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FOREST PRODUCTS ASSOCIATION OF CANADA
· 2006 ANNUAL REVIEW
The Forest Products Association of Canada (FPAC) is the voice of Canada’s wood, pulp, and paper producers nationally and internationally in government, trade, and environmental affairs. The forest products industry represents 3% of GDP, exports over $40 billion annually, and is one of Canada’s largest employers, operating in hundreds of communities and providing nearly 900,000 direct and indirect jobs across the country. With the help of member companies, FPAC designs programs to promote Canada’s leadership in trade and economic matters, sustainable forest management, and environmental stewardship. Call us, contact us, invite us to brief you: Canada · Forest Products Association of Canada, 99 Bank Street, Suite 410 Ottawa, Ontario, Canada K1P 6B9 · fpac.ca · ottawa@fpac.ca T 613-563-1441 · F 613-563-4720 Europe · Forest Products of Canada, 12A, Place Stéphanie, 1050 Brussels, Belgium T 32-2-512 50 51 · F 32-2-502 54 02
The Forest Products Association of Canada is a proud partner of the Canada Wood program.
This annual review is printed on Canadian offset paper containing 30% post-consumer fibres.
cut opening
FPAC MEMBER COMPANIES · Visit fpac.ca for links to member websites.
To Be
Design by McMillan. ©2007, Forest Products Association of Canada. Publié également en français.
2006 ANNUAL REVIEW
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WHAT WE WANT TO BE
Who does this sound like: a Canadian organization that works for conservation of wildlife habitat, lower greenhouse gas emissions, and maximum recycling, an organization that expects all forestry operations to be third-party certified for sustainable forest management and advocates tax breaks for investments that lower emissions. An internationally recognized conservation group? Actually, it’s the membership of the Forest Products Association of Canada (FPAC). FPAC and its members have working relationships with a number of environmental groups, a fact that surprises some people, as do our environmental achievements, which include reducing our greenhouse gas emissions to 44% below 1990 levels and advocating for more renewable energy from biomass. As we see it, assuming environmental leadership is good for business, leading to better forest management practices and resource use, maximum recycling, energy self-sufficiency with renewable fuels, and more productive relationships with other stakeholders. It makes a strong statement about the environmental pedigree of Canadian forest products of which all Canadians can be proud. The forest products industry is striving to be economically viable, socially desirable, and environmentally responsible. This dovetails with what Canadians want us to be: good stewards of the environment, good employers, good neighbours, and a generator of wealth for all. These two agendas have been converging for over a decade, and the gap narrowed again last year with the launching of the FPAC Sustainability Initiative to improve the sustainability of our members’ operations in all respects. This year, we are going one step further, publishing our inaugural Sustainability Report to provide empirical evidence of our progress on each of these fronts.
The 21st century industry we intend to be will combine the virtues of our past and new orientations, reflecting the changing marketplace. We will be resourceful, innovative, sustainable, customer-focused, good partners and neighbours, competitive, and a good investment. This will be achieved through the pursuit of five broad objectives (and some bold leadership ideas) that will define us.
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Today, the economic arena is our greatest concern. The challenge to the Canadian forest products industry is unprecedented. Overseas competitors with lower costs and the latest technology are becoming important players in our traditional markets. Canada’s strong dollar has put the industry at a competitive disadvantage vis-à-vis U.S. producers. Reinforcing our global competitiveness will entail embracing fundamental structural change as well as product innovations and transformative technologies to break the hammerlock of high costs and create non-traditional revenue streams such as generating and selling more renewable energy. While we take pride in the progress made to date, much more remains to be done, as our competitors will not wait if we hesitate. It is well within Canada’s capability to set the standard for the global forest and paper industry in the 21st century. It will look very different in some important respects and it won’t happen without more consolidation and rationalization, which is an oftenpainful process, but the industry will emerge a stronger, world-class competitor and continue to be the cornerstone of the Canadian economy.
Avrim Lazar
James (Jim) A. Shepherd
President & CEO Forest Products Association of Canada
President & CEO Canfor Corporation Chairman of the Board Forest Products Association of Canada
Many of the photos in this annual review feature origami models created exclusively for FPAC by Joseph Wu, a Vancouver-based origami artist. Origami is the art of paper folding. The word is Japanese, literally meaning to fold (oru) paper (kami). We believe that origami perfectly showcases the strength, versatility, and elegance of paper. Photography: Martin Lipman
FIVE STRATEGIC OBJECTIVES
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The mid-term outlook is for a Canadian industry that is leaner and more focused yet more robust. The future Canadian producer is likely to be significantly larger with increased economies of scale or a niche producer with a single-product focus that can maintain a close relationship with each customer. Large operators will build on core competencies through mergers and acquisitions and by divesting non-core assets. Size endows large producers with significant advantages, including lower unit costs and cost of capital, increased capacity for investment and R&D, and greater ability to fund overseas market development or sophisticated customer/vendor supply chain interfaces. Becoming a world-scale producer allows a company to pursue large regional or continent-wide supply contracts with mega retailers like Home Depot, Lowe’s, Staples, or Wal-Mart. A restructured Canadian industry with larger players will help level a competitive playing field now tilted in favour of much larger, foreign-based competitors and huge multinational customers. Big-box stores and giant media conglomerates dominate the customer world, giving them great negotiating leverage. Despite some world-class firms in product lines like newsprint and lumber, our companies are small by global standards. No Canadian-based company ranks among the top 20 forest products companies worldwide in sales.
