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

Ottawa, Ontario, Canada, 08 May 2007 -- 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 redefining 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, a CAD 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 fiber 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:

1. 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 fiber, 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 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 CAD 280 million last year.

2. Getting industry structure right: The restructuring and consolidation currently taking place in the global forest products industry offers a window of opportunity to create an 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 CAD 4 billion last year, billions more will be needed in the years ahead 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, and through a new approach to forest tenure and mergers policies.

3. 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 and 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.

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 CAD 80 billion dollar a year industry that represents 3% of Canada's GDP. The industry is one of Canada's largest employers, operating in more than 320 Canadian communities and providing nearly 900,000 direct and indirect jobs across the country.