Trends in Global Trade in Wood Products - 2013

(using FAOSTAT data, Statistics Canada through

Strategis, IMF WEO, Global Trade Atlas and more)

David Cohen - UBC

David Cohen

Summary

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Global Trends – The Big Picture Global Trade in Forest Products Forest Resources – Where What is harvested – for what

2. Forestry Drivers

3. Business Transformation

1. Global Shift to

Bioeconomy

David Cohen

Four drivers but one result: the emerging bio-economy

1. Population growth

2. Growing economic power of developing countries AND growth of global middle class

3. Squeeze on world resources (both renewable and non-renewable)

4. Increasing environmental degradation

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1. Global Population Growth

0123456789

10

Billi

ons

of p

eopl

e

2.5 4.1 6.1 7.0 9.0

Source: UN World Population Prospects – 2010 Revision, medium variant

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2. Changing Economic Importance

0

5

10

15

20

25

Perc

ent o

f glo

bal G

DP

Proportion of World GDP (PPP) by Country

USA China India Canada Germany

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Source: International Monetary Fund, (IMF) World Economic Outlook (WEO) Database, October 2011

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What is Purchasing Power Parity

“it is the number of units of a country’s money required to buy the same quantity of goods and services as $1 buys in the United States” UN HDR 2004 Box 6 page 257 based on a basket of 150 – 200 goods & services adjusts the measurement of items, such as GDP, to be free

of distortions from price & exchange rates based on the concept that it is not the size of a persons

income that is important but what it can purchase i.e. Is $30,000 a year a good income in Vancouver? in Vietnam?

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3) Squeeze on World Resources

Rush for long term resource supply existing & new agricultural land in Africa forest concessions in Asia mineral deposits in Mongolia private equity ownership of forest land

Fundamental shift in commodity pricing (change since 1860s)

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Commodity Price Growth 1900 – 2013

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Source: Dobbs et al., 2013 Resource Revolution: Meeting the world’s energy, materials, food and water needs. McKinsey Global Institute. 44 pages

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Commodity price index 2000-2012

0

100

200

300

400

500

600

700

800

10

Source: Bank of Canada February 2013

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4. Global Ecological Footprint

Source: Global Footprint Network August 2013 http://www.footprintnetwork.org/en/index.php/GFN/page/world_footprint/

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Life Cycle Assessment (LCA)

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Why is bio-economy growing?

More people (population growth) need more stuff that require more resources higher prices & environmental degradation

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higher prices for non-renewables extraction innovation + shift from non-renewable to renewable

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Resource scarcity Eco-efficiency

(leaning operations)

Sustainable business Secure supply

Resource access

Clean tech Energy efficiency

Good governance Social equality

Licence to operate

BIOECONOMY

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Bioeconomy - “the sustainable, eco-efficient transformation of renewable biological resources into food,

energy and other industrial products” Schmid et al., 2012 quoting DG Research, 2005

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Impacts of Shift to Bioeconomy Renewables replacing nonrenewables bioplastics, ethanol, cellulose/plastic composites

Environmental externalities valued water rates, green energy premium, carbon tax

Already occurring but not yet recognized

Shared green value profit by solving environmental problems

e.g. tall wood buildings, GE ecomagination,

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Vancouver Sun May 25, 2012 pG12

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http://upload.wikimedia.org/wikipedia/commons/thumb/6/69/T%C3%BCrinnenverkleidung_Hanf-PP_nova.jpg/642px-T%C3%BCrinnenverkleidung_Hanf-PP_nova.jpg

http://pacifictruss.net/wp-content/uploads/2012/03/the_case_for_tall_wood_buildings.jpg

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Impacts of Shift to Bioeconomy

Renewables replacing nonrenewables bioplastics, ethanol, cellulose/plastic composites

Environmental externalities valued water rates, green energy premium, carbon tax tax shift toward pollution + taxes

Shared green value profit by solving environmental problems

e.g. tall wood buildings, GE ecomagination, 18

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Resource Shortage 5 F’s (Nilsson)