MAKING COMPETITIVE POLICY
Graph, Joseph Wu
The consolidation the industry is undertaking is long overdue. Unfortunately, provincial governments have often undermined the viability of healthy facilities through bailouts and policies that prevent rationalization. In addition, federal regulators have intervened in merger transactions involving Canadian mills out of concern for preserving domestic competition, although today one can say there is hardly a wood or paper product that can’t be sourced from outside our borders. Over the longer term, better outcomes for the industry and the economy are achieved when market forces are allowed to prevail. For example, with the large number of mill closures over the past year, supply and demand for products like softwood pulp and uncoated freesheet came into better balance, bolstering prices and allowing many Canadian paper mills to begin generating positive cash flow. Allowing a market-based restructuring of the industry will create stronger companies that compete more effectively in global markets. And this, in turn, will create more solid futures for the communities and workers that depend on and support the industry. As Canadian producers improve their balance sheet, many communities currently living under threat of losing their mill will find renewed stability. Capacity closure is never an easy process, especially in smaller communities. In cases where it becomes necessary, industry, governments, and labour all have a role to play in assisting employees and communities with the transition.
THE PERFECT STORM
1.
TO BE STRUCTURED FOR GLOBAL SUCCESS
The wave of full and partial mill closures that began in 2003 and accelerated in 2005 and 2006 reflects the impact of powerful trends, some long term, some domestic in origin, that have reduced the profit-making capacity of the industry and the viability of many operations. Strong Canadian dollar: The dollar has risen by 40% over a short four-year time frame. At current exchange rates, Canadian operations are struggling to stay cost competitive with their U.S. competitors, despite having equal or stronger productivity performance. Low-cost competition: Huge new pulp and paper mills in Asia and Latin America with low-cost fibre and labour, and various forms of government support, are pressuring prices and taking away market share from higher cost producers. Also, European producers have been aggressively expanding their share of the U.S. lumber market. High fibre costs: Eastern Canada has among the highest fibre costs in the world—largely due to government policies that have restricted access to fibre and added costly obligations on producers.
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Business climate: The combined tax burden on capital investment in Canadian forest products operations is among the largest levied on any forest industry in the world, and is much higher than that of other Canadian resource industries, such as mining and oil and gas. Given the importance of new capital renewal to the industry’s adjustment to the higher Canadian dollar, Canada’s exceptionally heavy tax burden on investment in the industry is particularly perverse. Slowing U.S. housing market: Following several years of strong demand and prices for lumber, panel, and other wood products, a slowdown in North American residential construction triggered a sharp market downturn in the spring of 2006. In the current environment, even the most cost-competitive mills are struggling to remain profitable, and the Canadian lumber industry is seeing substantial capacity closure take place after several years of net growth. While the long-term fundamentals of the wood products industry remain strong, most observers expect cyclical weakness in the North American housing market to persist well into 2007. High energy prices: Electricity costs have risen sharply in some regions (especially Ontario). Energy can make up more than one-quarter of the cost of producing mechanical pulp or newsprint in Eastern Canada. Electronic inroads: Demand for newsprint has been declining steadily since 2000 because of changing reading habits, aggressive cost cutting by publishers, and the inroads of the Internet, and the same paperless phenomenon is beginning to affect business demand for copy paper, forms, and high-end paper for corporate reports.
AN INDUSTRY VERY EXPOSED TO EXCHANGE RATE FLUCTUATIONS AND ENERGY COSTS Source: CIBC World Markets, September 2005.
Greater exposure to C$
High C$ exposure
90 80 70 60 50 40 30 20 10 0 -10 -20
Computer/ Electronic
High C$ and energy cost exposure
Furniture Machinery Electrical Equipment
Transportation Fabrication Equipment Metals Printing Clothing Food Textile Beverage/Tobacco
Wood
Paper Container Ship, Joseph Wu
Primary Metals Chemicals
Petroleum Products
High energy cost exposure
Low exposure
0.1
1
10
100
Energy intensity greater
BRIGHT SPOTS Wood is the staple that makes home ownership in North America affordable. Wood construction products—lumber, plywood, and engineered products like oriented strand board (OSB)—are far and away the “green,” or environmental, choice over steel and cement, which are more energy intensive to produce and to recycle. Furthermore, demolition wood can be composted; made into pulp, pallets, insulation, or animal bedding; or used as fuel or mulch. During strong demand periods, the North American market has enabled the makers of lumber and panels to generate healthy returns and reinvest in their operations to the point where some BC mills are among the biggest and lowest cost producers in the world. Canada supplies about one-third of the lumber requirement of the U.S. market and 40% of its OSB. Advances in wood products and construction methods suggest great potential to expand use of lumber and engineered wood products in commercial and institutional construction.
