Thank you very much, and thank you to the committee for inviting me to offer some input today.
I'd like to explain the context for my involvement in this particular arena and then offer you some rather personal editorial comments on the scope of the committee's work.
The terms of reference of the committee, as I understand it, say that it is seeking expert opinion on how industry and different levels of government can continue to support the forestry sector. That is the essence of the functionality of the organization I work for, which most people refer to as FII, so I'll be referring to it as FII.
FII is a provincial crown corporation. It was created in 2003. For years we reported to the Minister of Forests, but for the last year and a half or so, to the new B.C. Minister of International Trade. The Minister of International Trade specifies our mandate, which is refreshed and updated once each year.
As a crown corporation, we are funded mostly by the province. We have a budget this year of $17 million from the province, and we have attracted about $2 million a year in revenue from other sources, primarily in the forest industry. Our programming, our funding, is completely discretionary from year to year.
Our prime focus is on stimulating the demand for B.C.'s solid wood products wherever we think opportunities are apparent, anywhere in the world. Our main focus is in North America and in northeast Asia. We have a subsidiary company in China, with about 14 employees. Two years ago we established a subsidiary company in India, with half a dozen employees, and we have one here in Vancouver, with 21. That gives you a sense of scale. We're not huge, but we like to think that we punch above our weight.
Our function is partly to be a funding agency, in the same way as Natural Resources Canada is on behalf of the federal government. But also we direct-deliver a lot of programming to fill in what we think are apparent gaps in the market development world or to do things that we are best placed to do on behalf of this sector as a whole.
Our organization, as a crown corporation, has nothing to sell. We don't sell forest products. In pursuing the government's priorities, we have to make sure we are closely aligned with those of the industry, because only the industry has product to sell, obviously.
As some of you may know, 70% to 80% of the harvested timber in B.C. goes first to a sawmill. Our focus happens to be very largely on solid wood products, including value-added products. We support the pulp and paper industry with communications material about sustainable forest management that they use in the marketplace, but otherwise our engagement with pulp and paper manufacturers is very limited. We're a very solid wood centre.
Half of our budget goes to trade associations and a few other not-for-profit organizations through some competitive calls for proposals. We invite people to propose to us what they would like to do with our money on a cost-share basis. We have an annual call for market initiatives that has a global reach. We have a secondary, much smaller competitive call for what we call “wood first” activities in the province of B.C., which are aimed at making the province a global leader in innovative manufacturing and use of wood products.
Our funding to trade associations, which as I mentioned, constitutes about half of our cashflow, is intimately melded with coincident funding from Natural Resources Canada to the same trade associations. But we have a very harmonized federal-provincial system of managing that entire program, from the competition for funding each year, through administration, and right through common audits. We have daily conversations with trade associations and numerous firms, as well as with NRCan staff in Ottawa.
Our focus in North America is primarily on trying to encourage greater use of wood products in non-residential construction and multi-family construction, including a wide range of value-added products and including the promotion of new building technology, such as a 14-storey wood structure that you heard about earlier from the first presenter.
Our biggest collective success so far—and I emphasize “collective” because this is a unique tripartite arrangement among the private sector here in B.C., the provincial government, and the federal government through NRCan—has been in China, where initially, in 2003, we were selling 69 million dollars' worth of lumber, and we're now selling 1.4 billion dollars' worth of lumber a year. That's 30% of British Columbia's lumber production now. This has not only made a home for that volume, but also, through added consumption around the world, has increased the price of lumber worldwide very dramatically, including in North America.
In Japan we're mostly in a holding action in the face of a declining and aging population and declining demand for what British Columbia firms have to offer. We have a small play in Korea as part of a diversified portfolio, and currently we are updating some research in Vietnam, Thailand, Indonesia, and the Philippines. We don't yet know where that might lead us.
We have a little effort under way in Europe, but not much, and none whatsoever in the Middle East, South America, Africa, or places like that.
Finally, our newest frontier, as I mentioned at the outset, is India, where we've established a subsidiary company because we think there will be opportunities there in the coming five-year period or so. We do virtually no business there now, but we think it will grow dramatically in the years to come.
Our business model puts a strong emphasis on collaboration with industry and NRCan. Because we're spending public money we have to be very disciplined as a public agency in pursuing a diversified portfolio of activities. We do take a longer-term view than the industry does. Typically we take greater risk in spending public money, but we think it's still quite disciplined.
We base our priorities and our strategies on considerable research that we invest in at the outset. We always focus on customer needs around the world and the logical fit with Canadian suppliers. We always assess the competition, and sometimes we decide not to go somewhere because we don't think we will be able to compete in the long run.
We prefer to share the cost of programming with others so as to test the validity of people's ideas and priorities. We are very open to changing course when we think that's appropriate, and we keep a close eye on all the metrics of what's going on in the marketplace.
That's the business model that I am somewhat responsible for in the organization I work for.
From a personal perspective, I would assert that the forest industry can and should make a tremendous contribution to our society because it is fundamentally sustainable and increasingly friendly to the environment. By definition it is very important to our rural societies across the country.
I believe that when most people talk about the forest industry they are thinking of the logging, sawmill, and pulp and paper industries, which is accurate as far as it goes, but I'm happy to see that the committee is thinking in terms of the broader forest sector, which includes not only logging and manufacturing but also firms that supply the equipment that loggers and manufacturers need, firms that supply the daily input materials to those parts of the industry, firms that create the software that they use, firms that transport their products, firms that develop forest management tools such as satellite remote sensing, firms that provide firefighting services, and so on.
In Canada we do fairly well in some of those areas, but not in all. For example, my perception is that we in Canada have become very dependent on foreign suppliers of logging and manufacturing equipment, and that is something I would like to see rectified.
I wish my definition of the forest sector could include entities that actually manage forest land, but to be honest, I don't think such firms truly exist on most forest land in British Columbia. That's because it is public land on which companies have harvesting rights, but they're essentially hunter-gatherers on public land. There's not much incentive to actually manage public timber resources or other forest resources well. I think that's because none of it is monetized. Trees are not on anyone's balance sheet when they're on public land. They're not even on the provinces' balance sheets. Harvesting rights are monetized but not the standing timber itself. The same goes for wildlife, non-timber forest resources, water, scenery, etc.
None of it is monetized until it is liquidated and thus I think that husbanding those resources inevitably is dependent on regulation rather than incentive. What I'm talking about of course goes to the never-ending conundrum of how to design and implement a better forest tenure system on public land. That's a huge question that I think is beyond the purview of this committee. I think it's going to be profoundly influenced by basic changes in the first nations arena, at least here in B.C.
As with any sector of our economy, government's role is to set the table in ways that encourage the private sector to step up. That's what the organization I work for tries to do in the marketplace. I hope the committee can come up with measures that do the same in our public forests and in our forest-product manufacturing industries. Doing a good job of setting the table requires sound policy based on robust knowledge, fiscal discipline, and taking the long-term view.
Finally, I would like to say that the solid wood sector is in reasonably good shape in the west after weathering the worst ever downturn in markets. What worries me the most is the precarious future of our pulp sector if it doesn't reinvent itself by becoming the forest-based equivalent of the oil refining industry.
Thank you very much.