Financial Reports & Markets
February 1, 2008 By Pulp & Paper Canada
These are some of the toughest times Canada’s forest products industry has seen in decades. The challenges are the direct result of the instability of the Canadian dollar, a U. S. housing slump, emerg…
These are some of the toughest times Canada’s forest products industry has seen in decades. The challenges are the direct result of the instability of the Canadian dollar, a U. S. housing slump, emergence of new global competitors and policy obstacles in Canada. These challenges did not emerge suddenly; they have been on the radar screen for some time. But pundits and policy makers chose to look the other way.
It is now clear that Canada’s economy, particularly the manufacturing sector, is under significant stress. After years of robust growth, Canada is finally coming to grips with the realities of an economic slowdown. The Canadian forest products industry has seen this impending slowdown coming for some time. The U. S. housing sector has been in recession since the middle of 2006 and profound changes in the key pulp and paper market has been ongoing for several years now. This vantage point helped the industry realize earlier than most just how complacent policy makers were in their response.
So with the ‘are we faced with a problem’ debate now behind us, it is imperative that policy makers, industry and organized labour work to develop a market-based strategy that will make Canada an investment-friendly place for industries such as pulp and paper to thrive. A failure on the part of all to develop a market-based strategy and rely, instead, on old-style patchwork schemes like handouts does not bode well for the national economy.
For the forest products sector, despite a trying time of transition, there are a few industry bright spots. The most global of our paper products, market pulp, has enjoyed a generally strong performance despite the many struggles we face. And in the face of a high dollar and deep structural changes in the markets, the cost-competitiveness of Canada’s newsprint sector has improved over the past year and a half.
Furthermore there is significant emerging demand in global markets as economies in countries such as China and India grow. This provides the Canadian industry with enormous potential. We have the resources, the know-how and, perhaps most important, the environmental excellence -which will give us a key competitive advantage in the marketplace.
What we are missing, though, is the right business environment. Policymakers need to recognize and act immediately to improve the business climate for Canada’s manufacturing sectors.
Few industries are as capital intensive as the forest products industry, particularly on the pulp and paper side. For this reason, there is a strong need for government and industry to work together to create the right mix of policies to encourage investment. Moreover, collaborative work can be done in areas such as technological breakthroughs, market development and the branding of Canadian products in target markets. Examples of such partnerships abound in the U. S. and Europe.
There has been some progress in reducing corporate taxes at the federal level. But the deep reductions don’t kick in for a number of years, and are little help to some manufacturing industries, such as forestry, whose cash flows are under pressure from the unprecedented rise in the Canadian dollar.
There are measures that, taken immediately, can give the industry much-needed stimulus. Those include extending the timeframe, from two years to five, under which companies can accelerate the write off of capital equipment; and making R&D tax credits refundable to companies, regardless if they are posting a profit.
Recent developments indicate that we are well beyond a debate over the chances of a nation-wide economic slowdown. What is needed is collective action to ensure forestry can thrive. The industry is prepared to take the necessary steps. Governments must do likewise.
Avrim Lazar is president and chief executive of the Forest Products Association of Canada. www.fpac.ca(613) 563-1441
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