2.
TO BE ALIGNED WITH CHANGING MARKET DEMAND
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IT MAY SURPRISE YOU TO LEARN THAT CANADA’S FOREST PRODUCTS INDUSTRY… · Represents 3% of Canada’s GDP. · Provides more than 340,000 direct jobs across Canada.
Although fast-growing emerging markets offer real promise, North America continues to be Canada’s most important market. Preserving Canada’s critical North American market share is our single most important near-term objective. Being North American-based provides some clear advantages. With our proximity to customers, we can provide real value-added services based on fast turnaround times. Big-box retailers such as Wal-Mart, Home Depot, Lowe’s, Rona, Staples, and Office Depot want customized products or marketing support and strong vendor support. Increasingly, buyers want sustainably sourced products with certified and/or recycled content that meet the requirements of corporate procurement policies and green consumer demands alike. There is simply no better country than Canada from which to meet these product requirements. Our objective is to maximize these and other home-field advantages—like Canada’s softwood long fibre and basket of hardwoods—to build enduring relationships with our customer base. This strategy includes improving the margins on our existing products, developing new products that leverage Canadian fibre, offering value-added services or customized products, and continually improving the industry’s sustainable forest management practices.
CHANGE IN MOTION Canada’s 21st century forest products industry will incorporate strategies that change how our producers relate to primary markets and exploit new opportunities. Scientist, Joseph Wu
Changing the product mix: The industry hasn’t been sitting still the past decade while increased foreign competition and the threat to print have been taking shape. Canadian paper producers have been converting surplus newsprint capacity to make grades where there is growth, such as ultralightweight coated paper and super-calendared paper for direct mail and other marketing materials. Wood producers have been equally active, leveraging strong North American housing demand to add capacity for making engineered wood products. Creating new demand for wood products: The lumber industry on both sides of the Canada–U.S. border is looking to develop new demand for wood construction products as the environmentally preferable alternative to steel and cement. In particular, there is scope to increase the use of wood in non-residential construction such as schools, hospitals, and small commercial buildings. Reinforcing the environmental pedigree: Canada is a world leader in sustainable forest management and forest certification, with more thirdparty certified forestland than any other nation. This added sustainability assurance will brand Canada’s exceptional products to appeal to customers and end-users in North America and overseas. Developing new overseas markets: Canadian governments and industry partners are increasing their efforts to market wood building products and systems, including environmentally advanced housing concepts like Canada’s Super E, to promote consumption of Canadian wood products in markets such as Britain, Japan, and China. China is already Canada’s largest overseas customer for pulp as it pursues the objective of becoming the world’s largest paper producer. Canada is well positioned as the leading softwood pulp exporter to boost pulp exports to China, providing we remain competitive on cost, quality, and service. Leveraging Canadian advantages through new products: Through a concerted R&D effort by industry and academic researchers, the quest is on to develop value-added products that leverage natural Canadian advantages—like our long softwood fibre or the diversity of our natural timber supply—that aren’t easily overcome by our offshore competitors. Ultra-lightweight paper, a long fibre specialty, lowers the mailing cost of a catalogue by reducing its weight but not its printing surface. New engineered wood products like laminated veneer lumber (LVL) and oriented strand lumber (OSL) are manufactured from underutilized hardwood species.
3.
TO BE TRANSFORMED BY INNOVATION AND IDEAS
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To be—and stay—at the head of the pack, Canada’s forest products industry must be as adept and organized about developing and applying new ideas and technologies as any other nation. Canada must resume leadership in the development and deployment of key emerging products and processes in the building products, pulp and paper, biochemicals, bioenergy, and forestry sectors. Canada’s leadership in forestsector innovation will not only strengthen the competitiveness of the forest products industry itself, but also create new economic opportunities for supplying knowledge and technologies in global markets. The development and rapid commercialization of the most promising transformative technologies will require an innovative system that is effective, strategic, and forward-looking.
IT MAY SURPRISE YOU TO LEARN THAT CANADA’S FOREST PRODUCTS INDUSTRY… · Has spent over $8 billion on environmental improvements since 1990. · Invests over $4 billion in capital improvements annually. · Is one of the largest investors in R&D, at over $500 million annually.
RESEARCH STEPS UP The consolidation and intensification of research programs to develop new products and technologies is a beacon for the future. There is a growing desire, shared by all stakeholders, to "make things happen in a big way." Canada’s three forest industry public/private research centres—Paprican (pulp and paper), Forintek (wood products), and FERIC (forest engineering)—are merging into Canada’s new forest-sector research institute, together becoming the largest research institute of its kind in the global forest and paper industry. The federal government, through the Canadian Forest Service, is providing strong public-sector support for the research institute. “It will allow for a critical mass of research to be concentrated under one umbrella, allowing for the development of innovative and comprehensive product solutions that build on the uniqueness of Canada’s fibre,” says Dr. Ian de la Roche, President and CEO of the new institute. From today’s vantage point, it is difficult to predict with any precision the critical technologies of tomorrow, but a number of technologies now on the horizon give some clues about the future: Biorefineries: The world is looking for future fuels and products from biomass to help replace the fossil fuel economy. Biorefineries could be built at existing mills to extract bioenergy and biochemical feed stocks from biomass for ethanol, biodiesel, and a range of biodegradable substitutes for conventional plastics. Lumber substitutes: Canada’s new Fibre Centre is working to help maximize the special fibre attributes of Canadian wood. With pending advances in polymer technology, it will soon be possible to use conventional thermal presses to offer oriented strand lumber as a viable alternative to conventional lumber, with more consistent strength in every board and no knots or other blemishes.
