Canadian forest companies will get bigger as they compete in the global marketplace, says the president and CEO of the Forest Products Association of Canada.
"We're probably going to end up with a mixture of very large and medium-sized companies," said Avrim Lazar, following a recent speech to the Vancouver Board of Trade.
"We'll probably have fewer companies. We'll probably have larger, more efficient mills. But for the most part, it's hard to dictate, because as the market changes, the companies have to change."
Lazar said companies must alter their structures if they wish to compete with emerging global players such as China, India and Brazil.
His comments came while the industry continues to restructure and just before B.C. coastal forest workers voted to end a 13-week strike by a narrow 50.77-per-cent margin.
The Canadian industry is grappling with lower lumber prices and reduced productivity in wake of the controversial Canada-U.S. softwood lumber agreement and a slumping housing market south of the border, among other issues.
According to Statistics Canada, Canada's lumber production has declined in each of the past two years. In 2006, the value of lumber shipments fell 17.5 per cent - the largest drop in 14 years - to $11.9 billion. Monthly figures from the federal agency show production is on the decline again this year.
"Are we capable of competing?" said Lazar. "Yes, but only if we change. We can't compete doing what we're doing now."
Statistics Canada says the forest industry has still managed to remain profitable despite the loss of thousands of jobs since the start of the new millennium. Last year, total employment fell 27 per cent to 54,454 from an all-time high of 74,145 in 2000.
Ontario suffered the biggest decline last year as it lost 8.9 per cent of its forestry workforce, while Quebec's total dropped 7.5 per cent and B.C. had 5.3 per cent fewer jobs.
The job declines have come while labour productivity rose an average of 5.8 per cent every year between 2001-05.
Lazar said the industry will be better off when the restructuring, which has resulted in several mergers, acquisitions and mill closures, is complete.
But these moves have left many people in the industry bitter, especially in B.C., where most of Canada's lumber is produced. B.C. forest worker union locals say 40 per cent of their members who went on strike have since quit their jobs and taken other skilled-trade positions in different sectors.
Lazar said the exodus demonstrates the difficult times through which the industry is going.
But he added the long-term outlook is good, and companies will still be able to attract the best and brightest employees. The solution, he said, is for companies to re-invest and restructure.
"It's like (Peanuts comic strip character) Linus when his safety blanket is in the dryer," said Lazar. "The time between the old status quo and the new restructured (industry) is the scariest climate.
"As we complete this adaptation and restructuring-change process to be more competitive and to respond to global demand, it will then be easier for people to feel comfortable in the industry.
"But there will be a forest industry and it will employ huge numbers of Canadians. The employment will be sustainable and they will continue to be high-tech, high-paid jobs in the areas where people want to live."
Lazar also noted Canada's forests are environmentally and economically sustainable, although each province has its challenges.
While Alberta is bucking a national trend and boosting lumber production, its forests are also under attack by the pine beetle.
"They also have a challenge in competing for labour with the oil and gas industry," Lazar added. "Ontario suffers from very high fibre prices and high electricity prices. The structure of the forest is different."
Before the restructuring is complete, he said, federal and provincial governments will have to be more open to approving large mergers and acquisitions.
Ottawa will also have to revise its fiscal policies to ensure that the pace of the loonie's rise does not hamper the industry, which relies mostly on exports to the U.S.
"The currency should not be traded like pork bellies," said Lazar.
He said that companies must also figure out how to deal with a new, growing global environmentalism that places more immediate emphasis on greenhouse-gas reduction than preventing deforestation over the long term.
Meanwhile, the Canadian forestry industry now derives 60 per cent of its energy needs from renewable sources rather than fossil fuels.
Jonathan Rhone, president and CEO of Vancouver-based Nexterra Energy, which develops wood-waste gasification systems for the forest industry and other sectors, praised Lazar for emphasizing the abundance of Canada's wood resource and supporting the use of renewables until all operations are 100-per-cent energy self-sufficient.
"From our perspective, it was a good message," said Rhone, who attended the Vancouver Board of Trade event.
Parker Hogan, a spokesman for the Edmonton-based Alberta Forest Products Association, agreed there will be a movement toward more large and medium-sized Canadian companies. But some smaller companies may still be able to thrive, he added.
"We have some member companies here in Alberta but also in other provinces that have very specialized markets, which they've grown and nurtured and developed," said Hogan. "They may not necessarily need to be any bigger in order to continue to supply those niche markets. If you're looking at the raw-commodities side, there's definitely that potential (for a movement to larger but fewer companies) there."
Hogan said it's impossible for him to predict how long the restructuring trend in the forestry industry will last.
"Suffice it to say that the economic factors that are hitting all forest companies here in Canada and the province of Alberta are among the most difficult that we've ever faced," he said, adding the Canadian industry's fate will hinge on what happens in the global marketplace.
"Canada is already - seriously - caught in the shuffle of what's happening globally and most importantly, in the North American environment," he said. "It's tough to have control when you're playing in a global or even a North American environment."
As a result, he said, some Canadian companies, including West Fraser Timber and Canfor, have acquired U.S. operations as a way to broaden their reach and balance out the impacts of higher transportation costs, rapid increases in the Canadian dollar and the softwood lumber agreement.
Although pulp prices are strong now, Canadian companies are bracing for a large increase in supply from Southeast Asia and South America in the next two or three years, added Hogan.
(Monte Stewart can be reached at monte@businessedge.ca)
