Federal government unveils $75-million package to help forest industry conduct research and open new markets

The federal government has significantly ramped up its support of forestry research and marketing with three initiatives designed to ensure that Canada maintains its world class research capability. The assistance is also meant to counteract the severe recession and US duties now decimating the industry. The $75-million package includes $30 million over two years for Canada’s three national forest research institutes — Pulp and Paper Research Institute of Canada (Paprican), Forest Engineering Research Institutes of Canada (FERIC) and Forintek Canada Corp.

Another $15 million over five years will be devoted to value-added research for manufacturing processes used to produce value-added products. This funding will be provided to a consortium led by Forintek in conjunction with the Univ of British Columbia, Laval Univ and the Univ of New Brunswick.

The third program will see $29.7 million directed towards the opening up of new markets for the Canadian wood products industry in light of recent US moves to restrict lumber imports. Assistance will be open to forest product associations representing primary and secondary word products who submit proposals for funding, as well as industry and government partners “where appropriate.”

A technology roadmap of the forest sector was produced in 2000 by Forintek. It states that “only technological innovation can allow the Canadian lumber industry to maintain and improve its position” in the global marketplace. It also contends that the industry’s future success will depend on “the commitment of the industry and its allies to innovation through medium and long term R&D.” The vast majority of industry-focused research is conducted by Paprican, Forintek and FERIC.

For the forest research institutes, financial assistance comes at a critical time. The industry has been in the grip of a global recession for more than two years and Canada’s companies have more recently been hit by a 27% softwood duty. In addition, consolidation on a global scale has resulted in few companies providing financial assistance for research.

The federal government had already stepped in with interim assistance. In the 2000 Budget, $15 million over one year was allocated to the three institutes — $8.6 million to Paprican, $4 million to Forintek and $2 million to FERIC. The intention was to provide bridge financing to weather the industry recession and avoid work force reductions. Since that time, the situation has not improved.

“The institutes are still undergoing difficulties so the $30 million is to ensure that they remain viable,” says Bob Jones, manager of industry relations at the Canadian Forest Service (CFS), a branch of Natural Resources Canada (NRCan). “It’s not a bailout but it will certainly keep them afloat. Times will presumably turn around in the next two years.”

NEGOTIATIONS UNDERWAY

No decision has been made on precisely how the $30 million will be allocated between the institutes. NRCan developed the assistance package only recently and must still go to Treasury Board for spending approval. At the same time, it is negotiating contribution agreements with the institutes and consulting with their industry members. The money is expected to flow by late summer or early fall.

“It certainly recognizes that, with the dire straits of the industry and the worst recession in 30 years, the institutes are under stress,” says Dr Joe Wright, Paprican’s president and CEO. “Industry puts $50 million a year into the industry but that amount is not enough to run the businesses at the critical mass we’re at. The business climate is so negative that additional research investments are a tough sell. It’s a challenge driven by the business cycle.”

Wright says that the institutes now need to position their respective business plans so that there is a long-term business model that includes government input, adding that the money allocation will be driven by the evolution of the plans.

Despite the obvious need for additional financing, Wright denies that the $75-million package represents a bail-out of the industry and its research arms. He asserts that government has always played a role in the industry’s research endeavours, and that Ottawa’s relationship with Paprican — by far the largest of the three research institutes — goes back to its inception in 1925. In recent years, that assistance was in the form of two projects funded by Technology Partnerships Canada, the last of which is about to expire.

“Government has a number of significant needs they want the industry to achieve (and) it’s incumbent upon government to help pay to solve them,” says Wright. “We hope that through a process of dialogue intersecting with the innovation agenda will lead to ongoing government participation.

Earlier this week, Wright and his counterparts at Forintek and FERIC were in Vancouver attending the forestry sector consultations with Industry Canada as part of the innovation agenda’s engagement process.

In addition to assistance for forest research, NRCan is also providing funds to stimulate research for value-added wood products. Forintek will lead the initiative in conjunction with the three aforementioned universities. The program is essentially a renewal and expansion of the Canadian Forest Service Value-Added Program which provided $4million over four years and expired at the end of March/02.

The funding will allow for more research of manufacturing processes with a significant technology transfer component. “A big part of the program is technology transfer, taking research out to the plants,” says CFS’s Bob Jones. “A lot of the small guys have been hurt by the 27% duty.”

The final component of NRCan’s assistance is for the Canada Wood Export Program. Jones says 80% of Canadian wood products currently go to the US, but the softwood lumber trade dispute has compelled the industry to seek new markets.

“We put all our eggs in one basket and now we’re looking at other markets like China, Korea and India,” he says. “Things will not be company-specific but on a more generic level. This has been an ask of the federal government for two years.”

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