4.
TO BE GLOBALLY COMPETITIVE
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IT MAY SURPRISE YOU TO LEARN THAT CANADA IS THE WORLD’S LARGEST EXPORTER OF FOREST PRODUCTS, AND CANADA’S FOREST PRODUCTS INDUSTRY…
ONE TOWN’S STORY When the local paper mill (and town’s largest employer) downsizes, it challenges the community to adapt. The solutions adopted by Powell River on BC’s Sunshine Coast offer a model for such collaboration. In the middle of the last century, the local mill supplied 4% of the world’s newsprint. Over the years, the operation has been streamlined and modernized. (Much has been spent on environmental upgrades, helping earn the city the ranking for best air quality in the province by the BC Lung Association.) The city has provided tax relief to help the mill remain competitive. Then last year, the city of Powell River, the Sliammon First Nation, and the mill struck a unique accord. The mill sold 325 hectares of surplus land to a limited partnership owned by the three parties, to be developed as a marine business park, light industrial park, residential subdivision, and prominent green space. The mill’s taxes will be reduced accordingly. The city can diversify its economy and tax base while helping its mill remain competitive, and the Sliammon First Nation can offer its members new, durable economic opportunities.
· Generates over $80 billion in revenue annually. · Is the largest forest products exporter to the United States. · Is a leader in entering emerging markets—in 2004, forest products were Canada’s largest export to India, China, and South Korea.
As vigorous as the new generation of overseas competition is and will be, our task is to accentuate our own distinct advantages. In the face of low labour and fibre costs and the enormous economies of scale of the huge new mills being built in Asia and Latin America, we need to move quickly. Our competitors certainly are. We must narrow the cost gap to the point where we are competitive—and profitable—in our major markets. The lower our costs, the more unique our products and services, and the more profitable we are, the better able we will be to reinvest in our operations. Significant investments in BC sawmills have made them the most cost competitive in the world. In fact, Canada is currently home to the world’s largest sawmill, in Houston (BC); three of the largest OSB mills, in Englehart (Ontario), Fort St. John (BC), and High Level (Alberta); and the largest plant making engineered wood products, in Kenora (Ontario).
MANUFACTURING
Source: Statistics Canada.
65 60 55 50 45 40 35
2005
2004
2003
2002
2001
2000
1999
1998
30
1997
*TRANSPORTATION IS THE SECOND-LARGEST COST COMPONENT (APPROXIMATELY 30%; SECOND ONLY TO FIBRE) OF THE COST STRUCTURE FOR FOREST PRODUCTS COMPANIES. THE FOREST PRODUCTS INDUSTRY IS THE:
PULP AND PAPER
WOOD
FOREST PRODUCTS INDUSTRY’S LABOUR PRODUCTIVITY Labour productivity: output/hour worked,expressed in 1997 constant dollars
There are, however, a number of factors that influence the industry’s competitive position that are directly controlled by governments. Much of the industry’s cost base—for example, fibre, water, energy, and transportation*— is controlled or heavily influenced by government and public policy. So, while the industry is doing its part to enhance its competitiveness by cutting costs, investing in productivity enhancements, and looking for new market opportunities, governments at all levels must also be seeking ways to provide for a policy environment that is competitive.
· Largest user of rail transport (2004) – 45 million tonnes. · 2nd largest user of truck transport (2004) – 18 billion tonnes/km. · Largest user of offshore marine transport in trade dollars (Transport Canada, 2003) – $7.3 billion.
MARGINAL EFFECTIVE TAX RATES ON CAPITAL–2005 Source: C.D. Howe Institute, 2005.
40 35 30 25 20 15 10 5 0 Germany Canada USA Japan Italy France Korea New Zealand Spain Australia Norway Netherlands Finland United Kingdom Belgium Denmark Switzerland Ireland Sweden Portugal
Percent
Addressing the industry’s tax framework, which imposes high costs on capital investment, must be an urgent priority for governments. The Canadian forest products industry is more heavily taxed than all of our major competitors. Forest products companies have been taxed for being capital-intensive while other resource industries and their investors have been given tax breaks to raise capital, such as the ability to issue flow-through shares. The industry has to manage its own transformation, but if governments want the revenue streams and economic benefits a healthy industry can provide, they have a critical role in promoting its long-term competitiveness. In 2006, the federal government set out an agenda for boosting Canada’s productivity through a number of actions, including a reduction in tax levels on capital investment over the longer term. More measures of this nature are required to further enhance the industry’s competitive position globally.
