By: Vancouver Sun
It’s a long-standing call of unions and industrial planners in Canada that the key to future prosperity is to export fewer natural resources by keeping them in Canada for processing and then shipping exports with more “value added.”
Forestry products are a regular target for this vision, where government fiat would displace market forces in determining our exports.
However, the argument literally doesn’t even apply well to the forest-products industry. Already, most of the $41.3 billion of exports of forestry products take place after some or extensive processing. In 2016, exports of unprocessed logs totalled only $800 million, or less than two per cent, of all forestry-product exports (and not substantially more than the $400 million of log imports into Canada last year).
So a ban on such exports would generate minimal benefits, dictating to an industry to do what it has already been driven to by market forces.
Softwood lumber is by far Canada’s largest forestry export, reaching $15.7 billion in 2016. Exports of lumber hit their all-time peak of $21 billion in 2004, partly reflecting the onset of the pine-beetle infestation in B.C. and the end of the U.S. housing boom in 2007. The U.S. housing market has never fully recovered, so while exports of lumber have increased from their low of $6.9 billion in 2009, they remain below their highs at the start of the century.
Employment reflects how Canada already has shifted most of its forestry-related activity downstream to lumber and paper. These industries employed 92,281 and 53,178 Canadians, respectively, in 2016. The forestry industry still employed an impressive 39,858 Canadians, despite its low level of exports, reflecting how most of these people were producing logs as an input into the lumber and paper industries, which then exported to global markets.
It’s easy to see why producers prefer to export manufactured wood rather than unprocessed logs.
Exporting logs means shipping a considerable amount of product that will only be discarded after being trimmed into lumber at a mill in the U.S. or overseas. It makes much more sense to do that processing here in Canada before exporting.
This is reinforced by the symbiosis between the manufacture of lumber and pulp and paper mills, as the latter uses as a key input what would otherwise be the leftover trimmings from converting logs into lumber.
Perhaps advocates of the “more-value-added” approach want to increase value added beyond the manufacture of lumber, and pulp and paper. The next step would be converting these semi-finished products into a final-use such as furniture or pre-fabricated buildings.
However, the track record shows this hasn’t been a successful, long-term strategy for firms in Canada. Because of intense competition, this industry has low value added and depends on low wages and costs to be competitive.
Lumber, and pulp and paper, exports have their own problems. Lumber is dependent on the cyclical state of housing markets abroad, notably in the U.S., and is vulnerable to the whims of countervailing duties imposed by U.S. politicians, despite the free-trade agreement. Paper exports have been in long-term decline as technology has shifted media from print to screens.
However, the response to these problems is not a naïve, reflexive and unthinking faith in banning resource exports in an attempt to generate more manufacturing in Canada. Canada exports very few unprocessed logs already, while the track record shows low, value-added exports downstream in industries such as furniture haven’t succeeded over the long haul.
Canada has a long, but little-known, history of enhanced processing of its natural resources before their export. Advocates of the “more-value-added” approach to exports ignore that Canada actually imports natural resources from around the world (including metals such as gold and bauxite, crude oil and even logs) for processing in our efficient smelters and mills.
Rather than focusing on banning log exports, a more progressive and encouraging possibility is for Canada to export services related to its knowledge of the forestry industry, much as Canada exports its extensive knowledge of mining around the world. This could include everything from sustainable forestry practices to new technologies that allow computers to scan logs as they arrive to determine what would be their best use.
Philip Cross was formerly chief economic analyst at Statistics Canada.
By: Vancouver Sun