workersand communities to help them manage through these direeconomic times. Many of the recommendations will take timeto produce results but many can assist the forest sector in boththe short and the longer term.

We have observed that g lobally competitive and leadingforestry jurisdictions around the world have two things incommon:

support innovation, growth and investment; and,

aff ected by the forest sector.

Our future depends on how we work together. ere is noone entity that can solve the problems of the forest industryin British Columbia. e government has jurisdictionover the vast majority of forest resources. On behalf of thepublic, the government sells resources, and sets taxationand regulatory conditions under which the forest industry

operates. Manufacturing facilities are privately owned. Unionorganizations are partners to agreements that set the labourconditions and labour costs under which forest companiesoperate. A large contracting community is involved in


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land management, harvesting, and marketing and salesactivities. Municipalities set taxation and service levels formanufacturing facilities. First Nations have rights and titleto land and resources, and must be a partner in planningtheir use and in theirdevelopment. In orderto move the forest

industry forward andcreate higher valuefrom the utilization of our forest resources,we all need to worktogether. We allneed to be willingto examine what wecurrently do, and tochange.

For this reason, the

Working Roundtableon Forestry is making its recommendations to us all. WEall need to change and WE all need to take action. Withouta collective eff ort, it is un likely that we can improve theopportunities for the forest industry. We therefore need towork toward a common vision. e Roundtable also believesthat the provincial government is fundamentally responsiblefor taking a leadership role in working with all of the partiesinvolved in the forest sector to stimulate the dialogue andaction that is required to advance a common vision.

e Roundtable has developed the following vision for the

forest industry:

British Columbia has a vibrant, sustainable,globally competitive forest industry that providesenormous benets for current and futuregenerations and for strong communities.


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In order to realize this vision, there are six priorities thatshould be addressed:

1. A COMMITMENT TO USING WOOD FIRST

2. GROWING TREES, SEQUESTERING CARBON, AND

ENSURING THAT LAND IS AVAILABLE FROM WHICH TO

DERIVE A RANGE OF FOREST PRODUCTS

3. CREATING A GLOBALLY COMPETITIVE, MARKET BASED

OPERATING CLIMATE

4. EMBRACING INNOVATION AND DIVERSIFICATION

5. SUPPORTING PROSPEROUS RURAL FOREST ECONOMIES

6. FIRST NATIONS BECOMING FULL PARTNERS IN

FORESTR Y

e Roundtable has identied 29 recommendations for action

that are consistent with these priorities.Implementing the recommendations and achieving thepriorities will require signicant changes in the way weapproach the business of forestry. e Roundtable believesthat British Columbia has a globally competitive model of sustainable forest management but we must become morefocused on eff ectively using our forests to produce existing,and create new, forest products. We have to create the rightclimate for innovation and investment in a wide range of traditional and new products, and we must be prepared toadopt new product lines when economic and environmentalconditions change. We need market diversity, greaterengagement with communities and an increased emphasis onFirst Nations as full partners in this societal shift.

In developing this report the Roundtable sought input fromcommunity representatives, forest companies, forest industry


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associations, organized labour, environmental groups, the

Council, sector experts and others. e Roundtable receivedover 250 submissions. e Roundtable wishes to thank allthose who provided input and recognizes that the passion withwhich this input was provided demonstrates the commitmentof British Columbians to the forest sector and its importance

to the British Columbia economy.

e Roundtable members support all of the recommendationsin this report. In some cases Roundtable members have haddiff erent perspectives on how recommendations should beimplemented and these di ff erences are noted in the report.

e British Columbia forest industry is a vital part of theprovinces economy and society providing employment,economic development, social benets, and essentialenvironmental services. It has every potential to be an evengreater part of the provincial economy in the future.

e Roundtable is pleased to deliver its report to theGovernment of British Columbia. e Roundtable urgesgovernment and all parties in the forest sector to actquickly to seize the opportunities before us and make thechanges required to move us toward a high value, globallycompetitive, sustainable forest industry that can supportgenerations to come.


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Opportunities for the BritishColumbia Forest Industrye British Columbia forest sector is facing a changed future

that presents considerable opportunity.

Despite the current worldwide economic crisis, economists arepredicting that global gross domestic product will double in thenext 20 years. With this increasing wealth, worldwide demandfor paper and wood products is projected to grow signicantly.

Much of the economic expansion will take place in Asia whereBritish Columbia already has a competitive advantage, based onits location, infrastructure, business alliances and cultural ties,and has an opportunity to increase its market share.

e emerging green economy, driven in response toclimate change concerns, will stimulate demand for forestproductsboth current and new. e green economy providesopportunities to address climate change impacts, but also todiversify product and revenue streams and markets.

For example, biofuels provide a way to limit carbon emissionsand develop a new revenue source. When forest biomass isused for fuel ins tead of fossil fuels, the bui ld-up of carbon

dioxide in the atmosphere can be reduced. Emergingtechnology is also making new products possible. Among themare ethanol, lignin and cellulose-based products such as high-tech optical bres, microlms and nano-composites.


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British Columbias superior resource stewardship andsustainable forest management is a g reat advantage forBritish Columbia. In the future consumers will place an evengreater emphasis on purchasing products that are sustainablyproduced. Our forests can mitigate climate change byabsorbing and storing carbon, both in the forest and in forestproducts that carbon-conscious consumers and economies will

increasingly demand. We have an opportunity to invest in theforest resource and collectively enhance the socio-economicand environmental benets we derive from it.

First Nations have a large role to play in managing andutilizing British Columbias forest resource. Partnersh ipswith First Nations will assist them to benet from forestbusiness opportunities and will provide greater certainty onthe land base.

ese are just some of the opportunities facing the forestindustry. Our forests can continue to provide jobs andeconomic and social benets that we have enjoyed from themin the past, and can in fact support greater benets in thefuture. Taking advantage of the opportunities before us willrequire collective e ff ort.

