It is not surprising there is a log shortage. The 2006 Crown harvest was 14.1 million cubic metres before waste, down from the 2005 harvest of 15.7 million. While the major licensees cut over 95 per cent of their allowable annual cut (AAC) closer examination reveals that the B.C. Timber Sales program harvested 1.7 million cubic metres, or 60 per cent of its AAC, and First Nations continued to struggle to realize on the harvest opportunity provided by Forest Resource Agreements. The private land harvest was lower by 568,000 cubic metres. The weather was a friend to no one this year. In total the coastal harvest was down 2.2 million cubic metres, a significant decrease in anyone's book and, wood products markets notwithstanding, a driving reason for higher log prices.

A decline in log exports of 669,000 cubic metres in 2006 offset some of the impacts of the lower harvest. However, in relative terms log exports only declined 3 per cent compared with a 10 per cent drop in the coastal harvest. This trend suggests that the disproportionate drop in exports was a function of lower harvest levels, increased blocking and increasing domestic prices rather than an abatement of demand for our logs by our southern neighbors and offshore customers.

Recent work by Woodbridge and Associates indicates that log supply deficits are likely to be a constant fixture in the future across coastal B.C. and the Pacific Northwest. Throw on top of this President Putin's bombshell to clamp down on Russian log exports and you have a real need to develop a careful, considered and quantified log export policy that addresses North American and offshore market conditions. And, of course, we have to do this in a manner consistent with our obligations under the softwood agreement. To say the least, this remains an elusive goal in the emotional atmosphere that surrounds log exports and log supply.

WHERE OPPORTUNITY LIESCoast Forest Products Association resources and know-how were well spent with the TLA in the joint planning of Coastal Markets Day at its annual convention in January. The full-day information session was designed to draw Coast Forest's membership to the event, inform, and present a global perspective on how B.C. products fit into today' world markets for wood products.

The day's early panel sessions explored specific market opportunities for the coast from the U.S. housing market to Japan's post and beam construction and the future of engineered wood products.

Chief Economist for Western Wood Products Association, Kevin Binam, says despite the current challenges, "The U.S. remains the closest and largest market for coastal forest products," and the Pacific Northwest's regional flavour for hemfir provides a natural fit for coastal species. The trouble is Binam predicts a 10 per cent decline in U.S. housings starts for 2007, which will result in a further 7 per cent drop in demand for softwood lumber.

Jiro Kuramitsu, General Manager, Wood Products Trading Division for Sumitomo Forestry in Japan, the biggest homebuilder in post-and-beam construction, emphasized that even though the economy in Japan has faltered over the last decade, opening the door to competitors, the coast still has advantages because "Japan continues to be the world leader in wood use per capita".

According to Kuramitsu, opportunity in Japan lies in:

• the coast's proven ability to provide a stable supply of logs and product from legal and sustainable forests
• continuous R&D to improve product and continue to meet building code requirements
• listening to the market and adapting to changing customer preference

Western Forest Products is one of the companies taking advantage of climbing lumber sales in Japan even though they are a fraction of what they are in the U.S. The market for dimension lumber is so poor in the States now, coupled with a 15 per cent softwood duty, that Western has been diverting some of its U.S. production to Japan.

Emerging from a decade-long recession, Japan had a 3.7 per cent increase in housing starts in 2005. Scandinavian engineered wood has begun to price itself out of the Japanese market, a stiffer tax has been imposed on Russian log exports and rising European fibre costs combined with a higher Euro are all providing opportunity to the coastal forest industry.

RESEARCH AND DEVELOPMENT At UBC's Wood Products Engineering Department Dr. David Barrett provides technical support for Canada Tsuga's competitive marketing program in Japan. He was quick to point out that Canada Tsuga's newest product F330 competes directly with European laminates, allowing the coast to take back some of that market share.

"We are the first producers to have a kiln-dried solid wood product that is superior in strength to our competitors' laminates," explains Coast Forest's Rick Jeffery. "The new product meets the unique needs of our Japanese home building industry and has the potential to double our market share there."

Hemlock has a lot going for it. It is strong, has incredible nail-holding strength and easily absorbs stains and wood preservatives.

We are selecting out a very high strength component of the hemlock forest for this particular market, says Barrett. "According to Japan's Centre for Better Living, Canada Tsuga shear walls are 26 per cent stronger than Japanese Sugi shear walls."

The premier had something encouraging to say about opening up markets in Asia. "We are Canada's leading forest producer. We are the world's largest softwood lumber exporter. We are leading in many ways. And now is the time for us to lead in a new way: to lead British Columbia and our forest industry across the Pacific Ocean."

COASTAL MARKETS DAYIn a pre-recorded message to delegates at the TLA's opening day of its 64th annual convention in January, Forests and Range Minister Rich Coleman said for the coast's recovery to be successful it will take the combined effort of contractors, companies, government and labour. This thinking was the impetus for Coast Forest Products Association and the TLA to combine their resources to develop Coastal Markets Day, chockablock full of industry experts who one after the other defined the challenges and the opportunities that lie ahead for the coastal forest industry.

