Given the dire economic and employment conditions facing the global forest products sector, I am frequently asked if there is a future for the coastal forest industry. The answer is complex.

Short-term market conditions are improving. Japanese housing starts are at over 800,000 units, with both price and demand steady although muted. U.S. housing is on the road to recovery with housing starts projected to 650,000 for 2009, but with the highest levels of home foreclosures in 30 years and rising unemployment rates, the pace of recovery will be excruciatingly slow.

China driven demand for pulp has pushed prices up to $750 per metric ton prompting the restarting of idle capacity. Paper and newsprint prices are increasing on continued weak demand. This has been achieved on the back of balancing production capacity with market demand and the attendant disruptive costs, both corporate and personal.

Long term, forest products have a positive future. Wood is the most carbon friendly and energy efficient building material available to shelter the world’s burgeoning population. Biomass based energy production is increasingly important in balancing energy consumption with GHG reductions, all from sustainably managed, renewable forests and a carbon neutral forest products industry. Tackle Climate Change – Use Wood provides a means for the world to meet its climate change challenge without putting additional pressure on our forests. And the coast is a world leader in sustainable forest management and conservation. As the world catches up with our practices, there will be further downward pressure on timber supply creating meaningful opportunities for our industry.

Two recent government initiatives will also help: the HST reduces our marginal effective tax rate to 15 per cent, making it easier to attract capital and compete; and the Wood First Initiative will spur domestic demand and assist export sales.

However, there are trouble spots that could frustrate our ability to take full advantage of these short- and long-term opportunities. Labour is too expensive and inflexible, and there is no indication that big labour “gets it”. You only have to look at Harmac or Mackenzie to see what innovative labour agreements can do for competitiveness. Government’s proposed legislation to protect logging contractors will make forestry financing even more difficult. The Bank of Canada needs to proactively manage the Canadian dollar, Employment Insurance needs overhauling to avoid increasing payroll costs, while ensuring our workers are covered, and railways must serve their customers as well as their bottom lines.

While complex, done right there is a strong future for coastal forestry.

STRENGTHENING DEMAND FOR B.C. PRODUCTSDeveloping global markets for B.C. forest products remains a key priority for industry and the B.C. government. In a time of spending constraints, Coast Forest and the Canada Wood Group were very pleased that budget reductions to Forestry Innovation Investment Ltd., the B.C. government funding program for international wood products promotion, were limited to $800,000 this year.

For both FII, as a funding agency, and CWG, as a delivery program, operating worldwide programs is challenging, spanning markets that are wood-experienced and those that are just beginning to adopt wood within their building cultures. Levering a diverse worldwide program to realize the highest possible return on investment for British Columbians requires specialist knowledge, not just about the markets we work in, but also about products, production and industry cost structures here at home.

For this reason the industry has long sought a stronger voice in the strategic framework for FII programs, including FII’s funding activities and the work that the agency undertakes directly. While industry and government share many common views on market needs and priorities, there is no substitute for commercial knowledge in determining which investments, in what location and sequence, will achieve the most advantage for B.C. forest workers, communities, companies and government revenues.

INDUSTRY ADVISORY BOARDCWG and forest company CEOs had asked Forests and Range Minister Pat Bell to implement an industry board of directors for FII. Although the Minister has declined to include industry on the FII board at this time, industry has recommended strengthening FII’s advisory board structure.

According to Coast Forest’s Rick Jeffery, who is also Chairman of the CWG, “Expanding FII’s advisory board to include industry, having it meet more regularly, and changing its mandate to provide broader commercial input into the design of FII programming will help to keep these important programs on stable footing and achieving their maximum benefit. We urge the minister to follow through on the concept of a strengthened advisory board.”

“We urge the minister to follow through on the concept of a strengthened advisory board.”

IMPACT OF BUDGET REDUCTIONSWith the FII budget reduction, it is noteworthy that cuts to industry delivered portions of FII supported programming would have a double impact. Provincial and industry contributions make up a ‘matching’ component that enables 50 per cent cost share funding from the Government of Canada’s Canada Wood Export Program. Any reductions in FII’s contribution to industry-delivered international marketing programs place the matching federal and industry dollars at risk, resulting in a total funding loss of $2.22 for every $1.00 cut in FII financial support. Coast Forest, CWG and B.C. forest companies are hopeful that the bulk of current-year funding reductions can be absorbed within FII’s internally delivered program areas where matching funding does not apply.

FII’s funding activities are invaluable in developing new foreign markets and maintaining B.C.’s share of tightly competitive, established markets. It is through FII and federal CWEP support that the industry has been able to make such significant gains in lumber sales to China and Korea, to hold market share in Japan, and to maintain and grow key markets for Western Red Cedar and value-added products in the U.S., Japan, Europe and other markets. These programs have allowed more British Columbians to remain employed during this difficult economic period and have supported higher provincial revenues. Industry is very appreciative of Minister Bell’s work in preserving the bulk of FII funding and looks forward to the implementation of a more robust Industry Advisory Board.

RESOURCE RELIANT ECONOMYRecent headlines, letters to the editor and talk show topics have focused on the Provincial Budget shortfall and a number of funding reductions to social programs, announced in the recent September budget. It has never been more evident that B.C. relies on a healthy resource sector and the revenues it generates to support the standard of living residents have grown accustomed to and expect.

