Forest Products Industry Releases Task Force Report on Future of the Industry

    OTTAWA, May 8 /CNW Telbec/ - The Forest Products Association of Canada
(FPAC) today released Industry at a Crossroads: Choosing the Path to Renewal,
the report of the Forest Products Industry Competitiveness Task Force. The
Task Force was formed in response to widely held and growing concerns about
the Canadian industry's current situation and future prospects. Its mandate
was to assess the hosting conditions faced by Canada's forest products
industry with particular emphasis on identifying options for the sector to
accelerate the rate of capital investment and pace of innovation in the
Canadian forest products industry.
    "The Canadian forest products industry faces a very fundamental choice,"
said Avrim Lazar, President and CEO of FPAC. "Either we continue on the
current path and face a future of diminishing possibilities or we accept the
reality of a changed global environment and strive for the opportunities that
it offers. While it is industry's job to change by becoming more cost
competitive, focusing on investment, getting the industry structure right and
adopting a future orientation, governments must get the conditions right."
    "This Report concludes that despite current challenges, the
revitalization of the Canadian forest sector can be realized to take advantage
of growing global markets for forest products," continued Lazar. "In fact, the
Task Force believes that Canada can-and should-be at the forefront in
re-defining social, economic and competitive success in the global forest and
paper industry of the 21st century. However, the path to renewal must be
chosen-by companies, by governments, by workers and by communities; it will
not happen on its own."
    The Canadian forest products industry is the world's largest exporter of
forest products, an $84-billion industry representing 3% of Canadian GDP. The
industry enjoys a number of key competitive advantages, including the quality
and diversity of the Canadian fibre basket, proximity to the huge U.S. market,
a skilled workforce and, in some provinces, relatively inexpensive
electricity.
    The Report details the path to renewal which involves three major
elements:

    - Getting Costs Right: In an increasingly competitive global market, the
      ability of Canadian producers to be cost-competitive with their leading
      international rivals is key to economic viability. The four largest
      input costs for most products are fibre, personnel, energy and
      transportation. In recent years, industry has undertaken far-reaching
      changes to improve cost-competitiveness and even more rapid change will
      be required in the years ahead. Government too must increase the pace
      of policy reforms in order to enable the renewal of Canada's forest
      industry. For example, Task Force analysis found that the failure of
      Canada's rail transport policy to provide a competitive check on the
      market power of the railways cost Canada's forest industry
      $280 million last year.

    - Getting Industry Structure Right: The restructuring and consolidation
      currently taking place in the global forest products industry offers a
      window of opportunity to create and industry structure in Canada better
      suited to a changed global market place. While Canada ranks among the
      largest producers and exporters of forest products in the world, until
      early 2007, no Canadian-based forest products company ranked among the
      global top 20 in size. This is in part the result the legacy of federal
      and provincial policies that have constrained the ability of the
      industry to adapt its structure and operations to meet the demands of
      the global marketplace.

      Increased capital investment is also critical to the renewal of
      Canada's forest industry. Despite capital expenditures of $4 billion
      last year, billions more will be needed in the years ahead in order to
      maintain and enhance the competitive position of Canada's forest
      industry. While attracting capital investment is ultimately the
      responsibility of the industry itself, the quality of hosting
      conditions created by Canada's public policy framework has an
      indisputable impact on the process. In this regard, governments can
      assist the renewal process through a more globally competitive tax and
      investment climate, as well as through a new approach to forest tenure
      and mergers policies.

    - Getting the Future Right: Despite current challenges, factors like
      strong global economic growth, emerging breakthrough technologies and
      increasing preoccupation with climate change and sustainability are
      creating unprecedented opportunities for Canada's forest industry.
      Realizing this potential will require competitive strength in core
      business lines and traditional products as well as a focus on such
      priorities as continuous improvement in sustainability and sustainable
      forest management performance, an increased customer focus, expanded
      market development efforts and a sustained commitment to research and
      innovation.

    "Realizing the emerging opportunities in the global forest and paper
industry offers a sustainable means of revitalizing one of Canada's most
important industrial sectors and is of special importance to the
self-sufficiency and economic well-being of hundreds of communities across
rural Canada," concluded Lazar.
    Highlights from the Report are appended to this press release. The full
copy of the Report, Industry at a Crossroads: Choosing the Path to Renewal, is
available from the FPAC website at www.fpac.ca.
    FPAC is the voice of Canada's wood, pulp and paper producers nationally
and internationally in government, trade and environmental affairs. Canada's
forest industry is an $80 billion dollar a year industry that represents 3% of
Canada's GDP. The industry is one of Canada's largest employers, operating in
over 320 Canadian communities and providing nearly 900,000 direct and indirect
jobs across the country.


