1. 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

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

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

4. ‘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

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

6. Move to 6-story multi-family
Library Square, Kamloops, BC, 2010
Source: WoodWorks
Gaston Feb. 2014
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7. Move to 6-story multi-family
Residential, University of BC, 2013
Source: Adera, Vancouver
Gaston Feb. 2014
Page 7 of 13

8. Six story hybrid wood-concrete
Office building, Quebec, 2010
Source: FPInnovations
Gaston Feb. 2014
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9. Six story hybrid wood-concrete
Concrete cores / walls to resist lateral loads
Glulam post & beam
Source: FPInnovations
Gaston Feb. 2014
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10. Five story hybrid wood-concrete
Earth Sciences Building, UBC
Source: Perkins + Will
Gaston Feb. 2014
Page 10 of 13

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

12. ‘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

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

14. Questions? Chris Gaston, Ph.D. chris.gaston@fpinnovations.ca

15. 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

16. 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

17. 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 ( )
The Competitiveness of Canadian Softwood Lumber - A Disaggregated Trade Flow Analysis

18. 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

19. 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

20. 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

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

22. 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

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

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

25. Assumed annual supply and demand changes (%) (2012-2021)
Regions
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

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

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

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

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

30. 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

31. 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

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