On the upside, U.S.demographics and comparatively strong household formationrates means there is aneed for millions of newhomes to be built south

of the border in thecoming decade. At some point, these fundamental factors will translateinto robust demand and pricing conditions in theindustry again.

J F ,E V P , B C BC,N

Given the improved cost position [of wood building materials in a carboneconomy] and the lower environmental impact ,we expect wood to gainmarket share over thelong term.

C F S , CIBCW M ,D ,


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Vision, Priorities andRecommendationsVISION:

British Columbia has a vibrant, sustainable,globally competitive forest industry that providesenormous benets for current and futuregenerations and for strong communities.

PRIORITIES:

1. A COMMITMENT TO USING WOOD FIRST

2. GROWING TREES, SEQUESTERING CARBON,

AND ENSURING THAT LAND IS AVAILABLE

FROM WHICH TO DERIVE A RANGE OF FOREST

PRODUCTS

3. CREATING A GLOBALLY COMPETITIVE, MARKET

BASED OPERATING CLIMATE

4. EMBRACING INNOVATION AND DIVERSIFICATION

5. SUPPORTING PROSPEROUS RURAL FOREST

ECONOMIES

6. FIRST NATIONS BECOMING FULL PARTNERS IN

FORESTRY


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PRIORITY 1: A COMMITMENT TO USING WOOD FIRST

e forest sector is one of the most important contributors tothe British Columbia economy. Even with its unprecedentedcurrent challenges, forestry activity still contributessignicantly to the provincial economy, and in 2007 accountedfor 39 cents of every dollar in goods that British Columbia

exported. At the end of 2008, the British Columbia forestsector continued to provide 55,000 jobs and played anessential role in supporting healthy communities. Provincialgovernment revenue from forestry enables expenditures onessential public services.

Forests provide the basis for a range of products for daily l iving not only for timber used in building, but paper products,bioenergy, chemical products, carbon storage, water and non-timber products. Forests are the ultimate renewable resourcewith enormous potential to contribute to and benet from agrowing green economy. British Columbians recognition andsupport of the value of forestry is essential to the prosperity of the industry and the sector.

RECOMMENDATION 1:

We should continue to inform British Columbiansand forest product consumers about the beauty,carbon friendliness, economic and other benets ofBritish Columbias forests and forest products.

Wood is the only major building material that is renewable,lightweight, strong, and thermally e ffi cient. When forestproducts are used for construction and design instead of materials made from fossil fuels, the bui ld-up of carbondioxide in the atmosphere is reduced. Wood requires lessenergy to harvest, transport and process than other buildingmaterials. When British Columbia wood is used, our economy

Fact:

More than half of the residents of British Columbiacommunities outsidethe Lower Mainlandidentify forestry astheir rst or secondlargest source of

income. Source: Economics & Trade Branch,

Ministry of Forests and Range,

based on data from BC Stats, 2004


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Fact:

The Canadian forestindustry has committedto being carbon neutralacross all of its operationsby 2015, without having tobuy carbon o ff set credits.

Source: Forest Products Associationof Canada, October 30, 2007

is strengthened, forest workers are supported, and theenvironment is respected. British Columbias First Nationshave a wood culture and traditional knowledge that valueswood and building with it.

Governments, organizations and individuals can do moreto support British Columbias forest sector, demonstrate

their corporate social responsibility, improve their bottomline, and shrink their environmental footprint by usingwood and wood products from British Columbias forests.

e use of wood as the rst choice and preferred productin construction, interior design and daily living should beexpanded across Canada and into the United States, creatingnew demand for our wood products.

RECOMMENDATION 2:

All taxpayer supported buildings in BritishColumbia federal, provincial and municipal must,and private sector buildings should, utilize and

demonstrate wood and wood products wheneverand wherever possible.

DESIRED OUTCOMES:

SUPPORTIVE OF FORESTRYS ROLE AS ANESSENTIAL ELEMENT OF THE FUTURE GREENECONOMY AND THEIR LIVELIHOODS

CHOICE AND A PREFERRED PRODUCT INCONSTRUCTION, INTERIOR DESIGN AND DAILYLIVING


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Fact:

In 2008, British Columbiaplanted its six billionthtree.

Source: British Columbia Ministry of Forests

and Range, 2008

But even with superior forest management practices, thereare a number of challenges facing British Columbias timbersupply. e Mountain Pine Beetle infestation will severelylimit the amount of timber available in the Interior of theprovince, and on the Coast, industry is moving to utilize moresecond growth timber, and the available harvestable forest hasa high percentage of species for which demand is currently

low. While British Columbians have beneted from the use of our forests for many decades, it is time for us to focus on ourtimber supplies.

Investments in silviculture in British Columbia are largelydriven by what is required to meet reforestation regulations reaching a free to grow state. is means that often the leastcost options are used to satisfy that requirement. It is unclearwhether these investments always result in maximum potentialproductivity, increased value and improved forest resiliency,and whether the current allocation of basic and incrementalsilviculture responsibilities results in the best future forest

conditions. As our climate changes, our silviculture and otherforest management systems need to adapt. British Columbiassilviculture, forest manufacturing, tenure and valuation systemsare based on an assumption that saw logs are the only forestcrop. is narrow focus can obscure new and emergingopportunities. Bioenergy and biofuels in particular can bemanufactured from small or younger trees, and ecosystemservices such as carbon sequestration, biodiversity, energy andwater, as well as increased wood and wood waste utilization, areall real opportunities.

As the forests and the forest industry evolve and the products

that can be produced from the forests change, we need toensure that our silv iculture and forest management systemsare maximizing the returns from our silviculture investments.

ese systems must provide the exibility necessary to faceclimate change, address the timber supply impacts of the


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Mountain Pine Beetle epidemic, and produce forests that aresuitable for new product and ecosystem service opportunities.At the same time we need to ensure we maintain sustainableforest management practices.

RECOMMENDATION 3:

We should review our forest management andsilviculture practices to ensure that they encouragemaximum productivity, value and support forestresilience.

