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Industry Watch

Value-added faces more hurdles, but the future appears unlimited.

By Jim Sterling
Copyright 1998. Contact publisher for permission to use.

Value-added is the forest industry's most politically correct sector. Definitions vary about what value-added means, however. Primary sawmills say they manufacture value-added products with premium grades and special dimensions. But the term is usually applied to smaller, secondary remanufacturing plants, which take reject or low-grade wood products and convert them into high-quality, market-specific end uses. The range of value-added products seems limited only by imagination, ingenuity and marketing intelligence.

The value-added sector has much going for it. Its evolution in Canada has been gradual but has roughly coincided with a growing awareness that waste is bad. The concept of limitless resources was always illusory. But now the public consciousness feels uneasy about burning "waste" wood products or consigning it to landfills. It's their wood. after all. It's akin to the increasing consumer acceptance of the three Rs - repair. re-use and re-cycle.

Its labour-intensive nature is another positive aspect of the value-added industry. Politicians are especially fond of that trait. As a rule, there are more production people working on the floor of a small remanufacturing plant than in a large sawmill. Output per worker bears little comparison, but both sectors have surprisingly similar versions of tight margins.

All this should mean the value-added sector - the forest industry's nice, well-groomed new cousin - is in the pink. Not so. It's suffering from the disabling malady of an identity crisis.

It's never been easy for the secondary industry. Some believe secondary, in terms of manufacturing, infers secondary in importance, worth or relevance. Subtle innuendo or paranoia? Certainly in the sector's fledgling days it was not taken as seriously as many of its proposals merited. It's always difficult doing something different. Some of the problems faced by the pioneers of the finger-jointing process in British Columbia serve as an example. There was considerable political and primary industry pressure to keep finger-jointed wood products off the competitive playing field. It included deriding the quality of the product. To their credit, the finger jointers dug in and eventually won the day.

But another problem facing the value-added sector has been much more persistent. Gaining access to raw material, a consistent flow of the right type of raw material has been a stumbling block to many value-added companies' I- development plans through the years. Progress has been made. For instance, last year the BC Ministry of Forests, under its controversial Jobs and Timber Accord, said it would allocate about four million cubic metres of timber to secondary manufacturers, much of it under the Small Business Program.

The relationship between primary and secondary industry is similarly improved. The key is for the value-added sector to have a bargaining chip - like timber - to get the product(s) they require from the large mills to re-manufacture into value-added products. "Our success is dependent upon their health," is how one value-added producer in BC put it. And that's an uneasy feeling, given the fragile financial and competitive position of most primary manufacturers in the province. The low-flying loonie is all that's thwarting complete insolvency in many cases.

There's a further frustration that's increasingly heard from the value-added sector: "We can't get funding. They don't take us seriously," lamented one veteran of the secondary manufacturing wars recently. Why should that be? Perhaps it's because the value-added sector contains such a broad range of plant sizes with an asset and experience diversity to match. Perhaps it's because of the dynamic nature of the sector; its entrepreneurs are always seeking new products and developing new markets. That's volatility that makes major lending institutions nervous. And perhaps that's why the odds are stacked when the value-added manufacturers enter the banker's cream office with its unused chairs.

The past performance and strategic marketing plans too often wont fit into the contract language authorizing a loan. And perhaps the difficulty acquiring capital has little to do with the validity of the proposal. At least one of Canada's big banks sent out an edict last year to its branches to curtail loads in BC's forestry sector. Presumably it felt the risks were too high.

It didn't want to end up with any more feller bunchers or rip saws in default of payment.

At least one value-added manufacturer knows what has to be done. "We need to spend some time letting people know that we're real and we're viable." But credibility is tough to package. It takes time to develop.

Bankers and others in government and industry have to throw out the pre-conceived ideas and old biases. The value-added sector has to become better recognized for what it is: a legitimate producer of quality wood products, an important economic contributor and employment generator.

Just about every issue of Logging and Sawmilling Journal features a story about how another marketing niche for value-added wood products has been identified and exploited. The levels of sophistication are impressive and the marketing ingenious. And with a modest shift in attitude and more confidence shown in its ability to succeed, the value-added sector's future opportunities appear unlimited.

In the meantime, however, value-added may well be the forest industry's well-scrubbed, politically correct new cousin, but at meal times its takes its scraps down it the end of the table.

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