Thank you for inviting me.
I hope you received my brief. I did get it in about ten days ago. Hopefully you have it, because there were some pretty pictures in there.
I'd like to take a step back a bit. Rather than talk about a specific policy there, I'd like to talk more about what's going on. There is a crisis going on in the forest sector in Canada. Rural communities are in deep trouble. I spent 12 years in a community of 850 people, and I empathize completely. But there are also things going on in the global industry. There are huge changes in the global structure of the forest products industry, and how we address the current crisis must take into consideration how we fit in with the new global competitive structure in the forest industry.
I'll try to keep this to about seven or eight minutes, but I'd like to talk about what's been changing globally and how that might affect this. I'll use the value chain, and I'll start with where the wood comes from.
We've seen a sea change shift in where the raw material wood resource comes from for the global forest sector. It used to come from northern boreal forests, forests in the temperate zone--Sweden, Canada, Finland--and it's shifted. It's shifted to plantations that are around the equator, where they can grow trees very quickly, they can grow trees very fast, and they can grow different-quality trees, such as eucalyptus, rubberwood, and radiata pine. Today over a third of all the wood resource comes from these plantations, and it's predicted that will go up to 50% or 60%.
Canadian market share of the wood products industry worldwide is declining, because we cannot compete with these fast-grown plantations. It takes us 50, 80, 100, 150 years to grow a tree. You can grow a tree in Brazil in seven years. We get about 2.7, 2.8 cubic metres per hectare per year. They get 40. It's just very difficult for us to compete.
So there's a shift in wood supply. Yes, our fibre has some advantages, but there have also been changes in the manufacturing, two big changes in particular.
First, we have used technology and computers to be able to take very low-grade raw material and produce very high-grade products. We've been able to do that through engineered wood products, using an I-beam and a floor joist instead of a two-by-ten. We've been able to do that by using aspen to make oriented strand board instead of high-quality Douglas fir to make plywood. We've done that in thousands of ways. Probably most important to Canada, by using processed control and computers we can make very good pulp from very lousy fibre. Our strength has been our very high-quality fibre. The problem is that you can take fast-growing eucalyptus, you can take fast-growing species, and make pretty good fibre. You can take recycled paper and make pretty good fibre. And they now use our pulp as an additive. If we make too much of it, the value of it declines tremendously.
The second thing in manufacturing is one word: China. China has taken over the wood manufacturing industry in the world. They are the largest exporter of furniture in the world, surpassing Italy in 2006. They are one of the largest plywood producers. They produce a third of the world's medium-density fibreboard. They export almost $10 billion a year of value-added wood products, including hardwood flooring. If you go into a store and buy hardwood flooring, engineered wood flooring, or laminate flooring, chances are it's made in China. These are all wood products. China has become the manufactured wood centre of the world. Its biggest competitors are countries like Vietnam, which has increased from several hundred million dollars a year of exports to almost $3 billion predicted for this year.
So these are our competitors. The manufacturing has changed.
The third area in which there's been tremendous change is the markets. The markets have been taken over by large retailers. And when I say the markets, I mean the markets in developed countries--Europe, North America. Whether it's Home Depot, or B & Q in Europe, whether it's Wal-Mart for clothing, whether it's such house-building companies as Pulte, Centex, or D.R. Horton, there's been tremendous concentration. And these companies demand certain things. They respond to aggressive environmental non-governmental organization attacks on various companies. Unfortunately, wood-producing companies in developed regions tend to be the prime targets of ENGOs, because they can't have much effect in a place like China or a place like Malaysia or a place like Burma.
So we have a situation that is really aligning to make it very difficult for us to compete in doing what we're doing. Our industry, in response, has put up the trenches. They're really in a situation where they're trying to defend their situation. They're playing a strategy of last man standing. They're saying if they can just survive this current downturn, they can go back to producing two-by-fours, they can go back to producing the commodities, and be very successful.
I know, based on some research we're currently involved in, that the European players are waiting for the U.S. market to pick up; then they will try to capture the top end of the commodity market and leave the bottom end for the Canadian producers because of what you previously heard: not enough money in research, not enough diversification, etc.