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IT MAY SURPRISE YOU TO LEARN THAT CANADA’S FOREST PRODUCTS INDUSTRY PLANTS MORE THAN 1/2 BILLION TREES ANNUALLY, AND THAT CANADA... · Retains 91% of its original forest area. · Has more protected forest than any other country (40 million hectares). · Has the most third-party certified forest in the world (123 million hectares).
The future Canadian forest products industry will continue to make improvements that solidify our status as global leaders in sustainability. That recognition not only reassures our customers that our products have a sustainable provenance and that branded Canadian products from FPAC member companies are synonymous with respect for the planet, but also provides us with the credibility to influence how environmental policy and trade rules are developed. Such respect doesn’t come from paying lip service to sustainability, but rather from facts on the ground like these: · Setting and then meeting our pledge to third-party certify forestlands under FPAC members’ management control to one of three major standards for sustainable forest management. · Spending $8 billion to treat mill effluent and air emissions and virtually eliminate dioxins and furans. · Launching a multi-stakeholder initiative to develop an action plan on air quality. · Formally agreeing to further lower greenhouse gas emissions despite having already cut these to 44% below 1990 levels. · Promoting the widest application of biomass cogeneration—nearly 60% of the pulp and paper industry’s power currently comes from renewable sources. · Challenging Canadians to raise the national paper recovery rate to at least 55% and producing more products with recycled content and fresh fibre from third-party certified sustainable sources.
Duck in Flight, Joseph Wu
· Collaborating with environmental groups to successfully lobby for passage of the federal Species at Risk Act and working with government and environmental non-government organizations to implement the Act. · Working with international groups to find a solution to the global problem of illegal logging. · Committing to tracing fibre supplies back to the forest area of origin by the end of 2008 to assure customers that the wood fibre they are using comes from legal sources. · Forming working relationships with leading environmental groups to further conservation efforts in Canada’s major forest ecosystems. · Building business and employment relationships with Aboriginal Canadians in support of a strengthened Aboriginal economy.
CANADA’S PAPER RECOVERY RATE Source: Pulp and Paper Products Council. 49% *
50 40 30 20 10
* Estimate
2006
2000
0
1990
TO BE RECOGNIZED AS LEADERS IN SUSTAINABILITY
Continual improvement is an indispensable component of the Canadian concept of sustainability. Sustainability will always be a work in progress. One can always do better. Incorporating the views of other stakeholders into forest management planning helps build their trust and can even make them advocates for Canadian products over those from countries lacking a comparable sustainability pedigree. Accountability for sound environmental and workplace safety programs has been installed throughout the corporate chain of command. It’s just a better way to conduct our business and over time promises to be just as beneficial for the corporate bottom line as it is for the environment.
Percent
5.
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BOREAL FOREST CONSERVATION ISSUES Canadian Boreal Initiative (CBI)–Forest Products Association of Canada (FPAC) Joint Statement about Canada’s Boreal Region As leading organizations concerned about the health of Canada’s boreal forest, FPAC and CBI both recognize that there is a necessity and an opportunity to address the conservation of forest ecosystems in the region. Addressing the multiple forces acting on the boreal, including economic pressures, ecological stressors (including climate change), and evolving community expectations means ensuring continual improvement in forest management. The opportunity to shape a truly sustainable vision and reality for the boreal forest is a time limited one. Decisions about land use and resource allocation made in the next 5 years will, in large part, determine the path of development and conservation. Recognizing that the future is being decided now, CBI and FPAC recognize the responsibility to take action and promote innovation in forest conservation in collaboration with governments and stakeholders. Accordingly, FPAC and CBI share the belief that, 1. Planning for conservation of ecological and cultural values should occur prior to new forest tenures in the unallocated parts of Canada’s boreal, in a manner that respects the constitutional rights of Aboriginal peoples. 2. There is a need for continual improvement of conservation approaches in areas currently allocated for management. 3. Clear measurement and reporting on progress towards sustainable development should be encouraged through third-party certification with area-specific standards, objectives and guidelines that reflect boreal values. 4. The use of scientific and traditional knowledge is necessary to achieve sound planning outcomes and the conservation of natural and cultural values. September 2006
PROMISE KEPT: SUSTAINABLE FORESTRY CERTIFICATION In January 2002, the member companies of FPAC undertook an ambitious commitment, the only one of its kind by any national forest products trade association. They committed to certify all of their forestry operations to one of three major third-party sustainable forest certification standards (Canadian Standards Association—CSA; Forest Stewardship Council—FSC; or Sustainable Forestry Initiative®—SFI) by the end of 2006 as a condition of continuing membership. At the end of 2006, we were able to report success. All FPAC forestlands under the January 2002 commitment have been certified.1 FPAC members now account for almost 80% of the 123 million hectares certified in Canada. According to The State of Canada’s Forests 2005–2006 report, of the 310 million hectares of forestland in Canada, less than half (143 million hectares) is made available to the forest sector to use and subject to forest management. Eighty-six percent of Canada’s forests have been certified.