Competition for (forest) land use : Food – conversion to agricultural land

Fuel - fuelwood + biofuels

Fodder – grazing

Fibre – pulp, rayon,

Feedstock – for emerging bio-products

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Forestry Drivers

Business Transformation

Global Shift to Bioeconomy

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Graphic paper production in NA and NW Europe (1961-2011) Selective Cuttings 5/29/13 http://cfs.nrcan.gc.ca/selective-cuttings/36 (FAOSTAT data)

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Percent change 1995 – 2010 Global GDP growth = 59%

Europe USA Canada

Newsprint -3 -56 -5

Printing & writing 20 -23 -17

Folding box board 60 6 -15

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FBB is made up of multiple layers of chemical and mechanical pulp used for health and beauty products, frozen goods,

confectionaries, pharmaceuticals, etc.

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Bottom Line Computers (tablets & smart phones) + internet

finally paper use lower demand/value for chips P&P transformation underway in Europe & NA

Firms in developed countries know past P&P profits unsustainable Great interest, concern, expenditures, & fear for firm and sector transformation Lumber production requires profitable market for waste (chips)

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Forestry Drivers

Business Transformation

Global Shift to Bioeconomy

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Two Business Responses Based on current (Cohen/Nikolakis) research with 43 interviews with executives in N. Europe (14 firms) &

NA (21 firms) and 12 with industry experts

1. Traditional business response efficiency, productivity, process innovation,

leaning operations, expansion, contraction, specialization, etc.

2. Transform to compete in bioeconomy technology driven product and process innovation

(high risk, high reward)

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Traditional business response • Downsizing: shrink & focus on improving P&P efficiencies

• Focus on lumber production: increase efficiencies as low cost lumber producers

• Change product mix: P&P & lumber or panel production

• Specialty products: develop specialty pulp and/or paper products for niche markets (intellectual property rights)

• Move up value chain: closer to consumer e.g. packaging, media, consumer products e.g. adult incontinence products

• Move down the value chain: focus on forest land & manufacturing (e.g. TIMOs)

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Transforming to Bioeconomy • Bioenergy: develop commercial bioenergy production e.g.

co-generation, pellets, ethanol production, etc.

• New bioproducts: developing new bioproducts and to commercialize new technology (e.g. NCC)

• Create new biocomplex: create a sustainable biorefinery (in planning and research stage – high risk, high reward)

• Become forest products producers: Shift to produce wider array of forest products e.g. environmental services, recreation, carbon offsets, water management, community forest, etc.

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Forestry in 2030 • forests providing food, fuel, forage, fibre, feedstock, and

environmental services in complex interactions of human economic, social & environmental needs

• wood still a very important component of environmentally broad and sustainable product portfolio from forests

• forests become important part of restorative economy

• biorefineries replacing oil refineries as they age once pricing for environmental externalities becomes a reality

• partnerships key – gov’t/industry, civil society/industry, inter-industry, intra-industry, developing/developed and more

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2. Forestry Drivers

3. Business Transformation

1. Global Shift to Bioeconomy

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Thinking Points

Will the response to resource scarcity be the same for non-renewable & renewables? How will they differ? How might if affect wood use, supply & prices?

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Summary

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Global Trends – The Big Picture Global Trade in Forest Products Forest Resources – Where What is harvested – for what

2. Forestry Drivers

3. Business Transformation

1. Global Shift to

Bioeconomy

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Global Forest Resources 2010 area in millions ha: annual change 2000 - 2010

33

N/C America 705

0

S America 864 -8.0

Asia 593 +4.5

Europe 1,005 +1.4

Africa 674 -3.4

Oceania 191 -1.4

Source: FAO 2000 Yearbook of Forest Products, published in 2002.

Region #,### ###

View from Toronto

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Global Forest Resources 2010 area in millions ha: annual change 2000 - 2010

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N/C America 705

0

S America 864 -8.0

Asia 593 +4.5

Europe 1,005 +1.4

Africa 674 -3.4

Oceania 191 -1.4

Source: FAO 2000 Yearbook of Forest Products, published in 2002.