Climate change and the potential of carbon credits presenta unique new opportunity for forestry. Forests provide anatural carbon sink. Managing forests well not only maintainsforests as carbon sinks, but can signicantly enhance carbonsequestration. While sound scientic study is required toestablish the levels of sequestration throughout the life cycle of forests to ensure our measurements are robust, we know thatBritish Columbias forests can provide a signicant advantage in

the global carbon credit market.

e denition of what will be included in the Western ClimateInitiative for cap and trade opportunities is in development. Inthe Kyoto process, early indications were that forests wouldnot be considered in the carbon credit accounts because of thecomplexity of dening net carbon emissions or sequestrationin forests and the di ffi culty of determining how much forestgrowth would be achieved as a result of additional investment,over and above what would have grown naturally (the conceptof additionality). Carbon credits can be a valuable tool tosupport investment in the forest resource. In its negotiations

with our Western Climate Initiative partners, the provincialgovernment should make inclusion of forests in cap and tradeopportunities a priority.

e global carbonmarket is growing

at an exponential rate and someinvestment banksand reinsurancecompanies predict that carbon will bethe single largest commodity in the global commoditymarket. Estimatesare that it will grow from over a $60billion industry in2008 to a $1 trilliondollar industry by the year 2020.

D . G B ,F R M D ,U B C ,


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RECOMMENDATION 4:

We should encourage the Western Climate Initiativeto include forests in the identication of cap andtrade opportunities for carbon credits.

e vast majority of Roundtable members believe that forestlands should remain in public ownership in British Columbia.At the same time, di ff erent forms of lease arrangements maybe desirable to attract and retain private capital investmentin our forests or in manufacturing facilities. Arrangementswhere the provincial government retains ownership of forestlands, but allows the private sector to lease that land to investin and own the trees or wood bre from that land, or otherlease or tenure arrangements, may attract private sectorinvestment and new forest or manufacturing opportunities.For example, it may be possible to enable the developmentof new wood product opportunities such as bioenergy andother bre based products where higher volumes of brecan be produced from limited land areas. ese types of arrangements could be implemented on lands cu rrently usedfor timber production, or lands not traditionally used fortimber production such as utility corridors.

RECOMMENDATION 5:

We should enable the establishment of shortrotation bre plantations.

e Mountain Pine Beetle is a catastrophic event in BritishColumbias forests. Industry wil l not be able to harvest andregenerate all a ff ected forest areas, and government will likelynot be able to invest adequate funds to replant all a ff ectedforests. e future timber supply and ecological implicationsof the Mountain Pine Beetle infestation are enormous. eremay be an opportunity for the private sector to purchasecarbon o ff set credits and use the funds collected for restorationof Mountain Pine Beetle a ff ected areas. For example, the


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At the same time, a diminishing land base for timberproduction and harvest discourages private sector investmentby sending a message that the forest industry is not importantand that investments made in British Columbia or in its forestsare uncertain. e Roundtable believes that specic areas of the forestry land base should be designated as commercialforest land reserves that attract intensive silviculture

investments, and where plantations for bre production can beestablished, and where initiatives to improve tree resilience canbe piloted.

RECOMMENDATION 7:

We should establish commercial forest landreserves for key portions of the current forest landbase where wood production will be a primaryfocus.

DESIRED OUTCOMES:

PRODUCTS FROM OUR INVESTMENTS ON THELAND BASE

FORESTS

LAND BASE


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PRIORITY 3: CREATING A GLOBALLY COMPETITIVE,

MARKET BASED OPERATING CLIMATE

Investment dollars move readily around the g lobe to the jurisdictions, projects and companies that o ff er the highestreturn on investment. Forest products are sold in worldmarkets, our producers compete with producers in other

jurisdictions, and commodity products are priced in common(U.S.) dollars. To be successful, forest companies must beglobally competitive.

Many economic factors a ff ecting the protability of the forestindustry are out of our control such as exchange rates, the U.S.housing market, and declining commodity prices. But thereare other factors that a ff ect our producers cost structuresthat we can control and we must ensure those costs arecompetitive.

Governments, municipalities, labour groups, and othersthat a ff ect the costs of forest product producers have a

responsibility to establish competitive host conditions.Industry has the responsibility to become and remaincompetitive by increasing productivity, keeping costs low,employing new technologies, producing new products andseeking new markets.

e return on investment experienced by the British Columbiaforest sector over the last 20 years has varied. Rates of returnfor coastal lumber and pulp mills and Interior pulp mills havebeen too low to retain capital and attract new capital, whereasB.C. Interior lumber mills have had higher rates of return andhave been able to attract su ffi cient capital to upgrade. If B.C.

is to have a globally competitive forest industry, and retain andincrease the jobs and economic activity that ensue, rates of return must be high enough to attract capital investment.

British Columbias forests are a public resource, andgovernment must ensure that a range of public objectives are


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British Columbia has an evidence-based timber pricing systemthat uses pricing information derived from auctioned timbersales to calculate an equivalent price for timber that is notsold through competitive sales. As long as this transaction-based pricing system is used, it will by its nature be somewhatcomplex. It can, however, be simplied by selling timbercompetitively, based on a dened area (as opposed to volume);

minimizing the time between when competitive price dataare derived and used to price non-competitively sold wood;maintaining the integrity of timber auctions; and ensuring thatsales are provided for a range of potential end uses (saw logs,pulp and other products).

e advantages associated-based sales can be substantial. eycan provide the incentive to the successful bidder to minimizewaste and get as much value and revenue from a forest siteas possible; can make it possible for bidders to o ff er pricesbased on the use to which they will put the forest resource(e.g., pulp as opposed to saw log); can simplify the pricing

mechanism for competitively sold wood; can substantivelylower administrative costs for all parties; and can simplifygovernment log grading requirements.

e transaction-based pricing system has been in place for ve years on the Coast and for three years in the Interior. Once thechanges noted above have been implemented, experts shouldreview the entire pricing system and make recommendationsto ensure it continues to be based on sound market principlesbut is as simple and transparent as possible.

