Canada: renewing forest products sector will take mill closures and new investment

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Released today by The Conference Board of Canada, this final report of a three-year research program -- The Canada Project -- is perhaps the most comprehensive attempt in the past two decades to reimagine the Canadian economy.
"At first glance, the forest products sector appears to be doing well," starts the chapter on the forest products sector. "As Table 1 shows, this sector makes substantial contributions to Canada's gross domestic product (GDP), employment and exports. In 2005, Canada was the world's largest producer of newsprint and the largest exporter of newsprint,wood pulp and softwood lumber. (See Table 2.)
But rising global demand for forest products is now being supplied by a growing number of international competitors. Canada has witnessed increased competition from other temperate-zone producers as well as from producers in warmer climes. As a result, our share of world exports has dropped for both newsprint and pulp in recent years. The sector also faces the challenges of improving its environmental performance as well as managing the social repercussions of mill closures."
Elsewhere the report states, "While Canada exports more wood pulp than does any other nation -- accounting for 25 per cent of world total exports -- there has been virtually no growth in our exports of this product over the past decade. Recent increases in Canadian pulp exports to China were offset by declines to Europe, Japan and the U.S." "Canada's forest products sector needs renewal. This is especially the case in pulp and paper, where older, smaller mills are losing ground to newer, larger global rivals," said Gilles Rheaume, Vice-President, Public Policy. "Scale matters in this industry, and to compete, Canadian companies must be able to build larger mills. Governments should change timber allocation processes and eliminate interprovincial trade barriers to make 'super-mills' possible.
"This will mean that older, smaller mills may have to close, and provincial governments should not step in to save them. But governments need to work with industry to anticipate mill closures and help affected communities make transitions to new economic opportunities."
To support industry renewal, a number of actions are required, including:
. Provincial governments need to reform the timber tenure system and eliminate interprovincial barriers to trade in logs;
. Governments must modify taxation and competition policy to support investment in much larger mills than currently exist in Canada;
. Governments and industry must increase investments in R&D to develop new products, including biofuels and biochemicals;
. Governments should provide incentives to expand biomass energy, similar to that already provided for wind power, and reform energy policies to allow excess electricity generation from biomass to be sold to power grids; and
. Governments and industry must continue the work they have initiated to improve air quality in mill towns. (Source: The Conference Board of Canada)

Mission Possible: A Canadian Resources Strategy for the Boom and Beyond discusses the futures of four key Canadian resource sectors -- forest products, agri-food, mining and energy. This report is Volume II of a four-volume set entitled Mission Possible: Sustainable Prosperity for Canada. It is the final report of The Canada Project, a three-year program of research and facilitated dialogue that seeks to help improve our standard of living and position in North America and the world. This research was funded in part by the Social Sciences and Humanities Research Council (SSHRC), an independent federal government agency that funds university-based research in key areas of Canada's social, cultural and economic life.

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