Region #,### ###

View from Vancouver

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Global Forest Resources 2010 Country data (% of world’s forest area)

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Canada – 7.7

Source: FRA 2010

USA – 7.5

Russia – 20.1

Brazil – 13.0

China – 5.1

Indonesia – 2.3

Sweden/ Finland – 1.2

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Global Forest Resources 2010 Country data (% of world’s forest area)

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Canada–7.7

Source: FRA 2010

USA – 7.5

Russia – 20.1

Brazil – 13.0

China – 5.1

Indonesia – 2.3

Sweden/ Finland – 1.2

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Sustainability?

“meeting the needs of the present without compromising the ability of future generations to

meet their own needs” Our Common Future 1987

All about BALANCE for renewable resources & PATIENCE for non-renewable resources

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All changes point to SUSTAINABILITY

as key driver for all civil, business, and societal decisions in the future.

Key driver of innovation!

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What is the Story

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Sustainability WHY? Intergenerational responsibility Acting as iceberg with various exposed

tips tsunami of change with social responsible investing (SRI) corporate sustainability reporting triple bottom line accounting concern over global warming &

other global environmental issues Greater role for NGO’s & multinational efforts (e.g. IPCC

and biodiversity)

BUT like an iceberg we only see 10%, the rest is not yet visible

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We are witnessing a paradigm shift that includes a tsunami of change due the drivers of sustainability but it is like an iceberg with only 10% of the changes visible and 90% under our line of vision.

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Models of Sustainability

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Environment, Social, Economic

3 pillars developed early

Some arguing for supremacy of one pillar Environmental – Costanza/Rees (ecological economics)

Social – UNDP – Millennium Goals (Oxfam & Helliwell)

Economic – Milton Friedman (IMF)

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Sustainability Models: Sustainability with Ecological Supremacy

ecological health is precursor to social & economic sustainability

no three legged stool

if we do not restore natural capital then human race is doomed

Constanza / Reese Economic

Environment

Social

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Environment

Economic Social

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Sustainability Models: Dynamic Balance

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Sustainability Models that Reflect “different strokes for different folks”

Nested Hierarchy

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Sustainability Models - Nested Hierarchy

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Economy

Society

Environment Proposed by Natural Step Environment is supreme with Economics last (organizational bias)

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Sustainability Models - Nested Hierarchy

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If all three pillars are present but do not have equal importance then: What hierarchy do we have in Canada? in the US? in China?

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Sustainability Reality Nested Hierarchy

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Economy

Society

Environment For NA & other developed countries eg US, EU, & Canada

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Sustainability Reality Nested Hierarchy

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Economy

Society

Environment

For some rapidly developing countries eg China, Indonesia, Vietnam

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Sustainability Reality Nested Hierarchy

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Economy

Society

Environment

For some newly developing countries eg Africa, Bolivia, Argentina

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As gov’t drops the ball business becomes more important. “Coke is the No. 1 purchaser of aluminum on the face of the earth – which is one of the most carbon-intensive commodities. The No. 1 purchaser of sugar cane. The No. 3 purchaser of citrus. The second-largest purchaser of glass, and the fifth-largest purchaser of coffee.” “We could spend 50 years lobbying 75 national governments to change the regulatory framework for the way these commodities are grown and produced. Or these folks at Coke could make a decision that they’re not going to purchase anything that isn’t grown or produced in a certain way – and the whole global supply chain changes overnight.” “Coke is literally more important, when it comes to sustainability, than the

United Nations” Gerald Butts , President & CEO WWF Canada 1/31/2011 http://www.theglobeandmail.com/report-on-business/industry-news/marketing/adhocracy/beyond-the-bottle-coke-trumpets-its-green-initiatives/article1869437/

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Sustainability and Business

Business now focuses on • eco-efficiency • energy conservation • waste reduction • better access to

knowledge workers • developing hard

measures • from defensive to

opportunity focus

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Economic

Environment Social

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What does this mean to FP industry?