I'm suggesting we need to take a different approach. We need to address the immediate situation while putting on spectacles for a long-term vision. We have to be able to ask what we do to help the people struggling today, which is critical, making sure what we do leads to a better competitive structure in the future.
My fear is if we just look at survival, we're going to end up with some very large, very successful companies, a bunch of very small companies, and a lot of small towns with nothing: wood being logged there but moved to large manufacturing facilities. My deepest concern is to develop sustainable rural communities, and I think we have a tremendous opportunity to do that.
I want to get away from the idea of this barbell industry structure, which is happening in a lot of sectors, a lot of really small mom-and-pop operations, a few big ones that are huge, no small and medium-sized enterprises. I think those small and medium-sized enterprises are the ones that really drive successful industry structures. They're the ones that create jobs; they're the ones that pay taxes; they're the ones that innovate the most. They don't have the big bureaucratic structure.
What can we do about it? In my briefing I really came down to three things. One was to build capacity in rural communities, and I don't mean extending runways and putting in industrial parks. If I get one more phone call from someone getting my advice on putting a value-added industrial park somewhere in northern name-the-province, it'll drive me crazy. Putting in an industrial park doesn't create capacity. Releasing the innovative entrepreneurship of the people who already live there does.
So when I talk about building capacity, I'm talking about building the human capacity: training and education, training to include manufacturing skills. We here at the Centre for Advanced Wood Processing are developing a program for wood manufacturing councils to upgrade the managerial skills of those currently working in the value-added sector.
That could be revised to do more basic training to teach people at the managerial levels who aren't in this sector some basic ideas. Train them, but use web-based and on-site course training. We need to use the current technology to make the best use of what exists in cities, as well as getting out to the rural communities or getting them to the facilities in the big cities. Training should include developing real business plans for real money.
The second thing is to focus on the total forest value. The crisis is with the wood, not with the forest. There are values in the forest that there are opportunities to commercialize. I did a talk a few years ago to the registered professional foresters associations, where you're supposed to look 20 years in the future. I'm convinced the forestry in B.C. will be incredibly economically valuable because of the water it produces, not because of the wood. Wood will be produced, but the most valuable resource will be water.
We don't know what the most valuable resource in our forest is going to be in 20 years: it could be water, it could be carbon sequestration, it could be biodiversity credits. But we have to manage so we can maximize the value of the forest, not of the wood resource, and that requires a bit of a different mindset.
So we need to focus on the value of the forest, and that's where the first nations people can come in, because they have a different understanding, and many of the local people have a great understanding. I'm in a project looking at a small town in the interior of B.C. With the large sawmills shutting down in the early eighties, what have they done to maintain a viable community? It's through those small and medium-sized enterprises, it's through going into snowcat skiing, but it's also through wood production, and that includes biofuel.
The third one is to support innovative small and medium-sized enterprise start-ups, right? It's very important to encourage business start-ups. Having worked with many provincial and federal programs, I have recognized that what tends to happen is if there's a failure, the program stops. Failures are not allowed. In real business, you start new products, and out of a hundred that make it through the first funnel, ten might go through the second funnel, three might be taken to market; if one makes it, it you've got a success.
We have to allow failures. If there's support of start-up businesses, one has to expect there'll be 30%, 40% failure. That would be a great percentage, 60%, 70% success rate.
Unfortunately, when there's government support, if there's one failure the program tends to get cancelled. We have to recognize that in the business community failure is part of growth. If we're going to talk about restructuring our industry, then this perception is necessary.
There are tremendous opportunities. The waste from the forest, the waste from wood manufacturing, is going to become more valuable. The waste currently is chips for pulp mills. Soon it's going to be fuel for bioenergy and material for pellets or new types of panels. We're going to have a different product range. We are going to have a higher-value product with more waste, because there will be more markets for the waste.
These are the three things I'm recommending. We try to build the human capacity in the rural communities, and that's mostly entrepreneurial business capacities and technical capacity. We need to focus on the total value of the forest and not just the wood. This is difficult, because our tenures are based on wood and not on forests. There are a lot of values that aren't wood-based. Supporting innovative, small and medium-sized enterprises and recognizing the changes that are going to happen with the waste stream gives us an opportunity to produce medium and small quantities of high-value product that can go into value-added manufacturing.
With that, I will close without having to get my warning on time.