RECOMMENDATION 9:

We should o ff er competitive bid timber sales asarea-based sales and review our timber pricingsystem to ensure it is as simple and transparent aspossible.


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1 Pulp and Paper Industry Advisory Committee, Final Report to BC Competition Council, October 13, 2005.

High property tax rates for major industry have been hinderingcompetitiveness for a number of years. British Columbiasaverage major industry property tax rates are high relative tocompeting jurisdictions in Canada and the United States industrial property tax rates are approximately 200 per centof Alberta rates on average and approximately 350 per cent of rural United States rates on average 1.

e provincial government has provided exibility tomunicipalities to adjust their tax rates and reduced byhalf the school tax portion of municipal taxes. Somemunicipalities have reduced tax rates for major industry,or negotiated arrangements where taxes were reduced for aperiod of time to support investment, while others continueto levy rates that discourage investment. Often, tax rates arereduced only when the establishment or survival of industrialfacilities is in jeopardy.

e Roundtable recognizes the di ffi culties faced bymunicipalities in reducing the amount of industrial taxcollected, since the cost of providing municipal services mustthen be shifted to other property classes such as residential.

e Roundtable also recognizes that the provincial governmentmay not be in a position to o ff set municipal tax revenue lossesresulting from changes to major industry tax rates. However,given the severity of the competitive disadvantage that majorindustry tax rates create, this issue must be addressed.

RECOMMENDATION 10:

The provincial government and Union of BritishColumbia Municipalities should work with industry

to ensure municipal tax structures supportcompetitiveness and industrial activity in BritishColumbia communities.

e City of Nanaimo plans to reduce its

industrial tax rate over four years, starting in2009. By 2012, industrial properties will be taxed at approximately the same rate as commercial properties, a reductionof about 45 per cent inindustrial tax rates.

Source: City of Nanaimo, 2008


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In 2008, labour costs represented approximately22 per cent of British Columbia lumber mill variable costs and 15 per cent of British Columbianorthern bleached softwood kraft mill variablecosts a substantial component. Other than forInterior lumber mills, British Columbia averagelabour costs per unit of production are higher than

competing jurisdictions. For example, 2008 labourcosts per thousand board feet for coastal lumbermills were US$38 (approximately 55 per cent)above the average of North American and BritishColumbia Interior producers 2.

Interior pulp mills in 2008 were US$25/tonne andUS$19/tonne (approximately 49 per cent and 37per cent) respectively above the average for pulpmills in Sweden, Finland, Chile and other NorthAmerican producers 3.

In most cases it is not wage levels that areat issue in competitiveness, but exibility inlabour arrangements to allow for productivityimprovements that help reduce unit costs.Recently, in response to severe nancial pressures,several agreements have been established betweenlabour groups and industry that demonstrateincreased cooperation and exibility. Newer,larger lumber mills in the British ColumbiaInterior have higher rates of labour productivity 4,largely due to investments in equipment and

technology in these facilities. ese investmentshave been facilitated by the generation of positivecash ow, in part due to more exible labourarrangements.

2, 3 RISI, December 2008

4 Industry at a Crossroads: Choosing the Path to Renewal, Forest ProductsIndustry Competitiveness Task Force, May 2007.


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e Roundtable members believe that it is up to industryand labour to proactively establish more competitive labourarrangements that result in improved labour productivitywhile continuing to provide good working conditions and anadequate standard of living.

RECOMMENDATION 11:

We must establish labour arrangements thatadvance productivity and support competitivenessand investment while maintaining good workingconditions and an adequate standard of living.

Forest companies require certainty to invest capital. e lack of a compensation framework, particularly for tenure agreements,does not provide tenure holders or government with adequatecompensation certainty when tenure rights are a ff ected throughtimber withdrawals or other impacts. is uncertainty createsrisk, increases the cost of capital and discourages investment.

RECOMMENDATION 12:

We should clearly dene compensation rules foragreements between government and licensees,and in particular, what constitutes a taking ofrights awarded through agreements and howcompensation levels will be assessed.

unduly restrict competition in the market, but must receiveapproval from the Minister of Forests and Range to do so. eMinistry of Forests and Range identies transfers that maycreate competition issues, but there are no specic thresholds

indicating when competition would be negatively a ff ected bya particular transaction. As industry rationalizes as a resultof economic and bre conditions and tenure is bought andsold, thresholds related to acceptable levels of competitionin advance of tenure transfers would inform private sector


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negotiations, and assist in speeding decisions by government.Government has the duty to consult with First Nations a ff ectedby potential decisions and accommodate First Nations if theirrights are negatively a ff ected.

RECOMMENDATION 13:

We should establish clear competition policies toguide the transfer of tenure between licensees.

As British Columbias forest industry goes through signicantrationalization and consolidation, only the most competitiverms will remain. Given the depth of the current economicdownturn, it will be important to ensure that adequatebusiness capacity remains to take advantage of the recoverywhen it comes.

Actions by the British Columbia or federal government tosupport uneconomic forest operations during this economicdownturn are likely to increase costs in a normal business

environment, and may prop up uneconomic operations tothe detriment of others. Direct payments or bailouts bygovernments of individual rms often leave an industryless competitive when markets improve, and should not beundertaken.

Governments can, however, assist the forest industry throughthe economic downturn by ensuring credit markets work,creating competitive tax and business environments, investingin infrastructure that uses British Columbia wood products,funding and providing incentives for investments in researchand development, and assisting marketing e ff orts.

With the current industry downturn many forest workersare leaving the sector and given the demographic changesfacing the sector, soon many skilled workers will retire. As aresult, key skills will be lost and potentially unavailable whenforest sector business conditions improve. e provincial


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and federal governments have recently introduced trainingprograms, work bridging programs and early or graduatedretirement programs to support workers and communities.Government and industry need to work together to ensure thatsupports such as employment insurance, training programs,work bridging programs and where appropriate early orgraduated retirement programs, are in place to assist workers

during this transition.

