Part 3 - OBAC and the strange case of the missing word

By Peter Ewart

        (Other articles in this series include: “Part 1 – OBAC and the strange case of the missing word” & “Part 2 – OBAC and the strange case of the missing word.”)

In previous articles in this series, we discussed how the term “value-added” is nowhere to be found in the Omineca Beetle Action Committee’s (OBAC) economic development priorities and plans for this region of British Columbia, or in its newsletters or press releases on its website.  We further discussed how this omission stood in stark contrast to the Cariboo Chilcotin Beetle Action Committee (CCBAC) approach which has made value-added wood a top priority for that region.

So how could this have come about?  The economic development plans we are making now in this region are crucial for our future.  Having solid and engineered value-added wood at the top of the list in these plans would seem to be a no-brainer.  After all many business analysts have been saying for years that this sector has the biggest growth potential for the BC forest industry.  And it is not just business analysts who are saying this.  Just recently, the three main forestry unions in BC called for more investment to be put into diversifying the forest industry.

The Conference Board of Canada has recently released a scathing report on Canada’s economic competitiveness (“How Canada performs: A report card on Canada” – June 2007).  It writes, “innovation is fundamental to Canada’s productivity and competitiveness.  Yet we are performing poorly across almost all dimensions and rank in the bottom quarter of our peer group.”  It especially goes after Canada’s traditional reliance on natural resource products such as our forests to which relatively low value is added.  The report points out that “the Conference Board has argued again and again that a competitive advantage based solely on low cost or local natural resources is not sustainable.”

The Conference Board could just as well been talking specifically about BC, the Prince George region and OBAC.  The figures do not look good.  In 1990, BC led the country in export of value-added wood products with almost 33% of Canada’s total.  By 2002, this proportion dropped to 14% and BC had “slipped third behind Ontario (35%) and Quebec (34%)” (BC Stats, May 2003).

Since 2002, value-added production in BC has slumped dramatically.  Unfortunately, the figures for the Prince George region are undoubtedly grimmer.  In 1993, despite being a major primary wood production center, the Prince George region had only 420 people employed in its value-added wood industry, just 3% of the provincial total. 

Since then, a number of larger value-added companies, including Canadian Woodworks and Pacific Precision Wood Products, have gone out of business, suggesting that the number of value-added jobs in the Prince George may have gone down further.  That being said, it should be noted that the region does have a number of value-added companies that have been successful, often in the face of difficult challenges.

For years, the BC industry was warned that it should take advantage of the huge market for value-added products and diversify.  Today, the BC forest industry, and especially the industry in our region, faces huge challenges from the pine beetle devastation of our forests, as well as the problem of not being diversified enough.  What this all means is that the primary wood manufacturing sector will not be able to sustain itself at present levels.  

At a recent forestry conference in Vancouver, Mark Connelly, an investment analyst with Credit Suisse, put the issue bluntly:  “Every time you read a money management thing, it says diversify.  And B.C. didn’t.”

So why didn’t the BC industry diversify?  In 1996, one report noted that the value-added sector had been “’held back’ … by a historical reluctance of the primary processors to implement a change of direction from a ‘volume to value’ strategy,” because they believed there was not a “clear business case.”  (“Employment and Re-employment in Wood Products Manufacturing”). 

Interestingly enough, while the BC industry was reluctant to move into value-added, other regions of the world that also had focused mainly on primary production in the past, such as Finland, were doing the opposite.  Today, Finland is considered to be “one of the global leaders in the production of both softwood commodity and value-added products” (“Solid wood supply impediments for secondary wood producers in British Columbia – 2003 – R. Kozak, T. Maness & T. Caledecott).

This reluctance on the part of the primary processors is evident in documents such as a report published by the Council of Forest Industries (COFI) in 1999.  This report complains that changes to forest policy which favour the value-added sector cause “problems.”  The changes that COFI (which is a trade organization of the big forestry companies in BC) finds objectionable are the development of “community forests,” as well as policies that increase the “amounts of wood … made available to value-added manufacturers.” 

Another report (“Lumber remanufacturing in British Columbia”) put together by a Standing Committee of the BC Legislature in 1993 argued that there was a “conflict” between the “primary sector and the value-added sector” in the province and that the value-added sector was not on “an equal footing” with the major forest companies which control the supply of lumber and hold tenure over the lion’s share of the forest resource.

The problem with this mindset has been especially troublesome in the Prince George region, where the forest industry has long been dominated by a handful of large primary manufacturing companies; and more recently, one huge multinational, Canfor Corporation, which has for many years mainly focused its operations in this region on primary wood manufacturing.

As one local research report noted, “A very high proportion of [value-added] entrepreneurs [in the Prince George region] reported having problems with access to wood or work opportunities.  These fell into six general areas: delays, regulatory restrictions, source/supply problems, stumpage, cost, and the influence of big industry.”  (“The experience of small-scale forest-based entrepreneurs in northern BC – Draft Report” – Heather Myers  & Kyle Whiting, 1999)

Another report suggests that timber harvesting regulations are “heavily slanted towards the needs and activities of the primary dimension lumber mills” and that all of this “can make it very difficult for a small value-added wood manufacturer to have reliable access to good quality fiber.”  (“Report on Business Incubators - Prince George Incubator Assessment Committee”)

Why are the primary forest companies so reluctant to deal with the smaller value-added companies?  According to a feasibility report published in April 2000, the main reasons given by value-added operators are that the primary producers do not think it is worth their time and effort, nor do they believe it is cost effective for them.  In addition, “primary producers simply don’t want to assist any other wood producer who they view as potential competition.”  (“Value-Added Wood Manufacturing Business Incubation Program – Feasibility Report -- April 2000)

Such attitudes reflect a monopolistic mindset and hinder the further diversification of our forest manufacturing economy.  What we have is one sector of a manufacturing industry using its dominant or monopoly position to stand in the way of the development of another sector.  As a result, our communities and our way of life stand to lose.

To make matters worse, we have economic development organizations like OBAC that appear to be suffering badly from the same kind of “two by four” mindset, and have no concept of the possibilities that value-added wood production has for our region.

We desperately need a diversified wood sector in our region that includes primary, secondary and tertiary manufacturing.  For this to happen, the big primary forest companies need to shake off the old mindset and substantially invest in developing their own value-added operations.  In addition, a favourable environment, in terms of forest policy, secure access to high quality timber and lumber, and so on, has to be developed so that independent value-added companies can flourish. 

Whenever big changes have happened in the past in the forest industry, such as the establishment of pulp mills in our region, government has had to make significant changes in forest policy to facilitate those changes.  Today is no different.

It is to the credit of the primary forest companies in this region that they have been able to establish a highly productive and profitable industry.  And no one should take that away from them.  But we have come to a fork in the road where things cannot continue on as in the past.

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