Sustainable forest industry is NOT the same as sustainable forest management

Requires sustainable practices all along the value chain

(tier1 & tier 2 suppliers)

Currently green issues dominate in western countries social issues dominate in developing countries BUT both are equally important for sustainability (as is

economics)

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Role of sustainability in business Sustainability will drive future innovation e.g. clean energy, biofuels,

environmental services

change success factors for business

drive regulations

encourage new global institutions (e.g. new international biodiversity group)

transform role of rural / indigenous communities

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Sustainability & the Canadian Forest Sector

FPAC requires members to certify ALL forests

The Canadian Boreal Forest Agreement http://www.canadianborealforestagreement.com/

Great Bear Rainforest agreement considered model

for global forest conservation

Canada has the largest area of certified forests of

any country in the world

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Canadian Forest Sector Uses well managed renewable resource

Government/industry partnership investing in transformative technologies for fiber and building systems e.g. CLT, panelized housing, wood first e.g. biofibres, biofuels, biomaterials

Future is mix of current commodities PLUS innovative new products to replace those made from non-renewable resources

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CFS Transformation Requires transformation along the entire value chain:

from woods to end user to move from:

surviving to thriving

Pure commodity to commodity plus value added innovative products & processes

a listing ship to leadership

Knowing basic products to knowledge based environmental products

BIOPATHWAYS

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Bio-pathways

To help the Canadian Forest Sector to transform and enter the bio age: CFS defines Bio-pathway as “a network of

interconnecting technologies along which the forest industry evolves.”

Innovative use of wood renewable fibre New uses for biomass Includes clean energy (biofuels), biochemicals,

biofibres, bioproducts and more How to integrate with current industry

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Examples Biofuels

from wood pellets to mass energy production from waste wood

NanoCrystalline Cellulose composites – in aerospace, auto production, etc. replacing costly oil based materials

Biochemicals – what chemicals are buried in the structure of wood?

Bioplastics and other materials

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Source: http://www.fao.org/docrep/016/i3010e/i3010e00.htm

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Forests 30% of land in world is forested, increasing in some areas (e.g. Asia) decreasing in others (e.g. Africa, Oceania, S. America) great fluctuations in deforestation in countries e.g. Brazil

Overall forest cover is increasing

Hotbed of NGO activism WHY?

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What is harvested Harvest of 3.3 billion m3/yr from ~400 billion m3 of trees on

4 billion ha of forest land (0.8% annually)

Subsistence (~50%) vs Industrial (~50%) good and bad of subsistence use? Coniferous (1/3) vs Non-coniferous (2/3) C (2/3 industrial) vs NC (~2/3 subsistence) Missing data due to illegal, underreported, and unreported logging =10-25% of total

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Some forest issues Deforestation Role of plantations (extensive vs intensive) Forests / Wood & GHG storage Forests and: indigenous peoples poverty alleviation rural sustainability agriculture

Forest preservation, conservation or multiple use Urbanization and loss of connectivity with forests

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Rest of presentation focuses on Industrial Wood

Supply and Use

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Industrial Roundwood Production 2012 total of 1,661 mcum (little change in 25 years)

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Can. 9.1%

Brazil 8.4%

Russia 10.7%

US 20.2% China 6.2%

Sweden 3.8% Finland 2.7% Germany 2.6%

Chile 2.4%

Indonesia 3.7%

Forest Resource vs Industrial RW in % of world for 2010 and 2012

Source: UN Food and Agriculture Organization FORSTAT Database 2012 and FAO 2010 FRA

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increase harvest?

harvest maxxed?

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Trends in Forest Management

equity ownership of private forest land private ownership 2.7 million ha annually 1990 - 2000

multi use forest management shift to forest (not wood) products e.g. PES

ecosystem management - people as part of ecosystem

market driven deforestation & illegal logging

plantation forestry from 1990 – 2010 >92 million ha -- increase of 54%

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Ten countries with largest area of productive forest plantations 2005 in %

0 5 10 15 20 25 30

ChinaUSA

RussiaBrazil

SudanIndonesia

ChileThailand

FranceTurkeyOthers

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Source: FAO 2005 FRA

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Forest Plantations Good for the World

– Rapid growth less land

needed natural forest conservation

– Good use of scarce resources – Creates continuous, long term

wood supply – Economically beneficial

Bad for the World

– Biological deserts – NO biodiversity

– Depletes soil / requires fertilization

– Creates hydrological problems

– Monoculture increases pest & disease problems

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0

50

100

150

200

250

300

1961 1967 1973 1979 1985 1991 1997 2003 2008 2014 2020

US$ Billions

Current Global Recession

$267 billion

Value of world exports of forest products – increasing at 8.5% annually

(Source: CIBC)

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Trends in Industrial Log Supply

in supply from fast grown plantations e.g. Eucalyptus (7 year rotation) heavily subsidized by governments

supply from developed natural forest costs, NGO’s, bark beetle, other uses, etc.)

supply Russia, E. Europe, Baltics, etc.