RECOMMENDATION 14:

We should respond to the urgent needs of business,workers and communities during the current globaleconomic downturn.

DESIRED OUTCOMES:

ATTRACTS CAPITAL


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Emerging products that use wood bre in non traditional waysprovide an opportunity for the forest industry to diversifyproduct and market streams and increase revenue.

e use of wood biomass to produce electricity, heat andbio-products represents a signicant opportunity in BritishColumbia. While initial ly bioenergy-produced power may

be more expensive than power produced from currentsources, over the long term the benets that come from usingbiomass to produce electricity will be substantial. Bioenergyproduction will also support the primary lumber and woodmanufacturing sector by maintaining and creating newmarkets for their by-products. e interests of both existingand new businesses will need to be balanced to ensure thatboth are able to capitalize on these emerging industries.

WHAT IS NANOCRYSTALLINE CELLULOSE?

Nanocrystalline cellulose is extracted from wood usually using

pulp. It is stronger than steel, very resilient, and can be made

into gels, lms, and tubes. Nanocrystalline cellulose particles

can be used for optical bres, microlms and components for

aerospace parts, automotive components, surface nishes,

high-strength fabric, intelligent packaging and many other

applications.

Source: FPInnovations and the Ministry of Forests and Range, 2008

Recovering maximum value from the provinces wood resource,and creating new revenue opportunities using Mountain PineBeetle damaged timber, wood waste or by-products of existingpulp processes may require British Columbia to reconsider its

electricity pricing policies and practices to capitalize on theseopportunities. In a climate change conscious world, there aredomestic and international markets for energy and bio-productsfrom renewable wood sources with which to reduce carbonemissions and generate revenue.


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RECOMMENDATION 15:

We must advance bioenergy and biofuel projects

by creating competitive tenure and pricingframeworks to attract private sector investment.

Using more wood in building projects makes economic andenvironmental sense and is aesthetically pleasing. Newengineered building products and wood-based building systemscan facilitate this. A key impediment to greater wood utilizationis a lack of familiarity with the use and benets of woodproducts. Builders, architects, designers and engineers makecritical recommendations on the use of building products andInteriors, but often do not recommend wood as a rst choice.

RECOMMENDATION 16:

We should establish a Wood Innovation and DesignCentre focused on bringing together builders,architects, designers, artists and engineers toadvance the commercialization of value-addedwood building and design products.

In order to reinvigoratethe forestry sector and pulp manufacture for the21st century, we must venture into evolutionarydevelopmental processesaiming to re-engineer and custom design theindustry's primary rawmaterial, the (wood) bres, and prot fromtheir unique properties

D . W H , P S , P P R I C

REDUCING GREENHOUSE GAS EMISSIONS AND

SAVING MONEY AT TOLKO

More than three years ago, Tolko Industries Ltd., a privately-

owned Canadian forestry company, took action to reduce

greenhouse gas emissions at one of its mills and to save

money at the same time. By installing a gasier made byVancouver-based Nexterra Energy Corporation, Tolko is able to

convert wood residue into low-cost, clean synthetic gas that

replaces natural gas. The gasier, at Tolkos He ffl ey Creek mill,

near Kamloops, is now saving the company an estimated $1.5

million annually and is reducing the plants greenhouse gas

emissions by 12,000 tonnes per year.

Source: Tolko Industries Ltd., July 2006


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Opportunities exist for strategic alliances between forestsector companies and companies in other sectors. Changingsocietal interests in climate change friendly fuels, chemicalsand other products provide opportunities for companies thatmay formerly not have had common interests to do businesstogether. New alliances are forming around the world.Forestry and energy companies have formed joint ventures to

produce biofuels: Stora Enso (Finland) and Neste Oil (Finlandenergy sector); Weyerhaeuser and Chevron; and Honeywelland Ensyn. Other joint ventures have been formed to producechemical- and cellulose-based products. Companies in theforest, chemical, energy and other sectors need to collaborateto identify product and market opportunities, and to addressbarriers preventing successful alliances.

RECOMMENDATION 17:

We should create a forum to bring together leadersfrom the forest sector with those from chemical,

energy, and other sectors to identify new woodbased product and market opportunities.

British Columbia exports over 70 per cent of its softwoodlumber, more than 40 per cent of its pulp and paper products,and over 75 per cent of other solid wood products to theUnited States. Access to this large and familiar market iscritical for industry to remain viable and competitive. e

stability af ter three decades of United States market accesschallenges to softwood lumber trade between Canada and theUnited States. Undertaking activities that would underminethe agreement or result in its cancellation would almostcertainly mean a return to uncertain U.S. imposed tari ff s onBritish Columbia softwood lumber products, costly litigationand a prolonged period of uncertainty. While the UnitedStates will remain British Columbias most important marketfor forest products, such a high level of dependence on this onemarket makes the forest sector extremely vulnerable.


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Increasing gross domestic product and population, particularlyin Asian countries, provide a great opportunity for BritishColumbia forest product producers.

China is the second-largest consumer of wood products inthe world and its growing population and expanding economyare increasing its demand for wood products. While there are

opportunities to sell wood-frame construction products, theChinese are not familiar with our methods of wood-frameconstruction. British Columbia will be more successful if itproduces products that the Chinese market wants and needs.

British Columbia has been working for several years to increaseits market presence in China and, as Canadas gateway to theAsia Pacic, has many advantages over other competitors.

ere are, however, a number of poorly coordinated trade andmarketing initiatives led by industry associations, governments

and individual companies.Improving the coordinationof these activities wouldreduce costs and resultin a common message toimporting nations and betteroutcomes.

RECOMMENDATION 18:

We should continue todiversify forest productmarkets with particularemphasis on emergingmarkets such as China,

ensuring that marketingeff orts are sustained,coordinated and basedon what end users want.

