Canada lumbering toward another softwood lumber agreement

The low loonie won't make renewing the Softwood Lumber Agreement with the US any easier

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Roslyn Kunin is a Troy Media columnist
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VANCOUVER, BC, Dec. 6, 2014/Troy Media/ – As I write this, the Canadian dollar is worth less than 88 U.S. cents and no one is expecting it to make any drastic moves soon. Not long ago the loonie was above parity with the greenback and we are now concerned about the implications of its fall.

The benefits of a weaker currency are centered on exports. Canadian goods and services, resources, tourist attractions and manufactured goods become less expensive to those outside Canada. On the other hand, everything we import, from tangerines to technological equipment, becomes more expensive for Canadian consumers and businesses.

One area where the lower dollar has great potential to do harm is in the forest sector, especially with respect to softwood lumber. Lumber is important to the economy across Canada and has always been a mainstay in British Columbia. As we wait to see how much and how soon developments will occur in LNG and other sectors, a gently reviving forest industry is supporting the B.C. economy.

Softwood lumber agreement major threat to industry

But a big threat now looms over a major component of the forest industry in Canada and British Columbia. That threat is the fast approaching expiration of the Softwood Lumber Agreement (SLA) with the United States. Last September, the United States took 59 per cent of B.C.’s softwood lumber exports – down from earlier years, but still the lion’s share.

softwood lumber agreement
The U.S. Lumber Coalition is strongly opposed to renewing the Software Lumber Agreement

The United States should be delighted that Canada provides them with an assured supply of high-quality, low-cost, sustainably-produced lumber that becomes even better value as the Canadian dollar falls because it could reduce the cost of housing for Americans, a desirable goal.

However, and free trade agreements notwithstanding, lumber producers in the U.S. are determined to keep the price of their product up and the Canadian share of the market down, even though the capacity of U.S. lumber producers is insufficient to meet domestic demand.

Before the SLA was in place, the American industry waged an endless and very expensive battles alleging Canadian subsides on lumber and seeking countervailing duties. Apart from costing time and money, this process generated a level of uncertainty that plagued Canadian lumber producers.

The current SLA was implemented in 2006 and has been extended until October 2015. It is a complex and convoluted agreement with duties dependent upon price, volumes and market shares. Its impacts and implementation are different in different provinces and it is much more costly to the industry than freer trade. Nevertheless, it does provide a degree of certainty and the B.C. and Canadian lumber producers have found that they can live with it as the best of likely alternatives. Hence, the strong B.C. and Canadian desire to see the SLA, flawed as it is, renewed or extended.

The lobby group the U.S. Lumber Coalition, without providing details on its position, is strongly opposed to renewing the SLA, a position strengthened by the addition of two major U.S. lumber producers; Georgia Pacific and Weyerhaeuser. Their vehemence will only grow as a weak loonie makes Canadian lumber even cheaper.

Believing that if you can’t beat them you should join them, Canadian lumber producers West Fraser Timber, Interfor and Canfor, have purchased lumber mills in the U.S, which will likely curb their enthusiasm to support the pro SLA position in Canada.

It is highly likely that, a year from now, B.C. and Canadian lumber producers will face less certainty and more costly limited access to U.S. markets. The lower Canadian dollar makes this undesirable outcome even more probable.

Time to diversify away from the US

Our lumber sector will be hurt, but it will not die. However, when the battle is between the Canadian mouse and the U.S. elephant, switching should be considered over fighting. Diversifying lumber markets away from the United States provides a broader customer base.

Asia (not just China) is a good place to start. Turning more of our wood to products of higher value than lumber is advantageous, but we need to be more productive and creative to do that successfully.

We also need to be more competitive in global markets and here, at least in the short term, our lower dollar may help.

Troy Media BC’s Business columnist Roslyn Kunin is a consulting economist and speaker and can be reached at www.rkunin.com.

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