It wasn't a day designed for the faint-hearted or the weak-kneed. For instance, CIBC World Markets Forest Industry Finance Analyst Don Roberts answered this question in Slide 2 of his luncheon presentation, "Would you invest in coastal B.C.?" with a contrite but decisive: "No". Session over, let's all go home. Oh, wait a minute - there's a glimmer of hope.

According to Roberts, there's a window of opportunity over the next three to five years, created by a combination of circumstances that together could provide that much needed break for the coastal forest industry. "But it's a window," emphasized Roberts. "Markets will react like they always do and if we miss it, it will be gone."

OPPORTUNITY CALLSRoberts went on to explain how the following circumstances could positively impact the coast:

• the Interior B.C.'s Mountain Pine Beetle epidemic will potentially increase the attractiveness of investing in the coastal industry
• imminent forest policy changes in Russia, designed to stimulate domestic production there, will result in reduced log exports from that area
• evolving exchange rates will positively impact the Canadian manufacturing sector
• and finally, changing demographics, or a shortage of labour in B.C., will result in new approaches to building that profitably use more of the tree.

Roberts then identified five changes the coast needs to make to attract capital investment:

1. reduce uncertainty with land claims and land use
2. focus efforts on continued cost reduction and results-based approaches
3. decrease sawmilling costs by 25-30 per cent
4. take advantage of supply reductions in competing regions
5. and finally, prepare to play what he called "tomorrow's game" instead of yesterday's.

STUMBLING BLOCKSReynold Hert, President and CEO of Western Forest Products, told delegates later in the day that the complexity of doing business in "this province is incredible". He said, "It's just amazing how much time you have to spend with others, getting reviews done, consulting with folks, bargaining with other companies."

And in the meantime the competition is spending their time on product development and market saturation. "We've got a lot of other competitors. That's all they do and they've been very focused on it - every day. None, not one, of our customers offer us additional cash because we operate on the B.C. coast."
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Certified companies benefit from reduced injuries and lost time, and are eligible to receive an annual rebate on their WorkSafeBC assessment premiums. By the end of 2007, all companies bidding on B.C. timber sales licences will be SAFE certified.

Elton applauds the companies for putting safety first. "This is a win-win for everyone; workers will be safer and the industry as a whole will benefit."

However, less than three weeks after this event a fatality involving a supervisor for a road construction company was a stark reminder that industry still has a long way to go in the challenge to eliminate serious injuries and fatalities in the B.C. forest sector. While the details of this incident are under investigation, it brings into sharp focus the need for ongoing site and hazard assessment throughout the shift. This is particularly important when working for long periods within a limited site, such as a rock quarry. It is essential for all workers (especially ground workers) to pre-plan escape routes in the event that a controlled hazard suddenly becomes an uncontrolled situation.

B.C. PROVINCIAL BUDGET (CONT'D FROM PAGE 1)The budget also ignores a critical Competition Council recommendation to reduce the tax burden on heavy industry. For example, the B.C. forest industry has one of the highest marginal effective tax rates in the country, and the Competition Council strongly urged the Province to reduce the property tax burden on heavy industry, particularly where the ratio of industry versus residential rates is high.

"Lowering the cap on municipal taxes would level the taxation playing field for heavy industry and help promote much needed investment in the coastal forest industry," says Jeffery.

Non-resident property taxes in the budget are forecast to rise to more than a billion dollars by 2010 which will discourage investment and place an added burden on industry.

For the Province to realize the budgeted revenue increases from the forest industry over the next three years Jeffery says it needs to help industry lower delivered log costs in an increasingly competitive world market. According to a recently released PriceWaterhouseCoopers study, delivered log costs on the coast are US$75 per cubic metre, which is among the highest in the world.

Paying for the provincial budget's housing initiative anticipates continued strength in the B.C. economy, and the forest sector is an important part of that. "The finance minister has called the budget an aggressive housing initiative," says Jeffery. "We need to ensure that Budget 2007 builds a housing legacy out of B.C. wood."

STUMBLING BLOCKS (CONT'D FROM PAGE 3)Despite the massive change that the coastal industry has been adapting to over the past five years, the premier's outlook remains optimistic. "The introduction of market-based pricing, properly pricing timber and the elimination of costly regulations have made a difference. Now that we have a softwood lumber agreement we have some stability, and we can have some confidence about where we need to go."

ANNOUNCEMENTCoast Forest's Office Manager Chantal Stark retired at the beginning of February 2007 to pursue 'greener pastures' with her husband in Costa Rica. Coast Forest is happy to welcome Heather Mink to the association. In addition to handling all administrative duties, Heather will be executive assistant to CEO Rick Jeffery. Please give Heather a warm welcome!