Canada's forestry sector knows what it wants to see in Tuesday's federal budget, but it isn't exactly sure what to make of the slew of pre-budget releases.

The Harper government will create a billion-dollar fund to send workers from hard-hit industries back to school as a key plank of its economic recovery. As well, it promises a billion dollars to help one-industry towns, including those that rely on forestry.

“As always, the devil is in the details,” says Dave Coles, president of the Communications, Energy and Paperworkers Union of Canada, which represents 55,000 forestry workers.

“A billion dollars, what does it mean? They told us last year there was a billion dollars for rural communities. Turned out to be totally negligible for the forestry industry. If it had an impact, no one can tell us where it is.

"Then there’s this issue of retraining. It’s not just about training forest workers to go to Fort McMurray. It should actually be about training forest workers to be better forest workers.”

“A billion sounds like a lot of money,” he said. "But I am suspicious it really won’t get any of the hard core issues.”

The forestry industry hasn’t asked for a bailout, like other industries. It wants access to credit and tax breaks to stimulate investment and the development of new technologies. In terms of actual cash, it wants $600 million over five years, and half of that will come from continuing two existing programs.

'It's a green industry that could have a huge future.'

— Dave Coles, Communications, Energy and Paperworkers

“What we’re focusing on is keep the jobs here,” said Forestry Products Association president and CEO Avrim Lazar.

"The industry has not been waiting for government help. But the key is to get private sector investment into the industry. The government can accelerate our transformation. But tomorrow, we’re looking for changes to the tax system that will invite private investment into Canada’s forest industry.”

The association has asked the government to:

• Extend an existing international marketing program for five years at a cost of $175 million.
• Extend an existing forest-products research-and-development program for five years at a cost of $125 million.
• Set up a bioenergy fund to develop and commercialize the use of wood waste as an energy source, at a cost of $300 million over five years.

The forest-products industry has been shrinking since 2003, closing 207 mills and shedding 38,000 jobs.

Most losing money

The problems have worsened in the past year, as the collapse of U.S. home-building has cut the price of lumber almost 40 per cent between January 2006 and October 2008. Lumber prices haven’t been so low since 1991. Pulp shipments in December 2008 were down 9.5 per cent from the year-earlier level, and prices fell 20 per cent.

In its latest Global Forest and Paper Industry Net Earnings Summary, PricewaterhouseCoopers found 14 of the 15 Canadian companies in the survey lost money in the quarter ending September 2008.The Forest Products Association of Canada predicts that Canada's high environmental standards will make its wood products a hot commodity in the near future. CBC

“The U.S. housing market continued to deteriorate in the quarter and companies adjusted production in response to weak demand for North American building products,” the report says. “Canadian companies reported a loss of $529 million US in the third quarter. Included were restructuring costs and asset impairment charges of $292 million compared to $13 million reported in the same period in 2007.”

Yet Lazar exudes optimism. Each year, worldwide demand for forest products is growing by more than British Columbia's total production, he said. U.S. demand will recover and surpass the pre-recession peak.

“Americans will continue to live in houses. There will be pent-up demand when the credit crisis is over. And they will continue to build houses using wood,” he told CBC news.

"When markets return, what people are going to be looking for are products that are green, products that are innovative and products that are produced at the lowest possible price.”

Green products promise growth

Moreover, Canada's high environmental standards will again make its products a hot commodity, he said.

As world demand rises, buyers will want to know that the paper and lumber they use was produced cleanly. They will reject products from illegal loggers, countries that don't control deforestation and tropical plantations using land that could grow food.

"The industry's environmental responsibility may be a virtue now, but in the near future, it will be a key market advantage and translate into jobs for Canadians," Lazar said last summer.

Craig Campbell, a forestry specialist with PricewaterhouseCoopers, agreed there is a green future for the industry, but as the consulting company's website notes, environmental friendliness has not been an easy sell.

"The Canadian industry has struggled to get this message out as a way of differentiating itself from competitors," it said.

Worldwide competition

Some of those new competitors from South America and Asia are doing very well, shaking up the international industry to the detriment of traditional forestry product producers from Canada, the United States and western Europe.Lumber prices haven’t been so low since 1991. CBC

These new players have two advantages, Campbell says. They use cheap, fast-growing trees, and they have new, efficient plants with modern technology.

They can undercut older producers and jump on opportunities when they arise.

But the Canadian industry is facing more than just new competition

Even the forestry association acknowledges that only a few Canadian mills are competitive.

"While there are some world-class mills in Canada, only a minority of operations boast first- or second-quartile status, the result of older technology and higher input costs," the group's 2007 review says.

Given the industry's poor economics, Campbell has a question about its plans to promote its environmental benefits: "How are they going to fit that in with the economic challenges?"

300 communities depend it

Yet while workers and communities wait for the green future, there is the problem of today. Across the country, more than 300 rural and remote communities rely on the forest industry, a June 2008 Senate report on rural poverty says.

“The government and the Bank of Canada have been saying, ‘it’s a sunset industry, good bye, good luck, let the market decide,’” says Dave Coles, president of the CEP.

“That’s not factual or even the reality of Canada. It’s a green industry that could have a huge future. It’s just having some structural problems, and we need the government to put its shoulder to the wheel.”