WORKING WITH THE WORLD If you were to sneak a peek into anyone’s BlackBerry at FPAC or at many of our member companies, the names of prominent environmental groups would keep coming up. So would the names of enterprising non-profit organizations like Metafore, a catalyst bringing together large customers that seek wood and paper from sustainably managed operations and suppliers of forest products, to facilitate dialogue and action on issues related to environment and sustainability. The Canadian industry’s emphasis on consensus-building is helping to build several important multi-stakeholder coalitions with pragmatic organizations that share a like-minded desire to achieve substantive environmental progress. These bilateral and multilateral partnerships cover conservation, wildlife, community and human resource/skills development, Aboriginal issues, air and water quality, model forests, research, and more. They will not only help shape policy but also influence public opinion so that Canadians see us not as a collection of mills but as a forward-thinking industry that has solutions for some of their concerns and is worthy of their support. This extends to our influence among Canada’s peers in the global industry, where FPAC has been a driving force and a signatory to a global sustainability accord of the International Council of Forest and Paper Associations. This landmark accord binds almost 90 companies and national industry associations to promote sustainable forest management, combat illegal logging, encourage recycling and fibre reuse, follow sound environmental management practices, create climate change and renewable energy solutions, and invest in workers and communities.
CANADA’S BEETLE CRISIS The industry’s concern about global warming reflects the impact it may have on Canada’s forests. Warmer winters are helping to transform the mountain pine beetle epidemic from what should be a localized challenge into an environmental catastrophe. Without the severe cold normally associated with Canadian winters, there’s nothing to stop the infestation—which has already affected more than nine million hectares of BC forest (an area roughly the size of New Brunswick) and jumped the Rockies to Alberta—from spreading eastward. It’s a unique sustainability challenge and the lessons learned by Canadians—governments, research institutes, industry, and communities—will influence other countries in adapting to adverse impacts of climate change on forest ecosystems. Canada’s response will include developing salvage and regeneration strategies scaled up for such an unprecedented outbreak, determining the right amount of beetle-damaged forest to leave intact to conserve wildlife habitat (and identifying where those areas will be), reforesting parks and conservation areas, developing products to salvage value from beetle-affected timber, and managing the impact on sawmill communities as they transition to a long recovery period with a smaller harvest.
The FPAC commitment has also pushed Canada into the world leadership position for certified forestlands. Of the world’s forests that have been certified, Canada accounts for more than half of the certifications recognized by the global Programme for the Endorsement of Forest Certification schemes (PEFC) and almost one-quarter of FSC. FPAC MEMBERS (96.2 million hectares)
CANADIAN CERTIFICATION IN A GLOBAL CONTEXT Source: Canadian Sustainable Forestry Certification Coalition, December 2006.
140
123.7
100 80 60 41.7 4.4
4.9
6.3
7.8
9.9
Australia
Germany
Russia
4.3
Brazil
1.9
Malaysia
20
France
40
Chile
17.4
22.1
Canada
USA
Finland
0 Sweden
Millions of hectares
120
Pine beetle infested forest. Courtesy of www.bcforestinformation.com
1
One FPAC member’s division underwent a third-party certification audit and is awaiting its FSC certificate expected in early 2007. The land base represents approximately 1% of FPAC’s committed land.
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THREE LEADERSHIP IDEAS
Hydro Tower, Joseph Wu
1.
TO BE A GREEN POWER(HOUSE)
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IT MAY SURPRISE YOU TO LEARN THAT CANADA’S FOREST PRODUCTS INDUSTRY GENERATES ENOUGH GREEN ENERGY TO POWER THE CITIES OF OTTAWA AND GATINEAU ALMOST TWICE OVER AND THAT FPAC MEMBERS… · Have cut their fossil fuel consumption by 45% since 1990. · Generate almost 60% of their own power from clean, renewable sources. · Have reduced their greenhouse gas emissions by 44% since 1990, more than any other Canadian industry sector.