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CHINA

GFC

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China – 21st Century Game Changer

At start of 21st century China was worried about wood supply due to National Forest Protection Plan (NFPP)

Study predicted sufficient wood available for import for rapidly growing sector

In 2000 China was not in top 10 producers, importer or exports of any wood products

LESS THAN 10 YEAR LATER

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CHINA 2009 China now a powerhouse in wood production

1st largest exporter (by value) 2nd largest importer (by value)

Furniture #1 Plywood, MDF, blockboard #1 HW lumber #2 Particleboard #3 SW lumber #3

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China’s Forest Product Production 2003-2010

0

50

100

150

200

250

300

350

Billi

ons o

f US$

74

Source: International Wood Markets Group 2010 through UNECE Forest Products Annual Market Reviews

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China’s wood import & exports

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

mill

ions

of U

S$

Imports

75

Exports China usually adds 30% of value to imports, uses ¼ domestically and exports slightly higher value than it imports

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China and Logs

By 2000 China’s forest seriously overharvested soil erosion, reduced harvests, water pollution, etc. NFPP

Great in imported logs & establishment of plantations China has largest area of forest plantations using GM trees to ameliorate soil degradation,

improve fibre quality, & quantity

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China’s Share of World Log Imports (about 1/3rd of imports – Russia about 1/3rd of exports)

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0%

10%

20%

30%

40%

50%

Glo

bal L

og Im

port

s NFPP

Source: WTA and FAO data set

WTO

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Suifenhe Rail Yard 2003

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Russia’s Share of World Log Exports

10%

20%

30%

40%

50%

Glo

bal L

og E

xpor

ts

79

Source: WTA and FAO data set

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Proposed Russian Tax Rate

80

TBA

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Russia Joins WTO 22/8/12

EC support for entry required access to logs Set quotas and new tariffs based on region

within quota tariff reduced: 25% to 13% for spruce & fir logs and 80% outside quota

2013 quota 5,950,600 m3 to Europe and 285,900 m3 outside of Europe (Japan remains at 25%)

7% for birch logs which go to Europe

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China SW Log Imports

0

5,000

10,000

15,000

20,000

25,000

30,000

Thou

sand

of c

um

NZ USA Canada Other Total Russia

82

Canada

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What is the Story 1. China bans logging on natural forests 2. Wood industry grows using imported logs 3. Russia increases log exports to China

Also from NZ & illegal logging (e.g. Indonesia)

4. China global leader in wood production 5. Russia wants more manufacturing so tax 6. China decreases log imports & increases lumber

imports 7. Russia backs down but for Europe & not China

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Current Topics – Log Supply Illegal Logging (Brazil & Indonesia)

Certification / Legality / Import Regulation

Climate Change and Forests – REDD++

Forests and Indigenous Peoples

Forests and Poverty Alleviation

Forests and Carbon Sequestration

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David Cohen 85 Source: David Cohen

Zhang Jiagang Port near Shanghai 2001

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Global Lumber Production & Exports

90

140

190

240

290

340

390

Mill

ions

of c

um

Exports Production

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Largest Sawnwood Producers 2012

0

10

20

30

40

50

60

70

mill

ions

of c

um

Sawnwood Production 2012

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China’s Share of World Log Imports (about 1/3rd of imports – Russia about 1/3rd of exports)

88

0%

10%

20%

30%

40%

50%

Glo

bal L

og Im

port

s NFPP

Source: WTA and FAO data set

WTO

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Chinese Lumber Imports

0

5

10

15

20

25

mill

ions

of c

um all Sawnwood

C Sawnwood

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What is the Story

Taxes, corruption, overharvesting, etc. costly unstable log supply from Russia

Shift to importing softwood lumber with Canada supplying almost half

Rising costs in China plus higher cost for logs makes imported lumber more competitive

Continued growth or short window of opportunity?