Fact:

China's leaders plan torelocate 400 millionpeople -- equivalentto well over the entirepopulation of theUnited States -- to newlydeveloped urban centersbetween 2000 and 2030.In the process, theywill erect half of all thebuildings expected to beconstructed in the worldduring that period.

Source: The Great Leap Backward?

Foreign Aff airs, September-October 2007.

BC Wood Frame Demonstration Project, Guangzhou, China


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A successful competitive forest industry in British Columbiawill be characterized by a diverse range of forest businesses,producing a variety of products from which a successfu l rate of return can be achieved. Adequate bre supplies are critical tosupport existing and new forest businesses, and to create andmaintain jobs.

For commodity products such as lumber and pulp, adequatesecure sources of bre are required to retain and attractthe large capital investments necessary to be globallycompetitive. New product development also requires largecapital investments and secure bre supplies. e provincialgovernment, on behalf of the public, must ensure that thetimber supply in British Columbia goes to its highest andbest use, that there are opportunities for new entrantsand for diversication of rms and products, while alsoensuring that British Columbians receive fair value for theuse of timber. ere are several ways in which new forestbusinesses can acquire wood bre to start, grow or diversify

such as: obtaining a tenure agreement from governmentto access and harvest timber, purchasing tenure froman existing tenure holder, purchasing a forest business,purchasing bre through competitive bid sales, purchasinginputs (logs, lumber, residuals) from other forest businesses,and by developing strategic alliances with other rms thatmay have bre supplies.

e demand for forest tenure greatly exceeds the supplyavailable. In essence, all available bre is already allocated(including 18 per cent of the provincial maximum sustainableharvest that has been identied for competitive sales through

BC Timber Sales). Some tenures expire each year, which allowsa very limited opportunity for reallocation of bre. Some newforms of tenure to respond to new business opportunities (suchas tenures for the recovery of waste bre that otherwise wouldnot be utilized) have been possible. e amount of bre that canbe accessed is regularly evaluated based on economic operability

Fact:

Wood-frame roonghas signicant growthpotential in China. Thepotential wood trussmarket in China isestimated at 1.6 billionboard feet a year, which isabout 10 per cent of B.C.'sannual lumber output.

Source: Forestr y Innovation Investment Ltd.,2009


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criteria and impacts to the bre base, such as the MountainPine Beetle infestation, withdrawals from the forest land basefor other purposes and increases in bre supplies resulting fromsilviculture investments.

All Roundtable members believe it is important to supportindustry growth and diversication through access to wood

supplies. At the same time it is important to respect therights aff orded to tenure holders and ensure the investmentcommunity feels condent that British Columbia is a stable jurisdiction in which to do business. e Roundtableconsidered numerous ways to make more wood bre availableto those wishing to establish or grow businesses whilerespecting existing tenure rights.

Some forestry rms have suggested they currently hold moretenure than they require for their manufacturing operations.

ey would be wi lling to hold less tenure provided there is afunctioning, robust, open market where they could purchaseadditional bre when required. None of these rms is likelyprepared to surrender tenure unless other rms were willing todo the same so that competing rms are in the same situationfor timber supply.

Some Roundtable members thought government shouldincrease annual rent payments made by tenure holdersto increase the cost of tenure security, and to reduce anyincentive for them to hold more tenure than they require.Others felt this could be accompanied by stumpagereductions to ensure revenue neutrality. Other membersfelt that increasing rent would merely add more costs at atime when the industry could least a ff ord it, and that costsassociated with acquiring tenure were su ffi ciently high. SomeRoundtable members suggested additional bre should bemade available by limiting the amount of tenure a licenseecould hold to 50 per cent of their milling capacity. OtherRoundtable members thought government should require


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tenure holders to harvest a minimum amount of timberfrom their tenure before they were able to bid on timber soldthrough the competitive bid process.

Given current nancial conditions, many licensees are facingcash ow problems, and may be interested in selling tenuresurplus to their needs and for which they incur carrying costs.

ere may be private sector buyers, or opportunities to tradeor exchange portions of tenure, so those who can better utilizeit have access to it. Some Roundtable members believe theprovincial government should, when its scal position allows,purchase tenure from tenure holders wishing to sell and thenreallocate it.

Many timber tenures in British Columbia are volume-based as opposed to area-based. While a volume-basedtenure provides the right to harvest trees, the exact locationof those trees is uncertain. In some cases, locating theeconomic harvest volumes authorized under these tenureson the ground is diffi cult. Volume-based tenures are alsogenerally more costly to manage, and because l icensees donthave exclusive rights to areas of trees, they are much lesslikely to make investments in activities such as inventory andsilviculture. ere may be an opportunity for governmentto off er smaller area-based tenures to volume-based tenureholders making those areas more secure, provided they arewilling to surrender a portion of their current volume. iswould likely only be possible where timber supplies are stableor increasing and where all volume-based tenure holdersoperating in an area were in agreement.

RECOMMENDATION 19:

We should be proactive in exploring ways to ensurewood bre is available for industry growth andproduct diversication while respecting tenureholders rights.


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Having a robust, open and competitive market for wood breis the best way to ensure all industry rms have an equalopportunity to expand and diversify. Maintaining a minimumpercentage of timber sold through the competitive system isalso necessary to maintain adequate data from which to deriveprices for timber not sold through competitive bids.

RECOMMENDATION 20:

We should increase the percentage of bre that isavailable through competitively-bid timber sales.

ere is an opportunity to further develop alliances betweenparticularly small timber harvesters and manufacturers inBritish Columbia. Often they are not able to connect in themarketplace to procure and sell logs, timber, or other forest

on personal contacts or established relationships to buy, selland trade large volumes of products, prepackaged to industrynorms and where signicant nancial resources are required.

To support a vibrant wood market, government and industryshould develop an online trading portal to sell British Columbiaforest products such as tenures, logs, lumber or other productsto facilitate transactions and to increase product value.

RECOMMENDATION 21:

We should develop an internet-based wood market.