With concern about crude oil supply and pricing rising along with global temperatures, Canada’s forest products industry has a best of both worlds solution: go green. Cut out fossil fuels and become self-sufficient or even net suppliers of energy. Investing in biomass cogeneration—making steam and electricity—improves a mill’s financial performance and pays environmental dividends. FPAC members’ pulp and paper facilities have already achieved nearly 60% energy self-sufficiency, mainly from CO2-neutral biomass. Mills have slashed fossil fuel use by 45% since 1990. Today, less than 20% of our energy comes from oil and natural gas. Our goal is net energy self-sufficiency from renewable sources on an industry-wide basis. The 1,700 MW of green power already being produced by the pulp and paper sector is enough to supply one million homes, or all of Calgary and Edmonton combined. The industry can double that output by acquiring new supplies of biomass residue and through process modernization that would lower internal steam requirements, allowing facilities to direct more of their biomass energy capacity to making electricity. There is great promise in potential new technologies, like gasifying black liquor in a kraft pulp mill to make steam, electricity, or biorefinery feedstock. One FPAC member, for example, partnered with Nexterra Energy Corp. on a gasification project in British Columbia. This new groundbreaking technology converts wood residue into low-cost, clean thermal energy, replacing high-cost natural gas and moving the mill closer to energy self-sufficiency. The system will not only save the mill more than $1.5 million in annual fuel costs, but also improve local air quality and reduce the company’s greenhouse gas emissions by 12,000 tonnes per year—equivalent to taking almost 3,000 cars off the road. Biomass cogeneration projects aren’t being undertaken only in provinces where electricity rates are high. Quebec and British Columbia, with some of the country’s cheapest electricity rates, are also promoting such projects through their utilities as part of green energy diversification strategies. Hydro-Québec agreed to buy power from new biomass cogeneration projects at two newsprint mills, one in Gatineau and the other in Bromptonville. The $80-million Bromptonville project will produce up to 23 MW of electricity by burning mill sludge, bark, and groundwood residue. Among its environmental benefits, switching on the cogeneration plant will:
2.
· Displace 30 million litres per year of fossil fuel consumption. · Reduce CO2 emissions in the order of 83,000 tonnes, equivalent to taking 13,000 cars off the road. · Mean 600 tonnes per day of sludge, bark, and wood residue won’t be landfilled. · Improve air quality—60% reduction in particulates. While these technologies hold great environmental and economic promise, they also require substantial investment in capital. More can be done to accelerate the conversion to renewable energy and implement cutting-edge technology with a tax and incentive regime that promotes capital investment.
PERCENTAGE OF ENERGY FROM BIOMASS— FPAC MEMBERS (PULP & PAPER FACILITIES)
FOSSIL FUELS
BIOMASS
NET ELECTRICITY PURCHASES
OTHER (NET) PURCHASES
Source: FPAC Energy Monitoring Report 1990–2005.
Pulp & Paper Energy Sources, 1990
Pulp & Paper Energy Sources, 2005
49%
56%
0% 22% 30%
16% 2%
25%
TO BE ADVOCATES OF EFFICIENT RESOURCE USE
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From a group of companies that have reduced their greenhouse gas emissions to 44% below 1990 levels comes more environmental leadership: FPAC members’ pulp and paper mills will deliver cleaner air. FPAC spearheaded the multi-stakeholder Pulp and Paper Air Quality Forum that studied framework concepts to lower mill emissions. The Forum brought together industry, government, Aboriginal, and environmental representatives. The consensus that emerged over two years of technical study favoured a blend of mandatory and leadership actions—the latter to be encouraged by a market-based approach— that would launch a process of continual improvement. This consensus, which the industry strongly supports, calls for national limits for various substances, including particulate emissions and sulphur oxides associated with smog and acid rain, complemented by a strategy to stimulate capital investments and sectoral renewal that achieves major emissions improvements. While the industry’s key emissions have been declining for many years, much more can be accomplished. The Forum’s technical analysis concluded that with the right financial incentives it should be possible to reduce key emissions by a further 40% from 2003 levels by the middle of the next decade and, with the right policy approach, reductions could reach 75% in the years following. As a co-benefit, there would be further reductions in greenhouse gas emissions. All stakeholders are keenly aware of the industry’s difficult financial situation and recognize that the modernization of the industry is an environmentally as well as economically desirable goal because of the large emissions reductions that would be achieved by upgrading to state-of-the-art technologies. The pulp and paper sector is committed to working with government to achieve tougher emissions limits while promoting our vision of sustainability through continual improvement. Implementing that vision will encourage energy efficiency and a reduction in fossil fuel usage, help stabilize communities, create a template other industries could use to lower emissions, and provide Canadian vendors with more opportunities to commercialize transformative technologies. The world will have another reason to see Canadian forest products as environmentally desirable.
ACTUAL -44% KYOTO TARGET -6%
Picture Frame, Joseph Wu
TOTAL DIRECT GREENHOUSE GAS EMISSIONS FROM FPAC MEMBERS (PULP & PAPER MILLS) VS. KYOTO OBJECTIVES Source: FPAC Energy Monitoring Report 1990–2005.
10
-20 -30 -40
3. 2005
2004
2003
2002
2001
2000
-50 1990
Percent reduction
0 -10
TOWARDS A ZERO-WASTE STREAM FPAC members unequivocally support recycling all wood and paper to productive uses, including energy. That’s why the closing of beehive burners— those large conical incinerators for sawmill wastes that are a familiar site in Western Canada—is having a serendipitous outcome. Alberta and British Columbia are the two provinces with a significant but declining number of beehive burners. Almost half of those that existed in 2000 have been closed, with much of the biomass diverted to energy production. That has translated into an estimated 37.5% reduction in emissions of total particulate matter (PM) and sulphur dioxide (SO2), improving air quality for communities and providing an economic boost to the forest companies and independent power companies using the bark and other throwaways for making energy.
