Good morning ladies and gentlemen:
Thank you very much for your invitation to be here today, to join Duncan and
Ken in a panel discussion on the theme of "renewing prosperity" in the
coastal forest industry. I don't believe there is any truth to the story that
the newest reality television series will be "Survivor: BC Coastal
Forestry." It rains too much here, and images of people in this room in
bathing suits on the beach doesn't sound like a ratings winner to me.
My boss Steve Rogel spoke to this convention two years ago, shortly after
Weyerhaeuser's acquisition of MacMillan Bloedel. Steve spoke about our decision
to grow here, the prospect of stumpage and tenure reform, and about the dreaded
softwood lumber agreement. None of us could have foreseen at that time the
extent, impact or intensity of change that has happened in the meantime.
But before I begin, I would like to talk about safety. The goals we want to
achieve as a company all begin with the safety of everyone who works for us, and
everyone who works with us. We have been working hard over the past
several years to create a culture of safety in the company. Everything we do
starts with being safe, and staying safe, and looking out for the safety of
everyone around us - our co-workers, families, and friends.
I recognize that safety is a particular challenge as we look at the daunting
logging conditions in coastal B.C. - steep terrain, unpredictable weather, and a
legacy of human independence and determination to get the job done in the face
of physical adversity. The B.C. coastal industry and this organization
share a proud history. But safety can and must be a cornerstone of what you
stand for, too. We owe it to the people who earn their livelihood in the
industry, and to their families and communities.
Weyerhaeuser has an expectation that all of the contractors who work for us
share an absolute commitment to safety. Craig Neeser's organization here has a
mantra that declares:"We believe in zero" - which means we believe we
can achieve zero recordable incidents in safety performance. And we will hold
our contractors to the same goal.
As a guest to your country, your province, and your association today, I am
certainly not here to tell you your business. But I hope what I can do is
share some perspectives on our business, the challenges we share, and how
we can move forward to a better, sustainable future.
Just so you understand where I come from, let me briefly summarize the
timberlands assets that form the backbone of Weyerhaeuser's businesses.
First of all, here in Canada we have private lands in B.C. covering 269,000
hectares (664,000 acres). The main source of our harvest here is of course
public land. We hold long term forest licenses covering 12.8 million hectares
(31.3 million acres) of public land in Canada, located in five provinces.
In the U.S. Weyerhaeuser owns and operates 2.1 million hectares (5.7 million
acres) of privately managed forest land, located in ten states - mainly in the
northwest and the southeast.
In the past few years, we embarked on some new initiatives in the southern
hemisphere. We now harvest and operate four mills in Australia and one mill in
New Zealand. Several years ago we purchased private lands in Uruguay, and are in
the process of establishing new plantation forests there.
As a company, Weyerhaeuser has been around for 101 years. So we claim some
longevity, depth, and breadth when it comes to forest management. We have
learned from success, and learned even more from things that didn't work. We
have managed to survive challenges and problems both big and small - in Canada,
everything from protesters to pine beetles to politicians - and I'll leave the
order of that list up to your imagination.
In the U.S. we even experienced the volcanic eruption of Mount St. Helens 21
years ago. That event demonstrated not only the catastrophic destruction of a
'natural' event on the forest and people, but also the incredible capacity of
nature to regenerate a new forest - and quickly, with human ingenuity and
the innovative application of proven forest science.
So what have we learned? A lot, I hope. Above all, we've learned valuable
lessons about change, and managing new risks. We've learned that you can't stop
change, that you can rarely avoid it, and seldom can control it completely.
Indeed, you can't always even be expected to predict it. Mostly, you have to
remain flexible and open and adaptable to changing circumstances.
So, if the backdrop of recent events consists of rampant, surprising,
accelerating, gut-churning change, what of the B.C. Coastal forest industry?
Although Weyerhaeuser has had operations in Interior B.C. for 36 years, how do
we view our more recent acquisition on the B.C. Coast from a 'rearview mirror'
perspective over the past two years?
With all of the business experience, understanding, and savvy in this room, I
hardly need dwell on the diversity and magnitude of challenges we face: lumber
duties, soft markets, consumer confidence shattered by terrorism, periodic
boycott threats.
This is a bit of a grim picture, but then again, B.C. is the home of the
Vancouver Canucks, and the place where the NDP ruled for nine years. Which means
that you probably don't have to be a pathological optimist to live here,
but it surely helps.
Still, I believe that the people in this room can rebuild the coastal
industry into a viable, competitive, and profitable player in world markets.