All Roundtable members agree it would be preferable to havewood products manufactured in British Columbia and that logexports are a symptom, not a cause, of a lack of competitivemanufacturing capacity.

economy, by allowing for much needed jobs and economicactivity in the logging and transportation sectors. Several BritishColumbia manufacturing operations rely on log imports to keeptheir manufacturing facilities operating and maintain jobs.


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Before logs can leave the province, exporters from crownand private land must prove that the logs are surplus todomestic needs, and a fee-in-lieu-of-manufacture must bepaid on crown land and some private land. is requirementshould be rigorous, but also should not provide opportunitiesfor manipulation of the log export process. In some cases,where it has been determined that logs are surplus to

domestic manufacturing needs, government can provide anexemption from the requirement to advertise the logs for saledomestically. is generally occurs where manufacturingfacilities do not exis t (e.g., North Coast). ese exemptions aretime limited and for dened volumes.

Some Roundtable members believe there should be norestrictions on log exports to ensure that the jobs andeconomic development that result from log exports can bemaintained and increased. Other members believe that logexports should be banned. All Roundtable members feltthat co-operative e ff orts by industry and labour to increase

competitive and protable manufacturing capacity in BritishColumbia will result in fewer log exports.

RECOMMENDATION 22:

Logs that are surplus to British Columbiamanufacturing needs should be exported until localmanufacturing capacity exists. The surplus testcurrently in use should be reviewed to ensure it isrigorous.

DESIRED OUTCOMES:

GENERATION FOREST PRODUCTS

DIVERSIFICATION


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PRIORITY 5: SUPPORTING PROSPEROUS

RURAL FOREST ECONOMIES

Over the past century, British Columbias forest sector playeda large role in developing the provincial economy, shaping theprovinces in frastructure and communities, and providingits citizens with a quality of li fe unsurpassed anywhere inthe world. For many years, rural communities have reliedon timber harvesting and wood manufacturing for jobs,taxes, and contributions to their local infrastructure. Asthe industry restructures, many manufacturing facilitiesare closing, and communities are struggling to adjust tothe challenges of a changing economic base. Although theprovinces economy has matured and diversied over thepast decades, the forest sector remains the most importantemployer in many rural communities.

Forests around communities wil l continue to be used toprovide a range of benets. Communities can and shouldcontinue to have opportunities to be engaged in and benetfrom the use of the forests, as well as from the resulting jobs and economic benets. At its meetings across BritishColumbia, the Roundtable heard from many communitiesthat they want more involvement in the decision makingrelated to forest management and the use of forest resourcesaround their communities.

Port McNeill, BC


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Community forests can assist communities to continueparticipating in the forest economy by giving them theopportunity to manage and harvest timber and benet directlyfrom the resulting revenue. Communities that establishcompetitive cost structures can also attract and supportforestry businesses.

Some Roundtable members felt that government shouldprovide communities with a percentage of the stumpage that iscollected through harvesting around their communities.

RECOMMENDATION 23:

We should expand the Community ForestAgreement Tenure program.

Traditionally the forest sector in British Columbia has beendescribed as a Coast or Interior industry. is descriptioninaccurately oversimplies attributes of the forest, theproducts produced in each area, their markets, challenges

and opportunities, and unique community attributes. Whilethere are many forest policies that should be applied equallyacross the province to maintain a competitive level playingeld, some policies can and should be customized to reectthe unique realities and specic needs of the local resourceand communities. is exibility would enable advancementof innovative projects which could create employment inspecic areas.

RECOMMENDATION 24:

British Columbia forest policies should reectthe unique forest attributes and socio-economic

circumstances in di ff erent parts of the province.

DESIRED OUTCOME:

FORESTRY


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PRIORITY 6: FIRST NATIONS BECOMING

FULL PARTNERS IN FORESTRY

First Nations have much to o ff er a sustainable forest industryand can benet greatly from it. It is in all British Columbiansinterests for First Nations to become full partners in the forestindustry in British Columbia.

In 2005, the Government of British Columbia and First Nationsdeveloped the New Relationship document. It opens with a vision that states, We are all here to stay. We agree to a newgovernment-to government relationship based on respect,recognition and accommodation of aboriginal title and rights.Our shared vision includes respect for our respective laws andresponsibilities. rough this new relationship, we commit toreconciliation of Aboriginal and Crown titles and jurisdictions.

e New Relationship further states, We agree to establishprocesses and institutions for shared decision-making aboutthe land and resources and for revenue and benet sharing,

recognizing, as has been determined in court decisions, that theright to aboriginal title in its full form, including the inherentright for the community to make decisions as to the use of the land and therefore the right to have a political structurefor making those decisions, is constitutionally guaranteed bySection 35. ese inherent rights ow from First Nationshistorical and sacred relationship with their territories.

e provincial and federal governments, and the British

to work together to close the socio-economic gap between FirstNations and other British Columbians in the Transformative

Change Accord.

e provincial government must consult with and, asappropriate, accommodate First Nations where governmentdecisions or activities may adversely a ff ect their rights and title.

is includes any changes made to tenures or land use.


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In 2003, the British Columbia government began entering intoForest and Range Opportunity agreements with First Nationsthat provide timber volumes and revenue sharing based onpopulation numbers. ey also include provisions to facilitateconsultation on operational planning and administrativedecisions that might a ff ect potential Aboriginal rights and title.

is is a useful start to facilitating the participation of First

Nations in the forest economy but the program has not been assuccessful as First Nations or government wished. To be moresuccessful, First Nations tenures should be increased in size andtheir term expanded, similar to what is done with CommunityForest Agreements. In addition, revenue-sharing formulasshould be revised so there is a direct correlation between forestharvesting activity and revenue received by First Nations.

RECOMMENDATION 25:

We should create more long term, area-based foresttenures that are of an economically viable size, and

create legislation for a First Nations forest tenure.RECOMMENDATION 26:

Revenue-sharing with First Nations should beproportional to the value of timber harvestedin their respective territories instead of beingcalculated on a per capita basis.