TO BE PARTNERS IN THE ABORIGINAL ECONOMY
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Aboriginal Canadians are natural partners for the forest products industry. They are attached spiritually to the land and have a vested interest in a strong industry and in using the forest sustainably to support local economies. The new industry strategy includes mills and local Aboriginal communities in a mutually reinforcing relationship that strengthens the rural and Aboriginal economies. Over the past few decades, economic links between producers and Aboriginal businesses have proliferated, with Aboriginal communities assuming a larger role in sustainable development. A successful relationship between an Aboriginal community and a forest products company that is based on respect leads to job and vendor opportunities, job-training programs for Aboriginal youth, and business joint ventures. Today the forest products industry is the largest industrial employer of Aboriginal people in Canada and has hundreds of bilateral partnerships with some of the more than 16,000 Aboriginal-owned businesses in Canada. Some of the partnerships include: British Columbia: In Fort St. John, Six Nations Ventures scales and handles wood arriving at Peace Valley OSB, a world-class plant owned by two FPAC members. Alberta: Bigstone Forestry Inc. is a logging company created in partnership by two FPAC members and the Bigstone Cree Nation, a First Nation located near the community of Wabasca. Bigstone Forestry began operations in 2000 and since then has more than doubled its work force to 24. Manitoba: Aboriginal businesses like Nelson House Forest Industries and Moose Lake Loggers provide fibre for the major mills in Manitoba: the paper mills in The Pas and Pine Falls, the sawmill in The Pas, and the OSB mill in Swan River. Ontario: The Anishnaabe Gitigewin Tree Nursery at Wabigoon, near Dryden, owned by Wabigoon First Nation, produces more than five million seedlings a year. Quebec: The Atikamekw community of Obedjiwan is co-owner with an FPAC member of a six-year-old sawmill that provides wood chips to another FPAC member’s pulp mill in nearby Saint-Félicien. The venture has been so successful that the community has built more than 80 houses and a sports centre with some of the lumber. Nova Scotia: As part of its sustainable forest management continual improvement indicators, an FPAC mill is planning to increase its softwood and hardwood volume harvested under First Nations (Mi’kmaq) agreements to 62,000 tonnes by 2007, a fourfold increase from 2005 levels.
CONCLUSION The Canadian forest products industry has grown to become the world’s largest exporter of forest products, an $84-billion industry representing 3% of Canadian GDP that continues to benefit enormously from the quality and diversity of Canadian fibre, our proximity to the huge U.S. market, the abundance of water and, in some provinces, relatively inexpensive electricity. Key sectors continue to enjoy strong fundamentals and are reinvesting in modernization and growth; these include makers of tissue and hygiene products, lumber producers in much of Western Canada, and manufacturers of engineered wood products and the paper used for printing catalogues and other direct mail/marketing materials. For almost a century, the forest products industry’s template of affordable fibre, energy, water, and transportation has been a success. In recent years, however, the industry’s traditional competitive advantages have been eroded as producers from new, lower cost foreign competitors have moved aggressively into world pulp, paper, and lumber markets. The rapid rise and continued strength of the Canadian dollar puts Canadian exporters at a disadvantage in U.S. markets. Soaring electricity rates and fibre costs in some provinces and the impact of the Internet on print communications make the position of some mills untenable. Too many Canadian mills are older, smaller, and higher cost than their new offshore competitors. And, in some cases, federal and provincial governments have prevented or delayed essential structural reforms. While the industry invests over $4 billion annually in capital improvements, pulp and paper producers have had poor rates of return over the past decade and their reinvestment rate has fallen below the cost of depreciation. The objective now is to create a virtuous circle, where capital starts flowing back into those sectors where it has been lacking, helping improve productivity and generating more profit for reinvestment. For that to happen, we need a new made-in-Canada approach.
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FOREST PRODUCTS ASSOCIATION OF CANADA
· 2006 ANNUAL REVIEW
The Forest Products Association of Canada (FPAC) is the voice of Canada’s wood, pulp, and paper producers nationally and internationally in government, trade, and environmental affairs. The forest products industry represents 3% of GDP, exports over $40 billion annually, and is one of Canada’s largest employers, operating in hundreds of communities and providing nearly 900,000 direct and indirect jobs across the country. With the help of member companies, FPAC designs programs to promote Canada’s leadership in trade and economic matters, sustainable forest management, and environmental stewardship. Call us, contact us, invite us to brief you: Canada · Forest Products Association of Canada, 99 Bank Street, Suite 410 Ottawa, Ontario, Canada K1P 6B9 · fpac.ca · ottawa@fpac.ca T 613-563-1441 · F 613-563-4720 Europe · Forest Products of Canada, 12A, Place Stéphanie, 1050 Brussels, Belgium T 32-2-512 50 51 · F 32-2-502 54 02
The Forest Products Association of Canada is a proud partner of the Canada Wood program.
This annual review is printed on Canadian offset paper containing 30% post-consumer fibres.
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FPAC MEMBER COMPANIES · Visit fpac.ca for links to member websites.
To Be
Design by McMillan. ©2007, Forest Products Association of Canada. Publié également en français.
2006 ANNUAL REVIEW
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