Anyone who read the most recent federal budget could be forgiven for thinking that the most important sector in Canada is clean tech.
While there are opportunities to expand that sector, policy-makers would be wise to recognize that exports from natural resource industries like forestry are still the “lifeblood” of Canada’s economy, Jock Finlayson, chief policy officer for the Business Council of BC, told delegates at a Council of Forest Industries conference in Vancouver last week.
He added that, while Asia is where the greatest growth will be, “the U.S. economy really still matters” to Canada’s resource sectors.
The recent federal budget barely mentions traditional industries like forestry, which in B.C. accounts for one out of every four manufacturing jobs and 20% of all exports moving through the Port of Vancouver and contributes $12 billion in provincial gross domestic product.
As Finlayson pointed out, the recent federal budget contains “page after page after page of talk about the clean-tech sector almost being presented as the engine of future growth in the Canadian economy.”
But to put things in context, Finlayson said exports from B.C.’s entire clean-tech sector had the value of the exports from a single B.C. forestry company: Canfor Corp. (TSX:CFP).
“I’m not saying clean tech isn’t important, but I’m saying to policy-makers, ‘Don’t spend your time riveted on this opportunity,’” Finlayson said. “Let’s look at the existing portfolio that we have.”
Canada’s forestry sector faces a host of challenges, not the least of which is the uncertainty over softwood lumber negotiations with the U.S., the potential renegotiation of the North American Free Trade Agreement, loss of American market share to China and Mexico and a worrisome lack of business investment.
Finlayson warned that Canadian companies could be losing their competitive edge if they fall behind in productivity.
Optimil Machinery Inc., a Delta company that sells sawmill machinery, enjoyed strong sales in B.C. between 2007 and 2012, as B.C. companies retooled to deal with beetle kill from the mountain pine beetle infestation.
Sales in B.C. have since fallen off while increasing in the U.S., which has a bigger timber supply and a recovering housing construction market.
Traditionally, the U.S. accounted for about 50% of Optimil’s sales, company president Ross Chapman – one of more than 50 exhibitors at last week’s conference – told Business in Vancouver.
“It could become 75% of our business,” he said.
While the demand for new housing in the U.S. has been increasing since the 2008-09 recession, it faces a number of constraints, said Paul Jannke, principal for Forest Economic Advisors LLC.
Despite low interest rates, homebuilders in the U.S. are facing tighter credit conditions and are having a hard time finding workers – a situation that could worsen as the Trump administration cracks down on immigration.
“While our politicians have been really busy talking about building walls, immigrants have been building our homes,” Jannke said.
While the U.S. remains Canada’s most important market for lumber exports, the biggest market opportunities for Canadian lumber in the coming decades may be in Asia.
The Brookings Institute estimates that the global middle class, which now sits at about 3 billion people, will grow to more than 5 billion by 2030, and 80% of the anticipated growth of the globe’s middle class will be in Asia.
But markets in Asia are slow to develop, and Canadian producers are facing increased competition from Russia and Northern Europe, said Eric Wong, managing director for Canada Wood, which has offices in Beijing and Shanghai.
“Canada has lost some ground to competitors,” Wong said.
Wong said some progress is being made in China. New building codes and standards have been developed, and more builders are starting to use Canadian lumber.
While the biggest market is for the lower-end lumber for framing, Wong said there are emerging opportunities to use Canadian wood for furniture manufacturing and for in-fill walls in commercial construction.
“We believe there is space for softwood lumber to move up the value chain,” Wong said.