Let's reflect for a moment on the considerable assets of the Coast. This
region has large, valuable first growth stands - among the best in the world. It
has some of the best and most productive growing sites for highly valued
softwood species. It has an excellent and experienced workforce. Coastal
waterways represent an extensive and low cost transportation network. You are
located close to the two largest forest product markets in the world - the U.S.
and Asia. And you have a new provincial government that is receptive to policy
reform and change, and that has proclaimed B.C. to be open once again for
business.
On the other side of the ledger, the challenges confronting Coastal B.C. are
also considerable. You have the highest delivered log cost of any producing
region in the world. You operate within a complex stumpage system that has been
explained to me many times, and will probably need to be explained to me many
more times. For some logs, stumpage seems too low; for others, it is
ridiculously high. For me, B.C. stumpage is like looking under the hood of my
car - I can't explain exactly how it works, but I do know when it is broken.
Weyerhaeuser uses harvesting contractors in virtually all of its operations
in the world, but in Coastal B.C. there is the unique dimension of government
regulation of the company-contractor relationship - with most recent changes set
out a piece of legislation unfortunately known as Bill 13. There are clearly
issues that we need to address together, and I know Craig and Tom Holmes are
engaged in this process. Like that engine in my car, I know this part of the
engine also has problems, and we need to rely on some expertise to get it up and
running.
As well, the B.C. Coast has tended to find itself on the cutting edge of
controversy. We all recall the environmental wars of the last decade, with the
often threatened but limited use of boycotts. The market for our end products
also changed significantly, with the advent of big-box retail stores that wield
market share and attract the ongoing attention of this industry's critics. And
in B.C., I know you share with many stakeholders continued uncertainty around
Aboriginal land claims and the process by which they will be resolved.
To put it simply, the forest industry on the coast of British Columbia
probably faces more, and more urgent challenges, than any other jurisdiction I
am aware of in North America. It seems to me that overcoming these challenges
will require major change and a willingness by all stakeholders - companies,
labor, contractors, government, communities and others - to share in the
inevitable pain that will be encountered on the road to achieving a more
competitive future state.
This will be no easy task. As Jack Welch, the former head of General Electric
observed: "Change has no constituency - and a perceived revolution has even
less." If the coastal industry is to reposition itself as a competitive
force in the global forest products industry, nothing short of a revolution must
occur.
So how can we work ourselves out of this box?
We believe there are five fundamental elements of reform required to set
the B.C. coastal forest industry on the path to long-term viability and renewed
competitiveness. But let me stress that the issues and challenges in the B.C.
Interior and in the rest of Canada are different, and we
foresee a different set of solutions for those regions.
First, it is a regrettable reality that there is "too much iron" on
the coast - too many mills chasing too few logs, particularly with park
withdrawals and harvest reductions implemented over the past decade. This was
confirmed in the report prepared by Dr. Peter Pearse last month.
In November, Weyerhaeuser announced the closure of two coastal facilities.
These are the hardest kind of business decisions we ever make. It is likely that
economic imperatives will result in the closure of more mills on the coast to
complete the difficult but necessary task or rationalizing capacity to reflect
the 30 per cent decline in log supply that occurred over the past decade.
Second, we believe that the Coast needs a stumpage system that is more
market-based. While Weyerhaeuser certainly doesn't claim to have all or even
most of the answers, we have advanced some innovative ideas in a B.C. Coastal
Competitive Reform Paper, released last October. I challenge and encourage you
to debate these ideas. We may not have it all right, but we need to pull
together to get the system right on the coast.
Specifically, the proposal sought to address the structural cost problems
associated with stumpage and tenure that have contributed to declining
employment, investment, and profitability in the coastal forest sector.
While there is broad agreement among industry and government that the BC
coast must adopt a market-based stumpage system, agreement seems to break down
on a rather fundamental question -- what should this system look like?
For the coastal sector to move to a market-based stumpage system,
Weyerhaeuser believes there must be a significant pool of timber available for
competitive bidding, and that this will require tenure reform.
Our proposal suggested that 30 per cent of the coastal volume be available
for competitive bidding to set a market-based stumpage rate for the entire
coastal harvest. To achieve this, Weyerhaeuser would be prepared to surrender,
in concert with other license holders, up to 25 per cent of its coastal Crown
tenure in return for compensation.
The proposed tenure model would also provide First Nations, communities and
other stakeholders increased access to the coastal fiber supply. It would allow
licensees- be they forest companies, communities, First Nations, or value added
groups - to derive value from non-timber values.
It is important that the public feels confident that it is receiving a fair
return for timber harvested from Crown land, and that industry pays a fair price
for timber. The proposed model of tenure and stumpage reform has the potential
to strike this careful balance.