                                 HIGHLIGHTS

         Forest Products Industry Competitiveness Task Force Report

    The Task Force is confident that revitalization of the Canadian forest
sector is possible and that Canada can-and should-be at the forefront in
re-defining social, economic and competitive success in the global forest and
paper industry of the 21st century. However, the path to renewal must be
chosen-by companies, by governments, by workers and by communities; it will
not happen on its own.

    A path to renewal

    Given the opportunities and challenges facing Canada's forest products
industry, the Task Force identified a path forward to enable its renewal. It
involves three major elements:

    1) Getting Costs Right: The four largest input costs for most products are
fibre, personnel, energy and transportation. In all cases, both industry and
government have a role to play in ensuring these costs are globally
competitive:

    Fibre: Provincial governments should reform tenure systems to make them
    more flexible and to optimize investment in sustainable forest
    management; of particular importance are eliminating appurtenancy where
    it continues to exist, and reforming other rules that have the effect of
    dictating industry structure and production decisions.

    Transportation: The federal government can reduce excessive rail costs
    through legislation to expand running rights and strengthen final offer
    arbitration to create a more competitive rail system.

    Personnel: Industry, in collaboration with labour, needs to identify
    means of increasing productivity in the sector so as to better match
    personnel costs with productivity levels.

    Energy: The industry should commit to becoming a net source of renewable
    energy within a decade and a half. Public policy-makers can help to
    realize this objective through a market-oriented approach to
    environmental and renewable energy policy that encourages investment and
    innovation in renewable energy and technologies and energy efficiency.

    2) Getting Industry Structure Right: Attracting billions of dollars in new
capital Investment to the sector is the only means by which further
contraction in production capacity and a relative decline in asset quality may
be avoided. Building the confidence of capital markets in the sector's future
in order to enable capital renewal is ultimately the responsibility of the
industry itself. However, the quality of hosting conditions created by
Canada's public policy framework has an indisputable impact on the process. In
this regard, governments can assist the renewal process through a more
globally competitive tax and investment climate, as well as through a new
approach to forest tenure and mergers policies.

    In particular, governments should:

    - Ensure tenure systems allow fibre to be allocated to its highest value
      use;
    - Apply mergers policy to the sector that recognizes the global nature of
      markets and competition;
    - Reduce the Marginal Effective Tax Rates (METR) on capital investment to
      below the OECD average within five years;
    - Eliminate capital taxes and the application of sales taxes to capital
      inputs at the provincial level;
    - Extend the announced two year accelerated capital cost allowance for
      new investments in manufacturing and processing equipment;
    - Make Scientific Research and Experimental Development (SR&ED) program
      credits refundable; and
    - Restore interest deductibility on foreign investment.

    3) Getting the Future Right: Industry has a leadership role to play in
enabling the renewal of Canada's forest products industry through a focus on
such priorities as continuous improvement in sustainability and sustainable
forest management performance, an increased customer focus, expanded market
development efforts and a sustained commitment to the development and early
deployment of breakthrough technologies. Actions that industry and governments
can take to realize this objective include:

    - Renewing and deepening partnerships to support the development and
      early deployment of the most promising bioenergy technologies;
    - Building on Canada's history of success in growing non-traditional
      geographic and end-use markets for wood products through public-private
      partnerships in support of market development; and
    - Developing an environmental policy framework that is predictable,
      results-based and makes use of emissions pricing and economic
      instruments to enable the industry to move forward in further reducing
      it's environmental and carbon footprint.

    Conclusion

    The Task Force recognizes that much of the needed change needs to be
initiated by the industry itself. However, realizing the unique opportunities
that the new global marketplace offers will also require decisive action and
far-sighted leadership on the part of policy-makers, labour and other
stakeholders. Realizing the emerging opportunities in the global forest and
paper sector offers a sustainable means of revitalizing one of Canada's most
important industrial sectors and is of special importance to the
self-sufficiency and economic well-being of hundreds of communities across
rural Canada. Canada faces a very fundamental choice: continue on the current
path and face a future of diminishing possibilities or accept the reality of a
changed global environment and strive for the opportunities that it offers.

For further information: Isabelle Des Chênes, Director, Communications,
Forest Products Association of Canada, (613) 563-1441 ext: 323, cell: (613)
853-2938, ideschenes@fpac.ca