• Last year Canada’s forest industry contributed C$23.5bn to the national trade surplus.
• Demand and prices have been pummelled.
• The government is supporting programmes to diversify markets.

Canada is a true giant in the worldwide timber industry. It has 402 million ha of forest and other wooded land, representing 41% of its surface area and 10% of the world’s forest cover. In 2007, it contributed 2.2% to the country’s gross domestic product and C$23.5bn to the national trade surplus, directly employing 294,100 individuals and another 453,400 in indirect jobs.

But the industry is in a period of transition brought about by new market conditions and increased global competition. The downturn in the housing industry in the US has had a particular impact on Canada’s wood product exports, especially softwood lumber. The US subprime mortgage crisis has sapped demand for Canadian wood products and sent prices tumbling. The situation has been worsened by the rapid appreciation of the Canadian dollar against the US currency and new competition from emerging economies. As the ramifications ripple through the industry, the result has been mill closures and job losses across the country.

To combat the effects of the US housing crisis and to strengthen the long-term competitiveness of the industry, Canadian governments and the forest industry have joined forces to take the industry in new directions.

Innovation key

Canada views innovation – in terms of new products, processes, trading patterns and commercial plant species – as key to the forest industry’s future success. The government of Canada is investing in transformative technologies that revolutionise traditional forest products and create brand new products that lead to higher-value uses for wood and open up new markets.

The government is also supporting programmes to diversify markets through the Canada Wood Export Programme and the North American Wood First Initiative works to increase the use of wood in non-residential construction (for example, hospitals, schools) in Canada and the US to help boost demand for wood products.

The coming years will bring renewed demand for housing in the US, enabling the market to recover to some extent. But, in the long run, becoming more diversified and more competitive will be the keys to improving the health of Canada’s wood products industry.

In terms of exports to the UK, the softwood trade more than trebled during 2005-2007, from 103,970m³ in 2005 to 341,635m³ in 2007. Several factors, such as the US housing crisis and the currency exchange rates favouring Canadian exports to the UK, contributed to this growth.

Price changes

The constraints on supplies from Continental Europe pushed up prices just as the UK was starting to import more softwood to support its growing housebuilding industry, and Canadian softwood exporters that had not traded with the UK for several years rushed in to plug the gap.

But as the Canadian dollar strengthened and UK prices normalised, UK imports of Canadian softwood dropped by more than 50% in the first half of 2008 relative to the same period in 2007, from 193,843m³ to 81,595m³.

Some experts predict a significant upturn in UK softwood demand from 2010 onwards, which may well coincide with shortages of supply from elsewhere. Russia’s continued increase in export tariffs on logs is expected to exacerbate this shortage. With Canada’s environmental reputation and a wood processing industry that is being prepared to adopt CE marking in time for its full implementation in Europe, Canadian companies will be well placed to meet the needs of the UK market.

Environmental issues are a growing concern in the market place, and demand for Certified Forest Products continues to increase. Only 10% of the world’s productive forests is certified – 40% of this area is in Canada, amounting to 138 million ha.

Canada accounts for more than half of the certifications recognised by the Programme for the Endorsement of Forest Certification schemes through the Sustainable Forestry Initiative and Canadian Standards Association. It is also responsible for one quarter of Forest Stewardship Council certifications worldwide.