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Trends in Sawnwood

in supply from lower cost natural forests & southern plantations

technology enables sawnwood replacement with EWP, other materials, HW lumber, etc.

real decline in price over time

what to do with the wood chips given the decline in writing & graphic paper and newsprint

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China and Wood Panels

China is largest producer of MDF, blockboard & Plywood in the world

China uses wood panels for its large furniture production

Chinese production but exports as domestic consumption has grown

Many old plywood plants being replaced by modern facilities

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Largest Panel Exporters 2012

02468

10121416

mill

ions

of c

um

Panel Exports 2012

93 93

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Chinese Panel Production, Exports & Imports

0

20

40

60

80

100

120

140

mill

ions

of c

um

Production

Export

Import

94

95

OSB Replaces Plywood

0

5,000

10,000

15,000

20,000

25,000

30,000

1923

1927

1931

1935

1939

1943

1947

1951

1955

1959

1963

1967

1971

1975

1979

1983

1987

1991

1995

1999

2003

2007

US

Pan

el P

rodu

ctio

n, m

illio

n sq

uare

feet

, 3/8

inch

bas

is US Total

W. Plywood

S. Plywood

OSB

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Trends in Panels

OSB gaining in Europe – entry in Asia China produces >1/3 of world supply of MDF

use of alternative materials for panels Kenaf, strawboard, bamboo board, etc.

production & exports from China & Brazil

trade & production of wood panels

new types of panels e.g. CLT

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What is the Story

China dramatically increasing production of wood panels (MDF & plywood) MDF used for furniture & other manufacturing plywood used for concrete forming

use of wood panels world wide much in wood housing which is growing rebirth of some panel types (eg SIP and CLT) use wood, store carbon

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Pulp & Paperboard Production

020406080

100120140160180200

Mill

ions

tonn

es

China USA Japan Germany Canada Total

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Largest Pulp Producers 2012

0

10

20

30

40

50

60

mill

ions

of

tonn

es

99 99

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Chinese Pulp Production and Imports

0

5

10

15

20

25

mill

ions

of t

onne

s

ProductionImport

100 100

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Trends in Pulp & Paper Most pulp used to make 3 types of paper (derived demand) 1. P&W (printing & writing)

declining due to spread of internet

2. Packaging holding steady with use balanced by in recycled material

3. Hygiene growing faster than GDP

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Newsprint End-use Factor in thousand tonnes / billion dollar of real US GDP

from CIBC World Markets 1/28/09

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Trends in Pulp technology high quality pulp from poor fibre

impact of internet on paper use newspaper readership (newsprint)

growth in absorbent pulps (for tissues, etc.) fast grown southern hardwoods e.g. eucalyptus

material from the urban forest

use of “waste” driving up cost of some pulp

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Recovered Paper Production

50

70

90

110

130

150

170

190

210

230

Mill

ions

of t

onne

s

104

steady growth in recovered paper

technology & design keeps increasing % of paper recovered

“urban pulp supply”

needs strong pulp added each time it is recycled

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Largest Recovered Paper Producers 2012

0

10

20

30

40

50

60

mill

ions

of t

onne

s

105

Recently China has surpassed USA as largest producer of recovered paper.

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Trends in Recovered Paper

trade in recovered paper mechanical pulp used to add strength

backhaul waste paper to China and Korea

recovery rates due to technology

NA public willing to subsidize recycling (strong support for blue box programs)

Some states require % recycled content

Is recycled paper always better?

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What is the Story China importing pulp to produce paper paper use for newsprint, office paper & packaging

(except in rapidly developing economies) but for fluff pulp decline in northern SW pulp & increase in pulp from

eucalyptus plantations

Increase in pulp prices due to competing uses for waste input (eg biofuels, rayon

No new pulp mills in developed countries WHY? Shift to agroforestry - monoculture plantations

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