The Weyerhaeuser paper is just one potential path to the greatly needed
revolution on the coast. We are open to dialogue, and encourage other companies
and stakeholders to put their ideas on the table as well.
Third on our action plan of five fundamental elements of reform required to
set the coastal forest industry on the path to renewed competitiveness is the
need to address the labor and regulatory framework that contributes to the
coast's status as the highest cost forest producing region in the world.
I understand that the B.C. government is in the midst of a major review of
regulations, and has promised to reduce their total number by one-third. At last
count, I read that the government had 404,000 regulations on the books. The
Forest Practices Code, I am told, tallied up more than 10,600 regulations. If
that is enough to drive you to drink, be careful. The same report identified
nearly 6,000 policies under the Liquor Control and Licensing Act.
Weyerhaeuser is hardly alone among companies asking for a shift away from
intensive and prescriptive "thou shalt" and "thou shalt not"
regulatory models towards a more streamlined, flexible and results-based
regulatory regime. It only makes sense in today's world of rapid change - you
have to be able to turn on a dime to earn a dollar at the end of the day.
No one is asking for environmental regulation to be gutted. We recognize that
the regulator and the regulated can have honest differences. What we would like
is see is a social contract among industry, government and other stakeholders
that reflects a shared commitment to a viable, competitive commercial forest
economy accountable to reasonable, rational, and science-based environmental
standards.
Number four on our list of reforms is to resolve the softwood dispute as
quickly and fairly as possible to stem further financial and market losses. We
believe that the best and quickest way to do this is through a negotiated
process, which in recent months has been moving in fits and starts. Negotiations
were suspended just before Christmas, and both sides are developing positions on
what a resolution might look like. Others in the industry and government more
directly involved than I am will be talking to you about that issue.
Weyerhaeuser has from the outset been clear and unequivocal in its support of a
negotiated settlement instead of a costly and protracted legal battle
Fifth and finally, once progress has been achieved in the four areas of
reform I already talked about, we believe there will be a climate that
encourages re-investment in existing or new mills on the coast. Regaining
a measure of competitiveness is a necessary first step, but a sustainable
industry also needs new capital to align mills to the changing profile of the
timber base, and to position the mills to meet the demands of changing markets.
Based on our experience in the U.S. Pacific Northwest, I also believe you
should be optimistic about the promise, opportunity, and profitability inherent
in second growth forestry. Realizing those benefits requires long term
perspective, a commitment to proactive forest management, and perhaps a higher
level of stakeholder cooperation than Coastal B.C. has witnessed in the past.
One of the most important lessons Weyerhaeuser has learned over a century of
experience in geographically-diverse regions is that there is both virtue and
commercial value in forming partnerships and alliances with other stakeholders -
both in industry and in the broader community.
In terms of influencing policy-makers, this is an important dimension as
well. The more successful we are in reaching a consensus outside of government,
as an industry -- the better prospects we will have of seeing that consensus,
and our stake in it, implemented by government.
Everything I see leads me to believe there is a consensus for change in B.C.,
-- but not about the nature of that change. The proverbial devil is always in
the details.
The discussion paper we tabled in October outlines what we believe to be a
middle course, knowing well that no conceivable proposal will please everyone.
But a consensus solution, too, needs to be an economically realistic and viable
solution, not merely an expedient political compromise among competing interests
and interest groups. Above all, we are proposing some new ideas, and it is
around ideas that consensus can build. We are open to other ideas of all the
other stakeholders.
What most of us have in common is our reason for being in this industry. We
desire to run a successful business enterprise, to compete effectively, to
provide our employees with sustainable jobs, to be responsible corporate
citizens, to support local communities, to continue to contribute in a positive
way to communities and regions where we operate. Indeed, I think we all want to
leave a legacy in the form of an industry and a forest that is in better shape
than when we began our careers.
I am certain that none of us woke up this morning and declared: "Today,
I want to lose money." But in order to make money, and to do so
consistently, we are inevitably going to have to change.
So this morning, let us recognize the risks, but also the opportunities. The
B.C. Coast has some tremendous assets in its forests, its people, its
transportation, its proximity to markets, and in a new regulatory environment.
There is a solid basis for a healthy industry in the future.
But we also know that strong medicine is needed - some of it a dose of
economic reality administered by an unrelenting, competitive marketplace. Part
of the medicine is individual and company accountability to implement change.
And another part of the cure is the need to engage in serious and sincere
dialogue with each other and with other stakeholders towards a consensus on
common issues that is practical and doable.
Thank you for the invitation to be here, and to engage in this dialogue with
you.
