Sunday, April 6, 2014

Forestry - An Industry Perspective


The forest industry was the mainstay of British Columbia's economy for generations; while it's percentage of provincial GDP has fallen, it's importance remains. We are generally healthier for less predominance over the economy by the forest industry, we are more diversified now. 

I prospects for wood-fiber are good, stick frame construction - long a North American preference - is gaining traction in the emerging markets - the BRICKs and the like. It is the adoption of stick frame construction in China and the resulting demand for fiber that has shored up an otherwise challenged US-centric market. It is the sense of the writer that the US housing market will show mild improvement until about 2018 and at that point it should move into a long and strong growth pattern. This prediction is based on the belief that there was a confluence of cycle ends – major economic cycle, business cycle and technology cycle and well as, the resulting the commodity supper cycle correction or slowing – all of which collided with a grotesques financial deepening to create the down turn in 2008 – the real world economic cycles are now, one by one, running their course. One would anticipate that the inverse of 2008 will be true in 2018 – this thesis is shored up to some degree by severe downturns, 1930 etc., normally taking a decade to recover from. The future is bright for the forest industry in terms of product offering and a broader deployment of wood fiber in regional diversity, and in existing and new uses.

The challenge for the industry at large, but an opportunity for some, is the reductions in Annual Allowable Cut the are sure to follow the devastation that the Pine Beetle infestation inflicted.  The post infestation pine forest viability is extending as the industry adapts processing and marketing to the present reality, soon however, stand viability will be gone and with it timber supply. This will leave a lot of stranded capital in milling plant sitting or looking for fiber to feed it - the combination of excelled demand for fiber and reduced supply is sure to drive fiber prices upward. This reality bodes well for privately held and managed stands of timber.

There is going to be a girth of "none-viable" fiber laying in waste thought out the province for years to come, as transportation costs drive reduced the viability of the fiber source and or the fiber source decays; there is opportunity here, I've donated considerable thought to how one might unitize this material - I believe there are many. There may be some answers in the history of logging and milling in the province, perhaps mobile milling and other mobile utilization holds the answer to overcoming the transportation challenge. Transportation holds a high degree of sensitivity in material value being hauled - this presents an opportunity.
I have contemplated extensively, forestry as an adjunct to an agricultural enterprise, a companion enterprise if you will. Forestry works well in this space, many forestry activities labour demands are counter-cyclical to agriculture or can be made to be so. There is skill cross over between agriculture and forestry that permits work force substitution. The two industries have operational similarity and in the longer term, growing trees is really just crop management. The challenge here to some degree is government policy, an over emphasis on volume based timber tenure, rather than area based timber tenure, has taken the long term management of the forest out of the hands of people and put it in the hands of government. A number of distortions have emerged out of the province's forest policy, there are avenues to access timber supply in the longer term. I believe the government will be compelled in the years to come to give area based tenure its due in forest policy - perhaps there is a new era about to emerge. 

There are a number of opportunities now; wood electrical generation, private portfolio of timber properties, localized milling, harvesting technologies geared to low volume salvage of fiber in conjunction high efficiency remote mobile milling - the list is extensive - all it needs is the confluence of capital and people.  

I am excited about the prospects for forestry, if you are too, the opportunities are waiting.  

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