As I talked to community leaders this month about the critical issues facing the coastal forest industry, and visited Port Alberni community leaders and area mayors, as I tried to explain the challenges we face collectively and the possibilities that lay ahead, I thought of the need for this dialogue. The future of the coastal forest industry depends on strong partnerships with communities and other stakeholders. Why? Because the future of our communities is tied so closely to the future of forestry in coastal B.C.

The most pressing issues are, not surprisingly, the status of softwood lumber negotiations and the Competition Council Report on the Wood Products and Pulp & Paper Sectors. It is not an understatement to say that the coast needs an outcome from the softwood negotiations that recognizes the challenges facing our forest sector. Coast Forest is working tirelessly with the provincial and federal governments to overcome the challenges and to ensure that coastal requirements are not sacrificed in the final agreement.

The Competition Council report points out that the coast is a fourth quartile producer. When compared to our direct competitors our cost to produce lumber is $54 per cubic metre higher. This is a significant gap and we collectively must address this cost differential. Why? Because increasing the competitiveness of the coastal industry is the only way to provide employment and ensure sustainable communities for rural coastal British Columbia

For the last decade and longer Return on Capital Employed has averaged 2.5%. Capital markets aren’t keen on investing in the coast given the risk factors. Investors are looking for a 10 -12% return. In addition, the companies themselves are not generating positive cash earnings for reinvestment and have been operating at a loss. It’s a Catch 22 situation.

The Competition Council report, while tough medicine, identifies things we can do collectively to turn around this bleak financial picture and facilitate investment in our industry. These include resolving the softwood lumber dispute, increasing land use certainty, improving productivity and managing a market based transition to second-growth harvesting.

The future, if we are to be successful, will require a collective approach, one that is based on a shared understanding of the challenges facing the sector as a whole. Coast Forest will continue to improve our communication and look for new, meaningful opportunities to share perspectives.

ARE WE HITTING THE MARK IN JAPAN?That's the question Coast Forest Products Association hoped to answer when, with the funding support of Forestry Innovation Investment, Canada Wood Export Program and Canada Tsuga Program members, it commissioned Decima Research to conduct the first extensive and fully independent study to measure Japanese customer awareness of Canada Tsuga products. In total, 300 Japanese builders and architects were surveyed to learn everything from what influences purchasing decisions to the most effective means of communication and promotion.

With the overall competitiveness of the Japanese market on the rise, and increasing volumes of product coming from several parts of the world – including Japanese domestic product, and products from Russia and China, understanding the effectiveness of our marketing efforts has never been more important.

What did we learn? "Well, for one thing product quality is the most important criterion when purchasing structural forest products, according to two out of three Japanese customers," says Coast Forest's Rick Jeffery. Product strength and price also play a major role in the decision-making process.

Environmental credentials remain highly consequential to a core group of Japanese wood products customers, with 31% rating environmental attributes as the most important criteria in deciding which structural products to purchase. "What's important to the Japanese customer is first quality and price, then supply reliability and product consistency," says Jeffery. "These numbers also highlight the importance of blending sustainability information with our product promotion activities, and ensuring that we address the full scope of Japanese customer interests."

The good news is that product and program awareness among Japanese customers is very high. In fact, nine in 10 of those surveyed say they are aware of Canada Tsuga (89%), and it is considered to be better than other products in terms of strength and quality by many buyers.

Among market-specific business criteria, builders rate building regulations, strength ratings and the requirements of pre-cut facilities as some of the most important factors influencing their wood products purchase decisions. Architects say the greatest influence on their purchasing decision is housing strength calculations, followed by building regulations. Results indicate that housing strength calculations, in fact, have become increasingly important over the past year for a majority of our Japanese customers.

Recall of Canada Tsuga promotional activities is high, and the program appears to be reaching a wide audience. In fact, six in 10 (60%) customers recall reading or hearing promotional information about the product within the past year. And when asked about specific types of promotional activities, customers were most likely to recall trade show, trade fair and seminar activities, and less likely to recall other forms of communication.

"The data reinforces what has long been known anecdotally about the Japanese market," says Walker. It's clear from the research that Japanese customers are strongly aware of Canada Tsuga, and that they prefer to build relationships in person and, in turn, receive much of their wood products information face to face. More specifically, they think communications at technical seminars, trade shows, or fairs or auctions are the best method of interaction.

Overall, the data suggests that within the boundaries of what the Canada Tsuga program is able to do in the Japanese marketplace, the efforts that have been pursued are having a positive impact and are generally aligned with the interests of the target audiences. Most importantly, the relationships that the program has fostered in the Japanese marketplace are quite strong. (continued on page 4)

POLICY REFORMThe coastal Crown harvest from January to the end of May 2006 is sitting at 4.5 million cubic metres, down by one million cubic metres for the same period last year. If this performance level is extended for the remainder of the year, the Crown harvest is estimated at about 13.5 million cubic metres, well off of the 15.7 million cubic metres harvested in 2005 and dramatically below the coastal allowable annual cut of 19 million cubic metres for 2006.

External factors such as the rising Canadian dollar, lower lumber prices and increased fuel costs have all contributed to keeping the coastal sector in the red and under intense pressure, highlighting the urgent need for market-based policy reform.

