British Columbia is a leading world exporter of forest products, as shown in Figure 7.14.[127] Among countries, Canada is the largest single exporter of forest products in the world, with 40% more exports (in terms of value) than the United States, the second largest exporter. Over the period 1989-1991 British Columbia averaged 45% of total Canadian forest product exports which is 8% of the world total.
Figure 7.16 shows the destination of B.C. lumber shipments, by year, for the period 1984-1993. Despite ongoing efforts to diversify markets, the United States remains the dominant market for B.C. lumber, absorbing approximately 60% of B.C. lumber shipments.
As noted earlier, the interior sawmill industry is geared heavily toward the production of dimension lumber for the North American market. Approximately 90% of the lumber produced by interior sawmills is consumed in North America. This market is very competitive, and no individual producer can exert significant control over price. Demand for lumber in North America is determined, in part, by the level of housing starts in the United States, which in turn is heavily influenced by changing financial market conditions. This contributes to the inherently cyclical nature of the B.C. lumber industry.
While the United States is still the dominant market, B.C. lumber shipments overseas have increased over the last 10 years. Shipments to Japan have more than doubled since 1986, to some extent reflecting the Japanese move from importing logs to importing lumber.
Exports to Europe, B.C.’s third largest export market, have fallen to less than 25% of 1988 levels. This is a consequence of the economic recession, changing competitive positions and the European ban on green lumber imports from North America due to ostensible concerns about pinewood nematode.[128]
The coastal sawmill industry depends much more on offshore markets than its interior counterpart. Approximately 50% of coastal lumber shipments are destined to overseas markets. Despite its significantly smaller size, the coast industry still accounts for more than half of B.C.’s offshore lumber shipments.
Unlike markets for lumber, pulp and newsprint, the dominant market for B.C.’s plywood producers is Canada. Over 80% of B.C.’s plywood production is normally consumed within Canada, with most of the rest going to Europe and Japan (Figure 7.18).
Historically, very little plywood has been shipped to the United States, as a result of differing product standards and high tariffs. As a consequence of the Canada-United States Free Trade Agreement, however, initial tariffs of 15% in Canada and 20% in the United States are being reduced and will be eliminated completely on January 1, 1998. The agreement to reduce tariffs was accompanied by partial harmonization of product standards. It is too early to judge the ultimate effect of these changes on the flow of plywood between Canada and the United States.
British Columbia’s markets for pulp are more diversified than markets for its other major forest products. During the period 1984-1993 western Europe was the most important market for B.C. chemical pulp, receiving about 40% of shipments (Figure 7.20). The United States, Japan and Asia (other than Japan) each receive approximately 15% of B.C. shipments.
British Columbia’s traditional competitors in producing high quality northern bleached softwood kraft pulp are eastern Canada, Scandinavia and the United States. While these provinces and countries are still important producers, recent technological developments have broadened the field. Papermaking technology now allows high quality paper to be made from southern softwood pulp and from hardwood kraft pulp. Technology is also blurring the line between chemical and mechanical pulps. Bleached chemithermomechanical pulp is now being used to make high quality paper. To a significant degree, B.C.’s producers of northern bleached softwood kraft now compete with these other products.
Another important issue facing B.C.’s pulp producers is heightened environmental awareness, particularly in western Europe, B.C.’s most important pulp market. Calls by environmental groups for chlorine free, clearcut free and old-growth free pulps present a serious challenge to B.C. forest companies and the provincial government. Initiatives such as the pulp mill effluent regulations, the Forest Practices Code and the Protected Areas Strategy should help to address these concerns and maintain access to foreign markets.
The United States, particularly California, remains the dominant market for B.C. newsprint. Figure 7.22 shows, however, that this dominance is declining. In 1993, 53% of B.C.’s newsprint was shipped to the United States, down considerably from 71% in 1984. The decline reflects a variety of factors, including poor economic performance in California and British Columbia’s increasing focus on offshore markets. Japan is buying more B.C. newsprint because of reduced domestic production and exports to other Asian countries are increasing to meet economic growth in that market. Exports to Europe are also increasing, though it remains a secondary market.