Those of us in the forest sector were not surprised by the significant reduction in government stumpage revenue, a main contributor to the budget deficit. The housing crisis in the U.S., weak forest product prices globally and high coastal fibre costs have a direct impact on log production. Crown harvest on the coast for the first eight months of 2009 was 4 million cubic metres or only 22 per cent(!) of the coast allowable annual cut. The 2009 harvest volume is down by 3.0 million cubic metres from the 7 million billed in 2008 for the same period. As a result, government stumpage revenue in the first eight months of 2009 was $29 million compared to $152 million in 2008.

The opportunity to influence external market forces is limited because the forest sector in economic jargon is a “price taker” not a “price setter”. To be successful we have to focus on those aspects of the business we have an ability to change and improve. On the coast, we should follow U.S. humourist Arnold Glasow’s advice: “Success is simple. Do what’s right, the right way, at the right time”.

“Success is simple. Do what’s right, the right way, at the right time.”

COMMITMENT AND LEADERSHIPThe Coast Region Operational Issues Forum is working hard to bring success back to the coast with committed leadership from its co-chairs, Jim Gowriluk, Regional Executive Director of the Ministry of Forests and Range, and Otto Schulte, Vice President of Coastal Woodlands at Interfor.

Jim’s leadership was clearly evident in a letter to all District and Region MOFR staff, which read in part: “the Minister has made clear his views on the importance of the Forest Service being advocates for the forest industry, and all the specific examples he often refers to when speaking to this subject originate from the Coast Forest Region”.

The letter provides guidance to ministry staff on how to work collaboratively with licensees partially to ensure a) due consideration is given to costs that the request will impose and a reasonable balance exists in the benefits gained from the information and b) licensees are supported when information is requested by giving advance notification, providing adequate time to respond, and sharing sufficient background information to allow licensees to make informed responses.

POLICY CHANGERecognizing policy change is needed, each OIF member and its working groups has a personal commitment to make things happen and bring about positive change. Progress is evidenced in the recent development of procedures that will bring a consistent approach across the region for the timely review of applications and issuance of cutting permits and road permits.

As OIF Co-chair Otto Schulte says, “It’s clear to me the region and the coastal industry understand their roles and are doing what’s right at the right time. If other MOFR branches and ministries took the same approach, we’d be well on our way to success.”

The following message is from Reynold Hert, who has been Chief Executive Officer of the BC Forest Safety Council since March 2009. He has more than 30 years’ industry experience, most recently as president and CEO of Western Forest Products where he led significant improvements in the company’s safety record.

LEADING ON SAFETYChanging the results in a business means changing its methods and tools. Changing an entire industry’s results takes a collective commitment to different ways of conducting business by its leadership.

Forestry leadership resolved to make significant changes five years ago when the industry faced increasing fatalities and serious injuries. Employees, government, the public, unions and companies themselves no longer accepted fatalities and serious injuries as part of doing business.

The industry aimed to reduce fatalities by following the recommendations of the provincial government’s Forest Safety Task Force. From its recommendations, industry leadership adopted the Forest Safety Accord, and the BC Forest Safety Council was formed in 2004.

Today, leaders in companies of all types and size continue to work to change the system to reduce injuries. More than 4,000 companies have registered to become SAFE-certified, and almost 2,500 have succeeded.

Timber harvesting fatalities are down one-third; serious injury rates have dropped 25 per cent; the WorkSafeBC assessment per $100 of payroll for this classification has decreased from $11.39 in 2005 to $8.50 in 2009. The number of accepted claims per 100,000 cubic meters of wood harvested is also declining. But we are not there yet. Despite improvements, people are still dying in our industry, and our serious injury rates are still nearly twice as high as the rate for all B.C. industries.

Organizations that have made the transition to better safety point out the key is unwavering commitment of leadership over the long haul. This is true either for an industry as a whole, or an individual company making the change.

Organizations that have made the transition to better safety point out the key is unwavering commitment of leadership over the long haul. This is true either for an industry as a whole, or an individual company making the change.

A common error has been easing up on efforts after change produces initial improvements, when leadership believes “we are there, the task is done”. Then progress slows and goes backward as changes have not been in place long enough and old habits return.

In spite of today’s difficult financial times, many B.C. forestry companies continue to change their approach to reduce injuries and improve their business results.

Leaders of some SAFE-certified companies tell us about personally inspecting their operations, participating in incident investigations and doing assessments where the people in their operations may be at risk. We hear a number of small company owners saying they have learned a great deal about integrating injury reduction into their operational planning and how this highlights overall improvement opportunities.

Other industries, such as oil and gas, have undertaken a similar journey, one unfortunately, also driven by unacceptable levels of fatalities and injuries. Oil and gas is becoming an industry leader in injury reduction with one of B.C.’s lowest injury rates and the fastest improvement of a major industrial sector.

While the forest industry cannot say that we are one of the best yet, our injury rate has declined faster than the provincial average since we took the challenge on. With leadership at all levels actively continuing the effort, and everyone working every day to reduce injuries, our industry can also become a leader in health and safety, and forever shed our old reputation.