Coast Forest President Rick Jeffery says, "The Coastal Recovery Group (CRG) was formed in October 2005 to address key issues on the coast that needed to be resolved in order to achieve government's promised modernization, linking policy to markets."

Early ProgressEarly this year two issues were resolved with the December 31, 2006 extension to the second-growth adjustment in the Coast Appraisal Manual and the extension of waste benchmarks in the Waste and Residue Manual to March 31, 2007. Effective May 1, 2006 pulp logs (U and X log grades) were redefined and priced to reflect market value, a positive move that will require minor adjustments and alignment with waste policy in the coming months.

While good progress has been made and some issues have been resolved satisfactorily, there remain a number of critical issues that appear to be stalled in their progress toward resolution. In spring a joint Coast Steering Committee, co-chaired by Doug Konkin, Deputy Minister of Forests and Range, and Coast Forest’s Rick Jeffery, was created to move recommendations from the CRG forward.

"The coastal forest industry's dismal outlook provides a compelling reason to improve the momentum to deal with these policy issues, which have the potential to put the coastal industry on a path to success," says Jeffery.

Partial SuccessFurther progress was made with the Ministry of Forests and Range's timely move to variable upset for BC Timber Sales’ auction of old-growth sales, although industry believes application of the rule should apply to all sales. In addition, the ministry expanded the opportunity for weight scaling on the coast particularly for pulp logs and second growth. Industry recommends weight scaling move to old-growth logs as well and will continue to push for further expansion of weight scaling on the coast.

Progress RequiredPolicy issues that remain unchanged include appraisal log dumps on the coast which require revision and improving policy to allow the grouping of cut blocks in cutting permits. These policies have seen no movement from the status quo despite industry’s urging to address them, as well as providing supporting analysis from an independent review.

In a letter to the deputy minister dated May 26, Coast Forest points out that revision of the cut block composition policy "will provide opportunities for improved forest management across the coast by removing inequitable and unnecessary policy driven constraints on a shrinking timber harvesting land base".

Coast Forest will continue to work with government to resolve these issues.

SAFETY STEPSWorker safety continues to be an important topic in the forest sector. This was reflected in the turnout at a recent Vancouver Island Safety Conference, sponsored by WorkSafeBC, Steelworkers, the BC Forest Safety Council, and a number of coastal licensees, which had close to 300 participants.

At this meeting WorkSafe took the opportunity to release the results of its high risk industry strategy (a.k.a. the forestry compliance strategy), a program that involves all forest sector stakeholders and emphasizes shared responsibility and accountability for safety. Over 300 worksites were inspected from January to April 2006. During this time, more than 650 orders were written and 10 warning letters issued. These orders took various forms and were targeted at prime contractors, sub-contractors, licensees, owners and workers. Coast Forest supports this activity because, although distracting at times, in the long run it will help eliminate serious injuries and fatalities. It will also help to clarify who is responsible for what when it comes to safety. WorkSafe collected a lot of data during these visits, valuable information from a planning perspective. Additionally, through the BC Forest Safety Council these findings can be incorporated into the SAFE Companies program.

The Council will be conducting a series of pilot audits for the SAFE Companies program through the summer of 2006. In preparation the Council will be training a number of Council approved auditors (18 in all). This training is now set for the last week in June and the second week in July. Once this auditor training is complete the pilot audits can start.

Island Timberlands has volunteered to be the Coast Forest representative in these pilots. Other operators from the coast include Canadian Air Crane, Copcan Contracting, W.D. Moore Logging, Elaho Logging, Antler Creek Logging, and BC Timber Sales’ Straight of Georgia Business Unit. All of these outfits and their supporters have demonstrated real leadership and a commitment to worker safety and need to be congratulated and supported.

PORT ALBERNI SPEAKS OUTPort Alberni City Council has sent a strong message to Prime Minister Stephen Harper and Premier Gordon Campbell, saying that their city cannot sustain further job losses from a softwood lumber deal that, according to a Vancouver Sun article (June 9), "ignores concerns of coastal communities."

In the article Russ Horner, head of Catalyst Paper, points out that the Port Alberni paper mill is particularly vulnerable. "If the softwood lumber agreement, or any other restructuring, causes the closure of a sawmill in Port Alberni, then that has a direct effect and a very significant effect on the viability of [our] mill at its current size." This is because paper mills rely on a secure amount of chips from sawmills to survive.

Mayor Ken McRae writes, “Port Alberni City Council is concerned that threats to the balance may create an unprecedented collapse in our industrial base and the weakening of the contribution we provide to the broader economy. Further job losses in this community would be devastating…. Please ensure the viability of our community."

ARE WE HITTING THE MARK IN JAPAN? (CONT’D FROM PAGE 2)
However, the data also suggests that the Japanese market is continuing to be increasingly competitive from a product and a pricing standpoint. Less than half of our customers are aware of the E-120 Canada Tsuga grade, however, a large majority believe that this grade can offer a significant advantage in the marketplace.

"The future will be about aligning a set of appealing products with the preferred attributes Japanese buyers and specifiers want, offered at a price that is competitive," says Jeffery. "New products, offered alongside our nucleus of existing Canada Tsuga products, could potentially help to turn volumes of coastal product sales in Japan upward."