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Challenges and opportunities abound for B.C. forest industry

The timber supply in B.C.’s Interior could fall by between 32% and 67% over the next few years due to impact of the pine beetle infestation

The forestry sector has historically been a strong economic engine for B.C., bringing employment and economic benefits to all parts of the province. The influence of this sector can be seen through many different lenses.

Provincial economic data shows that since 1997, the province’s forestry sector (which includes all related primary and manufacturing activity) has averaged 6.4% of provincial economic activity – slightly more than the total output generated by B.C.’s much vaunted construction sector (5.7% of GDP). Further, since 1997, the forestry sector has represented more than one-quarter (26%) of total output from B.C.’s goods-producing sector.

If trade data is considered, the forestry sector has accounted for an average of 41% of all international merchandise sales from the province since 1997. In terms of jobs, employment in forestry has accounted for an average of 4.3% of all jobs in the province over the past 14 years and one-fifth (20%) of all jobs in goods-producing sectors.

However, this data shows that forestry’s prominence within B.C.’s economic landscape has been waning – driven downward by various factors, including a protracted dispute over softwood exports, a severe downturn in the U.S. economy and its housing market and the voracious mountain pine beetle.

The result is that forestry’s share of economic activity has fallen – its recent share of both total provincial GDP and goods-producing activity fell below historical averages (to 5.6% of GDP and 23% of activity in the goods-producing sector in 2011).

Similarly, the value of B.C.’s forestry exports fell from close to a two-decade high of $16.4 billion in 2000 to less than half that level by 2009 ($7.5 billion), before recovering slightly to $9.9 billion in 2011.

Total employment in the sector had declined to 2.7% of all jobs in the province by 2011, and the volume of lumber and log production had fallen to levels not seen in the past quarter-century of available data.

Will the sector continue to lose its veneer?

Changes in a number of demand-side factors might add some lustre in the coming years. Housing starts in B.C.’s biggest wood export destination – the U.S. – are beginning to rise. From a low in 2009 when 553,000 residential units were started, residential starts grew to above 600,000 by year-end 2011; year-to-date data shows starts for 2012 (to June) are 27% above the same period last year.

A mitigating factor here would be the overbuilding that led up to 2008 crash, when there were two million starts annually (well above levels supported by natural demand), and the resulting inventory of vacant and foreclosed units in the market today (estimated to represent about two years of supply). That said, the U.S. population is expected to grow approximately 10%, or 31.5 million residents, during the next decade. Adding a current-day Canada south of the 49th parallel in the next 10 years will help starts return to levels supported by population growth (about 1.5 million units annually), which will provide support to B.C.’s forestry sector.

Another positive trend is the growing share of exports going to markets not previously well-served by the sector.

While the value of B.C.’s forestry-related exports to the U.S. declined 56% between 1997 and 2011, the value going to Taiwan rose by 6%, to Hong Kong by 19%, to South Korea by 52% and to China by 1,114%. It is important to note that the combined increase to all of these countries ($3.02 billion) was not enough to offset the decline in exports to the U.S. ($4.73 billion).

The Asia Pacific region will represent a growing market opportunity for forestry and other sectors of B.C.’s economy: China is expected to grow by 66 million people in the next decade (two current-day Canadas); India is projected to grow by 145 million (four Canadas).

These opportunities notwithstanding, the sector will also face significant challenges.

A recent briefing prepared for the provincial forests minister estimates that the timber supply in B.C.’s Interior could fall by between 32% and 67% over the next few years due to impact of the pine beetle infestation. This could further reduce employment in the sector.

It is not merely people working in the sector or forestry-based communities that are affected by these changes. Whether you live in Vancouver or Vanderhoof and work as a logger or a lawyer, forestry plays an integral role in your B.C. economy. We should all therefore have a keen interest in ensuring the sector is prepared to meet the challenges and capitalize on the opportunities. •