First Nations have legal rights and title to land and resourcesin British Columbia. ese rights cannot be extinguished. Inmost cases the exact location of Aboriginal rights, the extentof those rights, and which First Nation has them, are unclear.

Unresolved land claims in British Columbia are a major hurdleto the success of the forest industry and to the success of FirstNations. Conicts have occurred and consultations can bediffi cult and protracted, and where disagreements have beenunresolved, several cases have been brought to the SupremeCourt of Canada.


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While resolving land claims is essential, the rights of FirstNations and other British Columbians must be reconciledthrough negotiations, which will take time. As treaties aresettled, more of the forested land base wil l come under the jurisdiction of First Nations communities. In the interim,there are many opportunities for the development of strategicalliances between forest companies and First Nations.

Opportunities for partnerships now will reduce conicts onthe land base and help to create a strong forest economy andresulting employment for both First Nations and others.

RECOMMENDATION 27:

We should encourage business and First Nationsto become full partners in forestry businesses,in particular in emerging areas of opportunityincluding biofuels, bioenergy, carbon andreforestation.

A number of First Nations have developed strong business

partnerships with non First Nations. Other businesspartnerships have been less successful. e First Nations

First Nations to understand the elements of successfulbusiness partnerships and work to assist them to implementprogressive business arrangements. e federal and provincialgovernments and industry can also assist First Nations to gainthis expertise.


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RECOMMENDATION 28:

We should strive to build capacity amongFirst Nation governments, First Nation forestcorporations and First Nation forestry institutionsto achieve full participation in forest activities.

Unlike non-Aboriginal communities, the First Nationspopulation is growing and has a high component of youngpeople who can be an important source of future resourcemanagement professionals and forest industry workers. FirstNations communities are also frequently located in forestedareas, and have strong ties to and knowledge of the land.

RECOMMENDATION 29:

We should collaborate with First Nations toinvolve First Nations youth in forest employmentopportunities.

DESIRED OUTCOME:

FORESTRY


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Nicola Valley Institute of Technology, Merritt, BC


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Summary

e British Columbia forest sector is facing unprecedentedchange that presents as many opportunities as it does challenges.

Climate change presents probably the greatest chal lenge, andperhaps the greatest opportunity that the forest sector has seenin decades. It will impact our forests as we have seen with theMountain Pine Beetle infestation but also increase the value of forests for carbon sequestration and the development of productsthat reduce our carbon footprint. Evolving world economies,markets, technology and the growing green economy will a ff ectthe types of products we can successfully produce and sell, andwhere they are sold. Changing societal expectations aroundforests and the forest industry will inuence the use of, access to,and benets derived from our forests. Increasing First Nationsbusiness partnerships and role in forest management and use willalter current relationships.

Our future depends on how we work together. ere is no oneentity that can solve the problems of the forest industry in BritishColumbia. We need to work collectively to provide leadershipat all levels of government, in industry and elsewhere to supportinnovation, growth and investment, and a common vision. Allthose involved in the forest sector need to be willing to examinewhat we currently do, and to change to take advantage of theopportunities before us.

British Columbians can be proud of their forests and be

supportive of forestrys role as an essential element of the futuregreen economy and their livelihoods. ey should feel condentthat wood and wood products can be the rst choice and apreferred product in construction, interior design and dai ly living.


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Ensuring that we get the best returns from our silvicultureinvestments, that we invest in our forests, and that lands areavailable for commercial forestry is essential to ensuring ourforests can continue to provide a range of forest products andthat they are available and e ff ective for carbon sequestration.

By putting in place competitive hosting conditions and

maintaining a predictable business climate, we can attractcapital and leading-edge forestry businesses.

If we embrace innovation and diversication we can developand market next generation forest products that result in newrevenue streams, serve new markets, and provide opportunitiesfor new and expanded businesses. We can also reduce ourreliance on the U.S. market.

Forests and their use will continue to provide benets forcommunities. rough increased collaboration, First Nationscan become full partners in forestry.

By working together, the Working Roundtable on Forestryrmly believes that British Columbia can have:

A vibrant, sustainable, higher value globally competitive forestindustry that provides enormous benets for current andfuture generations and for strong communities.


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British Columbia can achieve the fundamental shifts requiredto ensure a high-value globally competitive sustainable forestindustry that creates and maintains jobs -- but to be successfulchange and action is required. Results will take time, butactions now will return benets in the short and longer term.

e Roundtable plans to meet one year from the release of this

report to assess the changes that have been made by all partiesand report to government on progress on the six priorities.

e British Columbia forest industry has been a vital part of the provinces economy and society for over a century, andwill continue to be in the future. e industry is currentlyfacing a downturn of historic proportion. Global changesquite separate from the current economic crisis require thatall forest sector participants adapt. ere are opportunities,but we are at a crossroad. We must collectively take actionto ensure that the British Columbia forest industry is vibrant,sustainable and globally competitive so that it can provideenormous benets for current and futu re generations and forstrong communities.


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Working Roundtable onForestry MembersC Honourable Pat Bell, Minister of Forests and Range

V C Dana Hayden, Deputy Minister

John Cowan, Partner, Redpoint Business Architects

Mike Frazier, Mayor, Village of McBride

David Gandossi, Executive Vice-President, Chief Financial O ffi cerand Secretary, Mercer International

Mike Harkies,

University of Northern British Columbia

omas Olsen, President, Triumph Timber

Beverlee Park, Executive Vice-President and Chief Financial O fficer,TimberWest

Conrad Pinette, Director, TimberWest

Dave Porter, Kaska Dena Nation

Derek ompson, Associate Professor, Royal Roads University

W.C. Williams, Business Development Manager, Industrial Forestry

E - Deputy Minister, Ministry of Forests and Range


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FOR MORE

INFORMATION O N

THE WORKING

ROUNDTABLE

ON FORESTRY

PLEASE VISIT

GOV.BC.CA/FOR

Moving Toward a Globally Competitive Forest Industry

Documents

Transcript of Moving Toward a Globally Competitive Forest Industry