As with pulp, environmental concerns are being encountered in newsprint markets. Of particular concern for newsprint producers are new regulations in several U.S. states specifying minimum recycled content for newspapers. Such legislation, designed to ease the pressure on landfill sites, has had an adverse effect on the underlying competitive position of the entire Canadian newsprint industry. Proximity to and availability of old newspapers have become important considerations in locating a newsprint mill based on de-inked pulp. B.C.’s Newstech de-inked pulp mill, which supplies pulp to newsprint mills owned by MacMillan Bloedel and Fletcher Challenge Canada, more than exhausts the local supply of old newspapers. Further expansion of recycled pulp capacity in B.C. will require large imports of old newspapers from outside the province.
In recent years, perhaps the most important element affecting international competitiveness has been exchange rates. As shown in Figure 7.23, exchange rates of countries that are important producers of forest products have been quite volatile since 1984.
Measured in Canadian dollars the Swedish krona lost nearly half its value from 1980 to 1984, gained much of that back by 1992, then dropped sharply again in 1993. The Finnish markka followed a similar pattern. Again measured in Canadian dollars, the United States dollar fell from 1986 to 1991, then rose sharply through 1993.
Changes in exchange rates have a large impact on the competitive position of the forest products industry in different countries because product prices are generally denominated in a single currency, (frequently the U.S. dollar), while costs are denominated in the currency of the producing country. When Sweden devalued its currency in 1992 and 1993, its producers went from being among the highest-cost producers to being among the lowest-cost producers.
Figure 7.25 shows more detail in lumber production costs for various producing regions in 1993. Wood costs, including harvesting costs and stumpage, are the biggest component of production costs for all producers. The B.C. Interior has the lowest wood costs, partly due to the relatively low cost of harvesting on easy terrain and uniform tree sizes with highly mechanized harvesting methods. Conversely, wood costs are high on the Coast due to the high cost of harvesting large and uneven-sized timber on difficult terrain.
After exchange rates, the most important factor affecting competitiveness in kraft pulp appears to be wood costs. Figures 7.27a and b show the breakdown in variable and fixed pulp production costs by region for 1993. Wood costs are the biggest component of production costs (Figure 7.27a). In B.C. wood costs were relatively low in 1993, particularly in the Interior, because of the traditional surplus of residual wood chips from the lumber sector. Wood costs have increased since then because increased capacity in the pulp and paper sector has increased the demand for wood chips at the same time that the possibility of reduced harvest tightens supply.
The U.S. Pacific Northwest has already experienced such a rise in wood costs, which in 1993 were up 60% from 1988. High wood costs and the strength of the U.S. dollar against Scandinavian and Canadian currencies made the U.S. Pacific Northwest the highest cost producer in 1993. Wood costs also contributed to Sweden’s plunge in costs from 1992 to 1993. Despite being among the highest in the world in 1993, Sweden’s wood costs were down 11% (measured in their own currency) compared to 1992. This is a dramatic change, since in 1992 wood costs made up almost half of Sweden’s total delivered costs.
Figure 7.27a also shows that the second largest variable cost in pulp production, on average, is transportation. It is hardly surprising that the B.C. Interior has the highest cost for delivery to northern Europe, the primary market for B.C. pulp. Pulp from the Interior must be hauled by rail to the coast before being shipped to market. Of course, the Scandinavian producers enjoy low transportation costs to northern Europe, an advantage of roughly US$50 per tonne over the B.C. Interior.
Figures 7.29a and b show the variable and fixed cost breakdown for important newsprint producing regions in 1993. Wood costs, though still important, are not the dominant cost component for newsprint production that they are for kraft pulp. Wood costs are proportionally lower because newsprint is produced mostly and in some instances totally, from mechanical pulp, which has approximately double the fibre recovery of kraft pulp. Energy and labour account for higher percentages of the cost of newsprint production, because more energy is required for mechanical fibre breakdown than for the chemical process used in kraft pulp production.
