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Is the lack of joint ventures stunting the growth of the forest industry?

By Tony Kryzanowski

The Canadian forest industry is on the cusp of greatness, but to achieve that greatness, companies should take a page from the energy sector and learn how to work together better in joint ventures.

The nuances of the ‘deal’ where a number of parties take ‘a piece of the action’ seems like an entirely foreign concept to the forestry sector, but is so desperately needed if the Canadian industry is serious about becoming a dominant global player.

My concern is that joint ventures—which would lead to faster commercialization of new wood-based, advanced bio-materials and structural building products—are lacking in the forestry sector and this will result in many lost opportunities, loss of technological advantages, and will lead eventually to stunted industry growth.

At a time when the industry seems satisfied with softwood lumber sales being fueled by increased housing starts south of the border and a low Canadian dollar, solid wood producers should be concerned about the trend toward more modular and offsite building construction using engineered structural building products, instead of single 2 X 4’s and 2 X 6’s. If this trend continues, the softwood lumber market for building construction materials may not continue to be business as usual.

The solution could be joint ventures among small, medium and large dimension lumber producers to provide the materials that the building industry may demand in future—especially if the industry is serious about achieving more market share in the commercial/industrial building sector and as multi-residential buildings are built taller.

There seems to be a preference to encourage single companies to commercialize processes that bring new products like cellulose nanocrystals (CNC) and cellulose filaments (CF) to the market.

I believe this is a weak approach and tends to pit one forest company against another. A much better approach would be to create larger groups of joint venture partners, with everyone having some skin in the game, to more quickly and widely create the marketing pipelines for these types of new products.

The reality is that in the much bigger picture, Canadian companies are not really competing with each other for market share especially in more advanced materials. Canada is competing with Brazil, Finland, the U.S., Malaysia, and others to create and dominate the market for new products—and yes, dominance should be the goal to encourage further investment.

Single source development and marketing of new wood-based materials does us greater harm than good because, inevitably, whatever head start we may create for ourselves in the development of technology will be lost by small and slow commercialization efforts.

I understand the importance of protecting patents. But at what point does a mild obsession with patent protection start to hinder commercialization? We are stronger, together.

Here’s an example of how the energy sector does business. Among the project partners in Syncrude’s oilsands project at Mildred Lake near Fort McMurray are direct competitors like Suncor, Imperial Oil, Murphy Oil, the Canadian Oilsands Partnership, Nexen, and Mocol Energy. Somehow, these companies managed to sit around a boardroom table and hammer out a joint venture deal. Unfortunately when it comes to the Canadian forestry sector, there seems to be more interest in the takeover than the joint venture.

What certainly represents a legitimate concern—and is the biggest unknown—is the actual size of the pie for new structural building products and bio-materials. The market may seem small in some cases, but with more joint venture partners, it becomes much easier to build a bigger pie.

I am absolutely convinced that there is room for everyone in the Canadian forest industry to profit in the development of new markets for building products. Unfortunately, there seem to be too many Canadian forest companies not satisfied unless they own the whole pie, and this is the crux of concern that the Canadian forest industry’s growth will become stunted down the road. This shortsighted quest to achieve immediate shareholder value by attempting to own or dominate a market for a new building product or advanced bio-material may result in a short term benefit, but the entire industry will feel the pain down the road when other countries do a better job of capturing market share for these products.

One area where there is an immediate opportunity for joint ventures is production of large-scale bio-energy using forest slash and short rotation woody biomass. Developing centralized power production plants so that transportation costs are equally shared by the joint venture partners is one way to manage this cost. Also, supplementing this fuel source with short rotation woody biomass plantations close to a power facility can also factor into the viability of these plants.

As to earning a fair rate for this power, some provinces and U.S. states already have experience with feed-in-tariffs (FITS) where power generation from more environmentally friendly sources is offered a guaranteed rate to encourage investment, recognizing the benefit to combating climate change that these projects represent. This beats the annual ritual of burning slash piles, and also provides many new job and business opportunities—there is zero reason for burning slash piles if the industry can join forces and be part of green energy generation.