Department of Wood Science, UBC Matching market signals to the Canadian wood products value chain a disaggregated trade-flow analysis Chris Gaston Wei-Yew Chang Mahsa Mojahednia Department of Wood Science, UBC FPInnovations February 20, 2014

Some context: wood-use in the U.S. Source: RISI, Boston, Massachusetts Gaston Feb. 2014 Page 2 of 13

US housing starts Gaston Feb. 2014 Page 3 of 13 Source: US Census Bureau Gaston Feb. 2014 Page 3 of 13

‘Stick-built’ platform frame construction The average cost of rough framing, sheathing, soffit, and door / window installation is as low as $8 per sq. ft. ($16,000 for a 2,000 sq. ft. home) Gaston Feb. 2014 Page 4 of 13

Pre-fabricated / modular construction Gaston Feb. 2014 Page 5 of 13

Move to 6-story multi-family Library Square, Kamloops, BC, 2010 Source: WoodWorks Gaston Feb. 2014 Page 6 of 13

Move to 6-story multi-family Residential, University of BC, 2013 Source: Adera, Vancouver Gaston Feb. 2014 Page 7 of 13

Six story hybrid wood-concrete Office building, Quebec, 2010 Source: FPInnovations Gaston Feb. 2014 Page 8 of 13

Six story hybrid wood-concrete Concrete cores / walls to resist lateral loads Glulam post & beam Source: FPInnovations Gaston Feb. 2014 Page 9 of 13

Five story hybrid wood-concrete Earth Sciences Building, UBC Source: Perkins + Will Gaston Feb. 2014 Page 10 of 13

Five story hybrid wood-concrete Earth Sciences Building, UBC Source: Perkins + Will Gaston Feb. 2014 Page 11 of 13

‘Tall Buildings’ “We are in a unique moment in architectural and building engineering history when shifting world needs has asked us to question some of the fundamentals of how we have built for the last century and how we will build in the next.” Michael Green Source: Michael Green Architecture Gaston Feb. 2014 Page 12 of 13

Disaggregated trade-flow analysis Based on the Forintek Global Trade model (Gaston & Delcourt 1998, Gaston & Marinescu 2006) Demonstrates the value of disaggregating production, consumption, and trade data into a “like” softwood lumber products. 2013/14 A comprehensive trade forecasting tool for two categories of lumber: US construction / US industrial and China US home centre +, Japan, Europe 2014/15 Add new categories of lumber, pellets, and logs (saw logs, pulp logs and fuel wood). Who wins the fibre auction? VCO implications (strategic and policy) Gaston Feb. 2014 Page 13 of 13

Questions? Chris Gaston, Ph.D. chris.gaston@fpinnovations.ca chris.gaston@ubc.ca 604 827 1417

Wei-Yew Chang & Chris Gaston Matching Market Signals to Canadian VCO: A Disaggregated Trade-Flow Analysis Wei-Yew Chang & Chris Gaston Department of Wood Science, UBC VCO Webinar Winter Session March 05, 2014

Introduction Spatial equilibrium models have been frequently used by researchers to analyze trade flow changes in forest products markets. Studies tended to use aggregated product groups (e.g. lumber, plywood etc.) and assumed various products are homogeneous. Research Questions: How to address the issue of forest products homogeneity? What are the implications of ignoring homogeneity in strategic value chain optimization and policy planning? The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Research Objectives (achieved) 1. Disaggregate global softwood lumber into two product groups:  Higher grade lumber (SWL #1) (appearance, select structural, and Japanese-J grade).  Lower grade lumber (SWL #2) (U.S. dimension used in construction and utility/economy grade). 2. Utilize & develop a spatial equilibrium model to project future disaggregated softwood lumber trade flows (2011-2021) The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Research Methods Forintek Global Trade model (Gaston & Delcourt 1998, Gaston & Marinescu 2006) -Demonstrates the value of disaggregating production, consumption, and trade data into “like” softwood lumber products. -Considers n regions spatially apart and transportation costs are considered when determining prices and quantities that maximize total economic welfare (surplus) in the market. 𝑚𝑎𝑥 𝑖 𝑛 0 𝑞 𝑖 𝐷 𝑖 𝑞 𝑖 𝑑 𝑞 𝑖 − 𝑗 𝑚 0 𝑞 𝑗 𝑆 𝑗 𝑞 𝑗 𝑑 𝑞 𝑗 − 𝑖 𝑛 𝑗 𝑚 𝑡 𝑖𝑗 𝑞 𝑖𝑗 The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Research Methods 13 Countries/regions  7 Net supply (export) regions: Canada, U.S. Export (mainly from U.S. West), Europe Export (i.e. Germany, Austria, Finland, Sweden, Estonia, Latvia, and Lithuania), Russia Federation, New Zealand, Chile, and Rest of World Export.  6 Net demand (import)regions: U.S. Import (mainly from U.S. South and North), Japan, Korea, China, Europe Import (i.e. Norway, Switzerland, and EU-27 countries other than the Europe Export countries mentioned above), and Rest of World Import. The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Research Methods Data sources (2011 as base year) 1. Trade flow data - Global Trade Atlas® (HS Code-4407) 2. Two Price categories to separate two product groups - Net export regions: (i) US$150/m3 & up (~$350/MBF)  SWL#1 (ii) Less than US$150/m3  SWL#2 - Net import regions: price categories above + transportation costs 3. Production, consumption, transportation costs, and price elasticity data - FAO, Statistics Canada, government reports, and other studies The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Results Aggregated vs. disaggregated trade flows (2011) Calibrated base case results (2011) Predicted trade flows for the 2011-2021 period The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Results- Aggregated vs. disaggregated SWL Trade flows in 2011(‘000 m3) 25% and 75% of Canadian SWL exports to US are SWL#1 and SWL #2, respectively. 100% of Canadian SWL exports to Japan is SWL #1. 85% of SWL exports to China is SWL #2. The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Calibrated base case results (2011) The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Calibrated base case results (2011) The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Assumed annual supply and demand changes (%) (2012-2021) Regions 2012-2016   2017-2021 Supply Demand Softwood lumber #1 Canada -1.9 US_EX 0.0 2.0 EU_EX 1.0 Russia NZ Chile ROW_EX 1.5 1.4 US_IM Japan Korea China EU_IM ROW_IM Softwood lumber #2 -2.9 -3.3 0.5 3.0 n/a 5.0 4.0 Mountain pine beetle infestations in Canada Recovery in US housing starts Supply growth in Russia, NZ, Chile, & ROW Wood self-sufficiency policy in Japan High Lumber demand in China Sources: FAO (2009), Wood Markets (2011,2013), British Columbia Ministry of Forests and Range (2007), Sedjo (1999) The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Predicted trade flows for the 2011-2021 period The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Predicted trade flows for the 2011-2021 period The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Predicted trade flows for the 2011-2021 period The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Predicted trade flows for the 2011-2021 period The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Conclusions Forintek Global Trade Model predicted well for the 2011 trade of SWL#1 and SWL#2. Results provided strong market signals to link back to upstream supply chain. Forintek model displayed great flexibility for different scenarios analysis. -e.g. exchange rates, trade barriers, transportation costs, price elasticities, etc. The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Next Step Further disaggregate lumber (high/construction/low). Add logs (saw and pulp) and biomass (e.g. chips, wood pellets, etc.). Project logs, lumber, and biomass trade flows. Link logs, lumber, and biomass into trade model. Link global market signals to lumber production decisions, and ultimately log allocation. Integrate results with other VCO projects. The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

Questions & Discussion The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis