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Authors: Daisuke Sasatani, Joseph A. Roos, Allen M. Brackley and Ivan EastinExecutive Summary Alaska exports to Japan decreased dramatically during the 1990's. This decline was caused by a variety of factors including the Japanese recession, a reduced Alaska timber supply, exchange rates, a market shift from green lumber to kiln dried lumber, and increased global competition. However, in 2005 Japan 's GDP, stock market, real estate, and consumer price index were up from the previous year indicating a strong economic recovery. Furthermore, the U.S. Dollar has weakened against the Japanese yen and many economists predict that the U.S. Dollar will continue to decline against the yen due to historically high U.S. fiscal and trade deficits. This will give Japanese companies more purchasing power for U.S. forest products. In addition to economic changes, Japan 's demographics are changing rapidly. In the first half of 2005, Japan 's net population decreased and the population will continue to decline to the 1960's level of 100 million by 2050. While Japan 's general population is decreasing, the percentage of population over 65 is growing rapidly as the baby boomers reach retirement age. According to a survey published in the Nikkei Weekly Newspaper, one area baby boomers expect to spend money on when they retire is their house. The total size of Japan 's remodel market was 7.0 trillion yen (US$ 60.3 billion) in 2003. The remodel market increased in 2003 and is predicted to increase as more baby boomers retire. As explained above, the Japanese market has shifted from green lumber to kiln dried lumber. Alaska has more than doubled their kiln dry capacity since the late 1990's and this opens up Japan 's kiln dried lumber market. Additionally, the Ketchikan Wood Technology Center has established Alaska-specific lumber grade marks to differentiate Alaska timber species' unique characteristics. The Japanese market has always valued quality and there is now an opportunity to communicate Alaska lumber quality by promoting these new grade marks in Japan The results of this research suggest that many niche markets exist for Alaska forest products: 1. Tract housing power builders Tract housing developments built by a new category of builder called “power builders” have increased in Japan 's urban areas. This is a growing market segment in Japan and these power builders are large enough to import Alaska forest products in large quantities. 2. Kiln dried lumber Alaska has substantially increased its kiln dried lumber capacity recently. Japan 's ten year warranty building requirement has increased demand for kiln dried lumber. There is ample demand for kiln dried lumber in both the 2x4 and post and beam housing markets. 3. Lamstock market There has been an increase in demand for engineered wood and the number of Japanese glulam manufacturers. The results of the Ketchikan Wood Technology Center Alaska species testing program have shown Alaska lumber has superior strength properties compared with many other species making it suitable for lamstock. 4. Pre-cut lumber market Almost 75 percent of Japanese post and beam starts used pre-cut lumber. Japan 's pre-cut lumber mills are a strong market to target with lumber sizes that could be used with their pre-cut lumber machines. The lumber sizes vary based on the application. 5. Alaska yellow-cedar for sill plate ( dodai ) Due to its natural decay resistant properties, Alaska yellow-cedar is very popular for sill plates and other structural lumber used in ground contact applications in Japan . 6. Alaska yellow-cedar for garden accessories and tubs Alaska yellow-cedar's decay resistant properties make it an excellent species for outdoor garden accessories such as decking and decking accessories, benches, gazebos, and lattice. As explained earlier, there are a lot of retirees in Japan and this number will be increasing. Many retirees spend more time in their gardens and the demand for garden accessories is expected to increase. Also, Alaska yellow-cedar is considered a substitute for hinoki , (Japanese falsecypress). Japanese people traditionally take a bath daily. Soaking tubs are especially popular in Japan and most detached houses have one. An Alaska yellow-cedar tub could be developed and positioned as an upscale alternative to a hinoki tub. 7. Home improvement market for retirees Japan 's baby boomers are approaching retirement age. Many Japanese retiring workers receive a large lump sum payment, which they often use to improve their house. The senior home improvement market is expected to grow substantially as baby boomers start to retire. 8. Remodel market The remodeling market is expanding. There is an opportunity for lumber producers to collaborate with builders specializing in remodels, architects, and designers to develop higher quality products to sell to Japan . 9. Wood Chips It has been estimated that over 2.3 million acres of timber have been affected in the Kenai Peninsula by the spruce bark beetle. One potential application for beetled killed spruce is wood chips. Japan has one of the largest pulp and paper markets in the world. 10. Gift Market Japan 's gift market has strong potential for smaller wood products and craft items. This market offers tremendous opportunity for smaller wood products that can be packaged and shipped easily. It would also make the gift more attractive if wood items are bundled with other “made in Alaska ” items, such as smoked salmon. 11. Brand Strategy As described above, the Ketchikan Wood Technology Center has registered proprietary grade marks for Alaska species. These grade marks are “Alaska Hem”, “Alaska Yellow Cedar”, and “Alaska Spruce”. These three grade marks should be developed into a brand that communicates the quality of Alaska forest products to forest products manufacturers, pre-cutters, and homebuilders.
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Authors: Alicia Robbins and John Perez-GarciaExecutive Summary In recent years, growing consumer awareness of the environmental effects of the products they purchase has resulted in a demonstrated change in buying behavior. The tremendous rise of the organic food industry illustrates the desire and willingness by consumers to pay a price premium for food products that meet certain environmental standards. The emergence of forest eco-certification standards demonstrates that greater market share will go to companies that can demonstrate higher levels of environmental sustainability. Other developments, like carbon-trading programs and green energy programs further demonstrate this shift. Over the past decade, greater attention has also been paid to the environmental effects of building products industries. Understanding public attitudes toward building materials and their related environmental performance is important as it can provide consumers with the product attribute information they seek. Product attribute information has important policy implications for programs that may help achieve certain environmental standards. This study uses a choice-based, stated preference approach and relies on basic consumer demand theory. Using a mail survey, respondents were asked to assess a set of goods with different levels of emissions and price attributes; they were then asked to choose their most preferred alternative. Various price and environmental levels were included in the choice sets. Surveys were sent to two different populations. The first sample came from the general population; the second came specifically from real estate agents in the western states. The results of the general population survey demonstrated that respondents were most sensitive to reductions in greenhouse gas emissions and were willing to pay for up to eleven tons of reduction associated with building a new house. Considering a typical house produces twenty tons of such gases during the construction process, this assessment is significant. They were also willing to pay for reductions in air pollution and solid wastes, although less than they were for reductions in greenhouse gas emissions. The water pollution variable was not significant enough in this study to estimate a willingness to pay. The responses from real estate agents appear to be much more willing to pay for reductions in solid waste emissions than for reductions in the other environmental attributes. Results: Total WTP and Amount Reductions by Pollution Type for Each Survey Environmental Variable Total WTP and Amount of Reduction Air Pollution Solid Waste Emissions Greenhouse Gas Emissions General Mail Survey Respondents $106.25 for up to 18% $95.50 for up to 18% $168.09 for up to 11 tons Real Estate Agents $110.90 for up to 21% $189.16 for up to 17% $62.21 for up to 13 tons NB: each WTP is estimated individually while holding the other elements constant The survey results suggest that wood-based framing construction (instead of steel- or concrete- based framing) can better achieve certain environmental standards since, particularly in the case of greenhouse gas emissions, wood framing has lower green house gas emissions than either steel- or concrete-framed houses. That is to say that the reduction in the number of tons a respondent was willing to pay for always exceeds the inherent reductions when these two framing systems were compared. For example, in Minneapolis, using wood instead of concrete results in a 9.8-ton reduction in greenhouse gas emissions; in Atlanta, using wood instead of concrete results in a 6.6-ton reduction[1]. Comparison Between Reductions in Different Building Materials and WTP Environmental attribute Minneapolis Steel vs. wood Atlanta Concrete vs. wood Maximum amount respondents WTP Greenhouse gas emissions 9.8 tons 6.6 tons 11 tons Air emissions 14% 23% 18% Solid waste emissions -0.9% 51% 18% This survey has useful implications for both market and policy applications. For marketing purposes, the results suggest that those building materials producers seeking to increase their market share can point to better environmental performance associated with those materials that produce lower emissions, particularly greenhouse gases. For policy purposes, programs that aim to improve environmental performance standards might want to design a label that indicates the lower emissions standards in building material products. Perhaps a label similar to that of the “green star” by the EPA might be appropriate. Such a label may be used to educate homebuyers on the environmental performances associated with the building materials used in the construction of the house. Research into effective marketing tools should be conducted to provide consumers with the environmental attribute information to enable them to make better-informed decisions about the building products they purchase. -------------------------------------------------------------------------------- [1] Lippke, B., J. Wilson, J. Perez-Garcia, J. Bowyer, J. Meil, 2004, CORRIM: Life Cycle Environmental Performance of Renewable Building Materials, Forest Products Journal, 54(6): 8-19.
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Author: John Perez-GarciaExecutive Summary This project was established to examine current viable opportunities for the expansion of the wood products industry in Clallam and Jefferson counties. The study updated existing and future harvest level projections in Clallam and Jefferson counties, highlighting the potential new supplies. It also examined precommercial thinning volumes on state and federal lands. The harvest level findings are used to complete an analysis including the flow, species and size of the raw material supply required to manufacture value-added products. Three opportunities are explored: Oriented strand board production utilizing harvest and current manufacturing waste material, biomass-based energy production, and second tier value-added products from production of random length alder. We projected harvest levels using timber harvest data by grade and species provided by the Department of Revenue Timber Tax Division and the Department of Natural Resources Marketing Division. These data provided a breakout of average volumes per acre by species and grade observed for timber sales in 2004. We applied the average volumes per acre to a projection of harvest acres constructed by Atterbury Consultants and published in their report for the council dated 2000. The analysis of the sales data indicated an average volume of nearly 40 thousand board feet (mbf) per acre. The majority of this volume is in #2 and #3 sawmill logs; over 15 mbf in each log class. The next highest volume is in the #4 sawmill log with 7.5 mbf. The greatest volume per acre is in western hemlock with over 15 mbf, followed by Douglas fir with 8.8 mbf. An estimated 8,070 acres are harvested annually during the projection period 2000 to 2004. Using the per acre averages calculated above we determined annual harvest levels to reach 322,265 mbf during this period. For the period 2015 to 2020, harvest acres are projected to reach 8,618 with an estimated annual harvest level of 344,148 mbf. The majority of the annual harvest level during the period 2000-2004 is in #2 and #3 sawmill logs, over 300,000 mbf equally distributed. Western hemlock annual harvest levels are 124,236 mbf, followed by Douglas fir with 71,293 mbf. Red alder annual harvests are estimated at 22,849 mbf during the period 2000 to 2004. Timber consumed by local mills amounted to 122,033 mbf for 2002, with an estimated slightly higher consumption for 2004. Total consumption of Clallam and Jefferson county timber by Washington sawmills reached nearly 230,000 mbf in 2002. Over 90,000 mbf of timber is exported to mills located in other Washington counties. The majority of this timber flow, about 77,000 mbf went across the Puget Sound to Whatcom, Skagit, Snohomish, King and Pierce county mills. The annual volume of precommercial thinning is estimated at 125,000 to 180,000 green tons from federal and state lands. The majority of this thinned material is on State lands involving 4,000 to 6,000 acres annually for the next decade. The majority of the thinning volume is not commercial due to restrictions imposed by terrain conditions that lead to prohibitive harvesting and extraction costs. Oriented Strand Board (OSB) represents a product that utilizes low grade materials to produce a substitute for plywood. First generation OSB manufacturing plants were about 50 million square feet 3/8 inch basis in size. Newer generation plants (continuous flow) are much larger in size; the latest plant capable of producing 800 million square feet 3/8 inch basis. The majority of new plants have a capacity of 500 million square feet 3/8 inch basis. Resource availability converting the volume of #4 sawmill and utility grade logs into chip materials was estimated at 492,000 green tons, or about enough material to produce 313 million square feet 3/8 inch basis of OSB. At most the projections reached 335 million square feet by 2020. Since the volume of required materials is much smaller than what a competitive new facility would consume, the potential for a new OSB plant in the region was determined early on during the study to be non-existent. Other limitations were also evident including the lack of sufficient hardwood resources, and the fact that current uses of chip materials and lower-sized saw logs would decrease the availability of raw materials to the new plant. Biomass-based energy can be produced by burning wood waste. To evaluate this option we first determined the fuel value of materials in the region. If a sufficient fuel value was present, we then estimated the competitiveness of the material for use in energy production. To determine the fuel value of the materials in the region we estimated the size of a potential power plant by converting the volume of #4 saw mill and utility logs into green tons. This conversion indicated that the power plant sizes could ranged from 37 to 45 megawatts, representing substantial amounts of energy production. We then calculated the competitiveness aspects of the material if it were used to produce energy. Plants of these sizes in Vermont purchased chips at a price that ranges from $12 to $21 per green ton, a price that is substantially lower than current chip prices paid by local pulp mills, and lower than estimated harvesting and delivery costs (about $35 per dry ton). In addition the low price per kilowatt hour (about $0.03) acts as a disincentive to utilize woody biomass as an energy source. These calculations indicate that wood as an energy source is uncompetitive with current energy pricing. Also, harvesting and delivery costs are still too high for woody biomass to be viable, even if supply is not a constraining factor. The utilization of red alder has increased dramatically, and the projected start of a new alder mill in 2006 suggested analyzing potential value-added products such as cabinetry, furniture and door manufacturing. We conducted interviews with the new mill manager and regional end-users of alder and determined constraints associated with attracting a value-added facility to the region. The constraints identified during these interviews included the inability to diversify products should a new manufacturing plant focus exclusively on alder. Various wood species are used in cabinetry, door and furniture manufacture. Currently alder is well received, but demand is highly responsive to changes in consumer preferences. Diversification of various species is perceived to be an important aspect of a successful end-user. The success of a value-added manufacturer will depend on its ability to utilize various sources of lumber and other materials. Our study findings included the following. The two county region is a net exporter of wood fiber. The recent announcement of plans for a new sawmill in the Everett area suggests that wood fiber from the area will continue to have demand outside of the region. Less than half of the volume harvested is utilized locally by saw mills, even with the projected new mill in Port Angeles. Biomass-based energy has the potential supply, but costs for woody biomass as an energy alternative are too high and energy prices are too low for it to be competitive. Other fiber using industries, such as OSB, would require more fiber than is available. Finally, an alder value-added manufacturing plant would require diversification for it to be successful. We recommend that future work analyze the potential for expanding the existing softwood lumber sawmill capacity in the region. The volume of sawmill logs that are exported from the area is estimated at less than 100,000 mbf and is insufficient for a modern large mill, which can be twice as big. Expanding the sawmilling capacity of the existing mills may provide benefits for the local region and enhance their competitiveness with mills outside of the region that currently successfully bid for local timber. The announced plans for a new mill in the Everett area suggests an evaluation of timber values for the region and its competitiveness. An analysis currently underway to examine these values should be consulted when completed. While woody biomass is currently too costly, options should be explored for promoting “green energy” options. Finally, since the region is an excess supplier of timber, it should promote its position in order to attract potentially new manufacturing that can consume underutilized resources and compliment the existing milling infrastructure in the area.
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Material Use in the US Deck Market: An Assessment of the Market Potential for Alaska Yellow Cedar1/1/2005 Authors: Ivan Eastin, Indroneil Ganguly, Steve Shook and Al BrackleyExecutive Summary The deck building industry is going through a period of rapid growth and dramatic change with respect to the types of materials available to build decks. A 2001 study by the Freedonia Group estimates that the demand for decking materials will increase by almost 20% between 2000 and 2010. To better understand material use and contractor preferences within the deck building industry, CINTRAFOR, with funding support from the USDA Forest Service Wood Utilization Lab in Sitka, AK) recently completed a survey of 205 deck builders and 213 home builders across the US. In particular, this research project was interested in documenting the current usage of Alaska Yellow Cedar (AYC) in residential decking, evaluating builders perceptions of AYC lumber as a decking material, assessing the potential for expanding the use of AYC in deck building and developing a set of strategic marketing recommendations to promote the expanded use of AYC in deck building. Refinement of the marketing recommendations should be considered once an accurate supply projection for AYC logs is available. Survey Results The deck building industry is dominated by small to medium-sized firms with over 63% of survey respondents indicating that their sales revenue was less than $1 million in 2003. In contrast, over 11% of deck builders generated sales revenue in excess of $5 million. The average deck builder constructed 93 decks with an average deck size of 456 square feet. Since the average construction cost for a new deck was $6,161, the average construction cost for a deck in the US was $13.51 per square foot. Approximately 45% of the construction cost was attributed to the deck surface while 33% was for the substructure and 21% was for accessories. Just over 40% of deck builder projects were new (first time) decks built on existing homes while 25% were new decks built on new homes and almost a third were replacement decks built on existing homes. However, the survey data clearly shows substantial differences in deck characteristics based on geographic location. For example, deck builders in the eastern US built more than twice as many decks per year as companies in the western US (126 decks vs. 52) although the average deck size was significantly higher in the west (530 square feet vs. 395 square feet). Despite this, the average construction cost was relatively similar between the regions ($15.04 per square foot in the west vs. $15.90) Material use in the substructure was dominated by treated lumber with a market share of over 90%. Material use in deck surface applications was dominated by wood-plastic composite products followed by treated lumber and western red cedar. Finally, approximately 30% of deck accessories were built using wood-plastic composites and treated lumber while an additional 18% were built from western red cedar. Deck builders were also asked to indicate the relative importance of a variety of product attributes in their material specification decision. The most important attributes in the material specification process were long life, visual appearance, consistent material quality and product availability. In contrast, the lowest rated attribute was low price. In other words, deck builders base their material purchase decisions less on price, preferring to focus on material quality. This suggests that home owners are less price-sensitive in the purchase of a deck, preferring high quality, durability and ease of maintenance over low price. Strategic Marketing Recommendations Target Market The results of the market research suggest that the target market for Alaska yellow cedar should be deck builders located on the US west coast, comprised of California, Oregon and Washington. The survey results show that decks built in this market are larger, more expensive and more likely to use naturally durable woods. The focus on deck builders is based on the fact that the demand for decking lumber in the repair and remodel market is expected to total 4.4 billion board feet in 2005 as compared to a demand of just 700 million board feet in the new construction market. In addition, our research results indicate that approximately 46% of the decks built on new homes are subcontracted out to deck builders. It is important to note that the survey results suggest that homeowners play a very important role in specifying decking material. For example, home builders indicated that home owners were responsible for specifying the decking material 30% of the time while deck contractors indicated that the homeowners specified the decking materials almost 50% of the time. Product The product offering should reflect a premium product strategy. Based on the survey results we recommend that lumber manufacturers in Alaska supply a family of products that includes decking lumber, deck joists and accessory products. This recommendation is based on the survey results showing that the use of naturally decay resistant wood is substantially higher in deck surface and deck accessory applications as opposed to deck substructures. Distribution Developing an efficient distribution channel for AYC decking products will be critical to the market development strategy. Our market research clearly shows that many deck builders cited the lack of availability as a primary reason why they have not been willing to use AYC or why they have not increased their use of AYC. Consequently, it will be important to match the expected supply of products with the size of the target market. Uncertainty over the short-term supply would argue for a more conservative strategy that constrains the size of the target market during the initial phase of the marketing campaign, allowing it to increase only as an increased supply of AYC products become available. Further, given the distance of Alaska suppliers from the target market, we would recommend that Alaska lumber producers consider establishing a relationship with stocking wholesalers that would allow for substantial volumes of product to be inventoried within a target market to reduce the logistical constraints of providing a reliable supply of products within a short timeframe. Pricing The survey results suggest that deck builders using naturally durable wood species have a relatively low price sensitivity which supports our recommendation for implementing a premium pricing strategy. In contrast, deck builders placed the highest importance on lumber attributes such as durability, beauty, consistent material quality and reliability of supply. Emphasizing these lumber attributes will further support the premium pricing strategy. We recommend initially pricing AYC slightly lower than similar WRC and redwood products. Promotion The promotional message must support the effort of positioning AYC as a high quality decking material. This means that the promotional message should emphasize the beauty, natural decay resistance, durability and consistent material quality of AYC. This can be effectively done by a direct comparison of AYC, WRC and RW across the major product attributes. As part of this strategy it may be useful to distinguish AYC from WRC and RW in terms of color, contrasting its light color to the darker colors of WRC and RW. This strategy will appeal to deck builders and home owners who are looking for a decking material that has beauty, durability and natural decay resistance but which provides a unique light colored appearance. The promotional strategy must address the fact that many deck builders (and home owners) are unfamiliar with the properties and appearance of AYC. This can be accomplished through a variety of strategies, including working with stocking wholesalers to build sample decks in their show rooms and establishing a website to educate potential users on the properties, end-uses and benefits of using AYC. The survey data further indicated that deck builders utilized a broad range of information sources to learn about new decking materials. As a result, we recommend that AYC producers consider a low-cost strategy to provide information on AYC across a broad range of media including the internet (through use of a website on AYC), attendance at trade shows (for example, the annual Deck Expo conference), material spec sheets for distribution through stocking wholesalers, advertising in industry magazines and advertising in consumer lifestyle magazines that emphasize the outdoor living. Finally, it may be useful to consider the possibility of offering promotional incentives for stocking wholesalers who install sample AYC decking exhibits in their sales showroom area and who meet specified sales goals.
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Authors: Bruce Lippke and Rose BradenExecutive Summary Bruce Lippke and Rose Braden. 2005 Despite strong demand, the forest products sector has not generated even average financial returns on its invested capital. A PricewaterhouseCoopers survey found that while global forest products industry sales increased 11.8 percent in 2003-2004 to $340 billion, return on capital employed (ROCE) showed only modest growth. ROCE for the global industry averaged 5.5 percent in 2004, up slightly over 4.2 percent in 2003, but still far from the 10-12 percent industry target. New, efficient production facilities are emerging in the Southern hemisphere and higher- cost producers will be challenged to stay competitive. Financial analysts have suggested that one of the reasons for the sector's poor performance is that, in general, firms are not responsive to customer demands, they have a poor understanding of inventories and internal business information, and they are inefficient. Lean manufacturing methods have been used to remedy efficiency and productivity issues. During the past decade, information systems and e-commerce have been considered a component of lean manufacturing, capable of expediting sales processes, tracking orders, assisting with after-sales service, and inventory procurement and control. Given the history of lagging financial performance associated with the forest products industry, this research seeks, through a series of interviews with wood products manufacturers in the millwork, cabinet, and structural wood products segments, to determine to what degree e-commerce and information technologies positively or negatively impact production efficiency and profitability. The researchers recognize that assembling standardized performance data from companies producing different types of products is by itself a difficult task, therefore, this investigation is exploratory. Clearly, the opportunity to improve productivity in the forest products industry exists, but are e-commerce and information technologies the solution? To answer this question, forest products companies need to better understand if e-commerce technologies and information technologies can improve production and sales productivity and profitability. Understanding how other forest products firms have used e-commerce to improve productivity may be all that it takes to promote change. Millwork, precut home truss manufacturers, and large and small lumber mills were selected and interviewed to obtain an understanding of changes in the technologies used and their impacts. Findings revealed that while firms are adopting e-commerce technologies to improve production processes and inventory management, they place much less importance on the use of company managed websites for marketing and sales. While all firms interviewed use email and the Internet for communication and searching and/or purchasing non-wood goods such as e-technology equipment, few firms said they use websites for advertising, selling products, or to provide Internet-based customer order tracking functions. Companies who sold products on their own or third party websites found the medium relatively ineffective. The primary reason given is that their customers prefer to place orders directly with sales staff to ensure that they understand the products and that the order is placed correctly. This is especially true for small customers who are not reliant on e-commerce – a common profile in the forest products industry. With few exceptions, large home center retailers are the primary users of the technology for marketing activity. Most manufacturers in the sample said that they are reluctant to purchase or sell products via the Internet because it removes their ability to develop and maintain relationships, a factor that is essential to conducting business in the commodities market. In lumber manufacturing, while sawmills try not to produce more lumber than they can sell, sales people rely on personal relationships developed over time to move excess inventory. None of the companies interviewed expressed and interest in purchasing raw materials over web-based exchanges, even though it is manufacturers' highest cost purchase. While the use of Internet based technologies does not appear to be very prevalent, preliminary findings indicate that companies, regardless of size, are adopting information technologies (IT) to improve processing productivity and internal information management, resulting in substantial productivity gains -- in most cases over 50 percent within a few years of introduction. Advances in computer-aided technology have come almost as a requirement for improved sawing technology and processing equipment. Bar codes are used almost universally. Ultimately, firms have upgraded their IT systems to maintain or improve competitiveness in light of increasing competition from lower cost producers, declining availability of high quality raw materials, and a greater proportion of smaller orders coming from a greater number of customers. For more complex secondary manufacturers, the opportunity to provide a greater number of product designs using computer controlled production and assembly is replacing higher cost customization while satisfying a broader set of consumer requirements. While companies in the sample collect information about their performance, they are rarely equivalent metrics, making a statistical analysis of cause and effect difficult. However, in all cases in this study performance improvements were credited to new applications of internal information technologies rather than Internet processes.
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Authors: Ivan Eastin and John Perez-GarciaExecutive Summary This report describes the extent to which discrepancies in trade statistics occur within the forest products sector and identify those areas where unusually large trade statistics discrepancies appear to exist. It also identifies those factors that contribute to discrepancies in the trade statistics and makes recommendations to help trade analysts evaluate and develop a better understanding of the factors that contribute to trade statistics discrepancies. The literature recognizes a large number of factors that can contribute to discrepancies in trade statistics between two countries, many of which have been discussed in this section. However, there is no research available that describes the relative importance of specific factors in impacting discrepancies in the trade statistics. From the review of the literature it would seem likely that this shortcoming is due to the fact that the mix of factors that influence the unique trade relationship between any two countries tends to be unique to that trading relationship and that this mix of factors differs substantially from other combinations of trading partners. In response to this weakness of the literature, we have provided a relative ranking of trade factors that impact discrepancies in the trade data by assigning each trade factor to one of three groups of factors: (a) primary normal factors, (b) secondary normal factors, and (c) abnormal factors. This ranking of factors was based on the review of the literature and was done for the sole purpose of providing the trade analysts involved in the in-depth country studies that follow this study with guidance in identifying and evaluating the relative impact of specific trade factors on discrepancies in trade statistics. The analysis of the trade data demonstrates several fundamental characteristics of the trade statistics for forest products. First, the average discrepancy in the trade statistics is greater than zero and the discrepancy ratio becomes smaller as the degree of processing increases (the difference in discrepancy ratio was significant between logs and lumber and logs and plywood but not between lumber and plywood). Second, the majority of the discrepancy ratios observed for logs, lumber and plywood tended to be positive and concentrated above the mean discrepancy ratio, indicating that in most cases the magnitude of the reported imports exceeded that of the reported exports. Third, the statistical analysis found that, while there was a significant difference between the size of the trade statistics discrepancy ratios between developed and less-developed countries across all three products combined, further analysis determined that, on a specific product basis, this difference was only significant in the case of lumber. Finally, the trade statistics were statistically analyzed to establish a "normal" range of trade statistics discrepancies that might serve as a guide for trade analysts looking to identify unusual discrepancies that might require further investigation. This research clearly shows that discrepancies within the trade statistics are to be expected and anticipated within limits. However, the analysis of the trade data and the bi-lateral trade statistics discrepancy ratios suggests that there are substantial discrepancies in the trade statistics for logs, lumber, and plywood. While there are a variety of reason why we would expect that reported exports would not equal reported imports, the magnitude of many of the bi-lateral trade statistics discrepancy ratios observed appear to defy conventional explanations. Clearly a more in-depth analysis of these problematic trade flows should to be conducted to determine their causes and, in the process, begin to develop recommendations to reduce these trade statistics discrepancies in the future. Finally, despite the difficulties associate with reconciling trade volumes (based on differences in the types of measurement systems used in different countries and the lack of timely data), we strongly recommend that any trade statistics discrepancy analysis consider both the value of trade and volume of trade. Finally, this report provides a list of trade factors that could be used to guide an analysis of trade statistics discrepancies (refer to the following table). These trade factors have been broken down into: (a) primary normal factors, (b) secondary normal factors, and (c) abnormal factors based on the review of the relevant trade literature. It is recommended that an analysis of trade statistics discrepancies begin by considering the ability of the primary normal factors to explain the discrepancies in the trade statistics, and if necessary, the analysis would then consider the role of secondary normal factors followed by the role of the abnormal factors in contributing to the trade statistics discrepancy under consideration. Finally, each individual trade factor listed below is followed by a specific set of recommendations designed to assist the trade analyst in understanding how each factor might impact trade statistics discrepancies. It should be noted that as a result of this study, the International Tropical Timber Organization has performed a series of country level studies. In each of these studies, trade analysts looked at specific problems associated with forest products trade for their countries and communicated with counterparts in trade partner countries to try and resolve some of the issues raised in this Working Paper. A synthesis report of the 11 national country studies will be presented at the ITTO Council Session to be held in Yokohama Japan in December 2004.
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Authors: John Garth, Ivan Eastin and Jane EdelsonExecutive Summary Understanding the ways in which residential builders perceive and use softwood lumber and substitute structural materials is essential to the success of any forest products manufacturer. CINTRAFOR completed its first study of material substitution in 1995 (CINTRAFOR Working Paper No. 57), providing a benchmark for softwood lumber use in structural applications in residential construction. In 1998, a second study by CINTRAFOR (CINTRAFOR Working Paper No. 73) found that softwood lumber was slowly losing market share to engineered wood products and non-wood substitutes. The 1998 CINTRAFOR study also provided a benchmark for wood and non-wood material usage in residential decking applications (CINTRAFOR Working Paper No. 78). This research represents the third in this longitudinal study and will describe the trends in material substitution in the residential construction industry in 2001. This study looks at material substitution in structural framing applications and provides a benchmark for structural panel usage in exterior wall sheathing, sub-flooring and sub-roofing applications. The survey results suggest that firm size (based on annual revenues) within all segments of the industry has increased since 1998, most likely due to a combination of consolidation within the industry and growth of individual firms in response to the strong housing market. On a regional basis, small firms represented a higher proportion of the industry in the southeast (72%) while they displayed their lowest level in the northeast (49%). Overall, single family construction represents approximately 53% of total firm revenues, although this was substantially higher in the southwest (63%) and somewhat lower in the northwest (46%). Small builders revenues were evenly split between single family construction and repair and remodel projects whereas the Top 100 builders focused almost exclusively on single family construction (providing over 90% of total revenue). In general, large builders had a strong focus on single family construction (70% of total revenue) but they also derived substantial revenues from multi-family construction (9% of total revenues), repair and remodel projects (8% of total revenue) and non-residential construction (12% of total revenue). The most dramatic change was observed in the Top 100 builders where the percentage of revenue derived from single family construction jumped from 58% in 1998 to 93% in 2001. Almost 40% of respondents reported that their use of softwood lumber had not changed substantially over the past two years. More importantly, fewer respondents reported that their use of softwood lumber had decreased substantially in 2001 (4.5%) than was reported in the 1998 survey(11.8%). The percentage of respondents who reported that they had used a substitute material in place of softwood lumber in structural framing applications increased slightly from 98.9% in 1998 to 99.5% in 2001. The most commonly used substitute materials were wood I-joists, glue laminated beams, laminated veneer lumber and reinforced concrete. All of these materials exhibited an increase in reported use since 1998 with the exception of reinforced concrete which saw a slight decline in use. The largest increase in use was observed for finger-jointed lumber, despite the fact that less than 40% of respondents reported using it. Small decreases in use were reported for structural insulated panels, wood-steel open web floor joists and reinforced concrete. The largest decline in use was reported for TimberstrandTM lumber, where almost 20% of respondents indicated that their use of this product had declined in the past two years. Softwood lumber use in wall and roof framing applications actually increased slightly in 2001 although it decreased substantially in floor framing applications. Softwood lumbers share in wall framing and roof framing increased slightly to 83.4% and 40.9%, respectively, while it dropped to 38.6% in floor framing. In header applications (a new category in the 2001 survey), softwood lumber had a 71.9% share while laminated veneer lumber had a 20.4% share. The survey data also suggests that the share of steel in structural framing applications declined across all end-uses: to 6.6% in wall framing, to 1.7% in floor framing, and to 1.7% in roof framing. This data strongly suggests that the steel framing system was used in less than two percent of US housing starts in 2001. Substitute materials were again perceived by survey respondents as being more environmentally friendly than softwood lumber, continuing a trend established in the 1995 and 1998 surveys. This continuing misperception on the part of residential builders is troubling. Builders were asked to rate the importance that a broad range of structural softwood lumber attributes had on their material purchase decision. The average attribute importance ratings were virtually identical to those obtained in the previous CINTRAFOR, suggesting that the attitudes of builders toward the importance of specific lumber attributes have remained relatively constant since 1995. Builders were also asked to rate their satisfaction with each product attribute. Although the average satisfaction scores in 2001 were generally higher than in 1998. Straightness and lack of defects, the two of the most important lumber attributes, received the lowest satisfaction ratings. These low satisfaction ratings suggest that builders remain critical of the quality of softwood lumber. In contrast, the satisfaction ratings for price and price stability continue to increase as softwood lumber prices and price volatility continue to moderate. A new section on structural panel use in wall, sub-floor and sub-roof sheathing applications was included in the 2001 survey. While plywood had just over a 50% market share in sub-floor applications, OSB dominated in wall and sub-roof applications. On a regional basis, plywood use was highest in the northwest and lowest in the southwest. With respect to firm size, the Top 100 builders reported the highest use of OSB while small builders reported the highest use of plywood. Interestingly, there was a substantial difference observed between the Top 100 builders and the large builders, with large builders using substantially more plywood than the 100 largest builders. Survey respondents reported that their use of plywood had decreased between 30-50% across the three end-use applications while their use of OSB increased between 40-47% across the three end-uses. In considering a total of nineteen structural panel attributes, respondents indicated that plywood was generally perceived as having superior performance relative to OSB. In contrast, OSB was perceived as being superior to plywood in just four structural panel attributes: price, price stability, presence of panel voids, and resistance to delamination. Builders rated resistance to delamination, resistance to edge swelling and resistance to thickness swell as being the most important panel attributes. The results of this research suggest that the pace of material substitution in the residential construction industry has moderated since 1998. To a large degree this might be attributed to lower lumber prices, less volatility in lumber prices, and the fact that builders have become more accepting of the decreased softwood lumber quality that has been attributed to the younger, faster grown plantation resource. The exception to this trend is in floor framing applications where wood I-joists continue to expand their market share at the expense of softwood lumber. The most troubling result is the continuing misperception among residential builders that softwood lumber is the least environmentally friendly material. This result could have serious implications for the forest products industry in the future as green building programs become more prevalent and home buyers become more assertive in demanding that environmentally friendly materials be used in building their homes. This misperception clearly shows that further research is required to determine the basis for this misperception and to identify strategies to ensure that information regarding the positive environmental benefits of using wood relative to non-wood substitutes is effectively communicated to home builders and home buyers.
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Authors: Alicia Robbins, Paul Boardman, John Perez-Garcia and Rose BradenExecutive Summary China Wood and Building Materials Market: A Sourcebook for Exporters China's rapid economic development over the past two decades has dramatically changed its position in the world economy. China has emerged from virtual isolation to become the seventh largest trading nation and the sixth largest economy in the world. Policies to encourage international trading relationships and stimulate consumer spending have created a booming economy. Today, trade accounts for nearly 50% of China's Gross Domestic Product (GDP), with imports from the United States making up US$20 billion. In 2001, China's GDP reached almost US$1.13 trillion. While the economies of the US's other leading trading partners such as Japan and the European Union have declined or remained flat in recent years, China's GDP has generally remained greater than 5% for the past decade. Foremost in the list of reforms that have helped stimulate China's economy is housing reform. The shift from state provided housing to private ownership relieved the government of the financial burden of providing its housing while at the same time creating a leading industry in China's economy. Beijing alone is calling for the development of the housing industry as a means of increasing its current 6% share of GDP in 2001 to 10% by 2010. Between 1978 and 2000, per capita living space increased from 3.6 square meters to 10.3 square meters and total investment in fixed assets had increased to more than US$387 billion. The Chinese government estimates that approximately 700 million square meters of residential floor space was constructed from 1997 through 2000. The government hopes to increase urban per capita living space to 25 m2, or approximately 72 m2 per household, by 2005. In order to achieve this plan, the government expects to construct 1.5 billion square meters of residential building space from 2001 to 2005. Domestic housing starts, which reportedly reached 22 million last year, are projected to grow to 24 million in 2002 and 26 million in 2003. This could result in approximately four to ten million urban annual housing starts, depending on the rate at which increases in per capita and household living space are achieved. Because of the high population density of most urban areas, approximately 78% of China's urban residents live in multi-family housing, which ranges from low-end housing to full service apartments. It is estimated that 48% of urban residents live in six-story and under buildings, 28% in high-rise apartment buildings, and 3% live in luxury-style apartments. Less common is low-density housing, which includes high-end luxury villas geared to high income Chinese and the expatriates living in China. These villas, Most of which tend to be western-style architecture, account for only 1% of urban housing. Concrete, steel and brick, have been the dominant building materials in the modern era. Wood frame construction, popular in traditional Chinese architecture, has not seen much penetration since housing reforms began, and will likely only be attractive or affordable to upper class Chinese and the expatriate community for the foreseeable future. The Foreign Agricultural Service has estimated wood frame construction housing starts to be significantly less than one percent of total housing starts for the next several years, while steel, masonry, and others forms will make up the majority of construction methods. Wood frame construction faces several challenges. While wood is now recognized in the Chinese building code, consumers and developers repeatedly express concern about price, durability, wind load resistance, fire, moisture/decay, insects/termites, and seismic strength of wood frame construction. Opportunities exist for US building materials and housing system companies to enter and expand in the Chinese market, but it will require a tremendous amount of work to overcome cultural barriers. Firms should be committed to establishing long-term contacts with whom to develop trading relationships and to make effort to adapt their products to meet Chinese needs. It is estimated that a growth rate of anywhere in the range of 15-30% will be sustained in building materials for several years to come, growing from US$24 billion to $71 billion between 2001 and 2005. The US has managed to increase its exports to China in this market, despite an overall decrease in imports of building materials. One of the greatest opportunities to enter the market is in the 2008 Beijing Olympics. The government estimates that nearly $22 million will be invested in infrastructure for the Olympics. Furthermore, the government is promoting a "Green Olympics," providing good opportunity for green building and use of wood products in building materials and finishing. Furthermore, the Ministry of Construction has recently approved "green building" guidelines, and is promoting energy saving, recycled or renewable and pollution-free building materials. This initiative could prove to be a useful marketing tool for imports of wood-based building materials. As of June 2000, clay bricks, a traditional building material in China, have been banned in the construction of all new buildings in medium to large cities by the Ministry of Construction, the State Economic and Trade Commission, and the State Administration of the Building Materials Industry. Coal is China's primary energy source, and in an effort to reduce air pollution the government is targeting brick production, which reportedly consumes a quarter of China's coal. As of June 2003, clay bricks will be banned entirely. In 2000, the government banned the use of clay brick in home building. Prior to this ban, brick was one of the most preferred building materials and was a major competitor to wood frame housing, composing nearly 70% of Chinese construction materials. The Ministry of Construction is largely promoting the use of lightweight concrete blocks as a substitute to clay bricks and is hoping that the housing boom will carry over to China's steel industry. However, because there are no codes for steel frame houses and they serve a different market than wood frame housing, and because homebuyers in China (like those in the US) do not want to live in a home constructed entirely of steel, experts do not expect steel and concrete to pose much of a threat to the development of wood frame housing in China. Most of the new housing will likely be built in the form of six-story walkups or high-rise buildings, but there also exists a potential for single, wood-frame homes. Weyerhaeuser's Kent Wheiler has said that China represents the only opportunity in the world to create a large wood frame housing market where one does not currently exist; this is largely because of China's aggressive housing reform policies, low amounts of housing currently available, high savings rates, increasing purchasing power, and a strong consumer desire for better housing. To penetrate the market, however, will require a significant amount of effort and marketing, as there is no current infrastructure to introduce potential Chinese homebuyers to wood frame construction. Despite this tremendous long-term potential, the Foreign Agricultural Service (FAS) estimates that for at least the next several years, wood frame construction will occupy less than half a percent of all housing starts. It should be noted that China has nearly four times the population of the United States living on almost half the arable the land. The American suburban model of the single-family home with a large surrounding lot is not likely a feasible model for a high percentage of Chinese real estate development. Not only is it not affordable for the majority of the population, but also there simply is not enough land for such expansion. Wood frame construction and single-family homes, in general, will be limited to a small subset of the population and most construction efforts will be focused on multi-family and multi-story buildings. Other housing reforms that promise to change the current way that building materials are supplied include the newly policy to provide consumers with turnkey housing. Previously, Chinese homebuyers bought only the unfinished shell (maopei) of a home or apartment. Consumer complaints about graft, poor workmanship, and construction delays have prompted the government to require builders to pre-install features. This policy will take effect in Shanghai by 2005 and industry experts expect the policy to expand to other cities. The policy may result in a decline in the number of small interior finish companies as construction companies expand to fill the new niche. Quality issues are a central area of concern in China's housing industry. The National Bureau of Statistics reports that only 30% of all construction in 2000 was of "high" quality. Many Chinese consumers have expressed concern over issues regarding the safety and durability of their homes, malfunctions, and comfort. As Chinese homebuyers become more selective and acquire more financial resources, quality is certain to become an important factor in consumers' decision-making process.
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Author: John Perez-GarciaExecutive Summary The consequences of decisions regarding the management of forest resources in Oregon are local, national and international. This is to say that unilateral policies implemented to achieve an objective associated with Oregonian forest management programs will have unintended consequences elsewhere. This study examines the unintended consequences that arise from a simulated policy to maintain Oregon’s harvest levels constant over the next 4 decades. Forest economies other than Oregon and their associated environments are affected by our local choices. With a projected increase in the demand for wood products, what does it mean for Oregon to constrain its participation by restraining timber harvest? This study projects a future scenario for the global forest sector with and without Oregon’s increased participation to describe the impact the Oregon forest sector has on national and international markets. It also discusses several potential impacts on the environment associated with the changes in wood flows. This study addresses the following questions: What does a reduction in Oregon’s timber output mean for forest products markets locally, across the US and internationally? Which regions pick up the market share vacated by Oregon? What tradeoffs exist between timber production and the environment? What is Oregon’s role in providing forest products, environmental protection, social and economic benefits into the future for its citizens and the global community? To estimate the effect of Oregon’s annual harvest level on US and foreign markets, we first analyze the future demand for wood products to 2040, and identify the producers of wood products that meet this demand. We next constrain the annual harvest level in Oregon to be constant throughout the projection period (2000 to 2040), and note the changes in harvest volumes in markets outside of Oregon. Once recorded, environmental measures for the areas that increase harvest activities are examined. We also note the potential social and economic benefits associated with changes in market shares. An estimate of future global demand for wood fiber is based on annual projections of gross domestic product (GDP) of 3.5% and two historical trends in consumption of wood fiber. Consumption is estimated to reach between 2.0 and 2.8 billion cubic meters (Bm3) over the next 5 decades, adding from 0.5 to 1.3 Bm3 by the end of the 50-year period. Many regions participate in meeting this growing demand for wood products, including Oregon, in this business-as-usual scenario. Focusing on softwood saw logs, the South contributes over 100 million cubic meters (MMm3) or 17.7 billion board feet (BBF) followed by Canada (40 MMm3 or 7.1 BBF) and the US West (including Oregon) (10 MMm3 or 1.8 BBF). This study estimates that the southern states will meet more than half of the projected demand growth. When Oregon’s annual harvest levels are maintained constant—i.e. harvest levels are not allowed to expand to meet the projected demand growth—two effects occur in the market. The first effect is an increase in timber prices. This is followed by responses from other regions and alternative material producers to increase production. The South captures 43% of the decline in Oregon’s annual harvest levels. Alternative material producers—i.e. lost wood demand—capture 32% of the lost market. They are followed by Asia and Canada, which capture 15% and 10% respectively of the projected demand growth without an increase in Oregon’s annual harvest levels. These results suggest there are several competing regions with the capacity to increase harvest volumes that an Oregonian forest manager must contend with including southern states, Canada and countries outside of the US with established plantations. Recent data on import trends confirm increased market activity from several countries with expanding forest resources. Latin America, as a region, has increased its exports of softwood lumber and plywood to western ports from less than $10 million in 1990 to over $100 million in 2002 for softwood lumber and from nearly no activity in 1997 to over $8 million in softwood plywood (mostly from Chile). While Brazil’s share appears to have peaked in 1999 at less than $25 million (mostly lumber), other countries have increased exports to western ports including Chile (both lumber and plywood), Uruguay (lumber) and Argentina (plywood). Softwood lumber entering western ports from Australia and New Zealand has increased from negligible numbers in 1990 to nearly $150 million in 2002. Imports of softwood plywood from New Zealand topped $1 million in 2002. These trade flows are small but significant since they signal new market suppliers to the US through western ports that directly compete with Oregonian products. Within the southern states, annual harvest levels are projected to increase over the next twenty years in those states outlying the traditional timber-producing central states of Georgia and Alabama. Fringe regions in eastern Texas and the Carolinas are expected to increase annual harvest volumes by 15% or more in some areas more than offsetting declines in Georgia, Alabama and Mississippi. We examine several environmental measures for those regions expected to increase market share due to constant annual harvest levels in Oregon. In general, since regions that compensate for Oregon’s lower harvest volume have shorter rotations and lower volumes per acre at harvest time, there will be more acres disturbed by harvest activities than would have been if the harvest activity were to occur in Oregon. Conservation concerns in the South are growing as they continue to augment their share of the US market. They include a decline in ecosystem communities that are endangered and not under public management. Also, with much wood growing in emerging plantation regions around the world, and their rankings in biodiversity and other indices low, there is concern that the shift to Asian and Latin American producers may lead to lower conservation efforts abroad. Carbon dioxide and other green house gas emissions also increase with greater use of alternative materials like steel and concrete. Estimates place the additional emissions as high as 1.4 million metric tons annually by 2040. A loss in future market share also has implications for investment strategies in Oregon, with its social and economic consequences. One conclusion of the analysis suggests that the South, with continued growing demand for wood fiber, will increase its management intensity of forests augmenting productivity. Without the larger market for Oregon producers such management investments become more questionable in Oregon with a concomitant effect on its own forest productivity. While prices for timber may go up, the revenues that landowners receive maybe reduced since they are not able to harvest the same volumes as before. In addition, the lower harvest level removes any incentive for new capacity expansion in Oregon, amounting to 7 to 8 average-sized mills. There are also extensive areas of plantations internationally. These areas are likely to come into play in the near future representing low-cost sources of wood and attracting investments to produce wood products for a globalized market. These results suggest that planners need to evaluate the tradeoffs associated with an unexpected change in harvest levels for Oregon. Since there is a need to meet growing demand and Oregon can increase its annual harvest level to meet a part of the growth in demand, any program that limits its potential to supply wood products will allow other regions and countries to expand their harvest levels, with an associated environmental tradeoff and shift in social and economic benefits. The question becomes whether the tradeoffs are favorable for Oregon and the global community or not. These tradeoffs need to be considered in order to reach environmental, social and economic goals, which may extend outside of Oregon’s boundaries. This study, combined with others that detail Oregon’s environmental management, should prove useful in answering that question.
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Authors: Ivan Eastin, Joseph Roos and Peter TsournosExecutive Summary Despite the poor economy in Japan, there remain promising niche markets for Alaskan softwood lumber. The unique characteristics of Alaskan softwood species are well suited to the demands of the Japanese market in general and Japanese post and beam home builders in particular. In addition, Alaskan species, particularly Sitka spruce and Alaska yellow cedar, enjoy a good reputation in Japan. For example, as a result of recent regulatory changes in the residential construction sector, it may be advantageous for Alaskan producers to supply kiln-dried lumber and glu-lam products milled to the specific dimensions required by the post and beam industry. Given that Alaskan producers cannot compete solely on the basis of price, a more effective strategy is to differentiate their products using non-price attributes that are valued in Japan. The primary aims of this research were to identify niche market opportunities for Alaskan timber species in the Japanese post and beam industry, describe those market opportunities and provide recommendations to help Alaskan sawmills evaluate the niche opportunities in Japan and objectively assess how those market opportunities match their own production and sales capabilities. The market opportunities in specific niche markets are described below. Residential Construction The Housing Quality Assurance Act of 2000 requires that all builders provide a 10 year warranty on their homes, including the structural components used to frame-in the house. This requirement has had a significant impact on the species of lumber specified for structural components that are used in ground contact applications. In the future, Japanese builders are expected to increase their use of naturally durable timber species in an effort to reduce their liability and increase the performance of their homes. A second factor influencing material specification in residential construction has been the homebuyers’ increasing awareness of, and concern about, “sick house syndrome”. Sick house syndrome has received extensive coverage within the Japanese media and, while it is primarily attributed to off-gassing of volatile organic compounds (VOC’s) from carpeting, paint, and vinyl wall coverings and their adhesives, this concern on the part of some homebuyers has caused a growing number of builders to reduce or discontinue their use of engineered wood products and pressure treated wood. The combination of these two factors provides Alaskan sawmills with a unique opportunity to increase their sales of Alaska yellow cedar lumber in both the post and beam as well as the 2x4 segments in the home building industry. Lamina For Glue-Laminated Beams Currently there are six glu-lam beam manufacturers in Japan that utilize Alaska yellow cedar lumber to produce laminated dodai and posts. Alaska yellow cedar glu-lam ground sills tend to be used in higher end homes, although some builders of mid-price homes use yellow cedar glu-lam ground sills as a way of demonstrating the high quality of their houses and differentiating their homes from their competitors. In addition to ground sills, there are also opportunities to export lamstock produced from Sitka spruce and hemlock for use as posts and structural beams. This is particularly true because Alaskan timber species tend to be slow growth with narrower growth rings and correspondingly higher strength characteristics than the same species growing in other parts of the Pacific Northwest. Lumber For Shoji Components Traditional Japanese homes typically have a tatami room. The tatami room may be where the family gathers or it may serve as a bedroom at night. Tatami rooms use a large volume of appearance grade wood in exposed applications such as beams, shoji screens, and moldings. While there are fewer tatami rooms being built in Japanese homes today, there is still a good demand for high quality yellow and red cedar, as well as Sitka spruce and white spruce, for shoji components. In addition, the price premiums obtained for shoji grade lumber make this a good market for lumber manufacturers. This research has demonstrated that there are a number of potential market opportunities in Japan for softwood lumber from Alaska. These range from rough green lumber to planed and kiln-dried lumber to laminated yellow cedar sill plates (dodai). The most promising opportunities were found to be yellow cedar dodai for the post and beam market, 2x4 and 2x6 yellow cedar dimension lumber for sill plates in the 2x4 market, Alaska yellow cedar, Sitka spruce, and hemlock lamina for the laminated beam industry, and rough, green or planed, kiln-dried yellow cedar, western red cedar, Sitka spruce, and white spruce lumber for the shoji manufacturing industry. Having identified a series of market opportunities for softwood lumber from Alaska is not enough though. A more important factor is to provide sawmill managers in Alaska with a series of marketing recommendations that will allow them to objectively assess and determine if exporting softwood lumber to Japan makes strategic sense for their company and, perhaps more importantly, that will assist them in determining whether their company is prepared to make the commitment of time and resources that are critical to achieving success in the Japanese market. A series of ten strategic marketing recommendations developed during the course of this study are presented and discussed.
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Authors: Shelley Gardner and Ivan EastinExecutive Summary The goal of this paper is to provide objective and reliable information about Chile’s forestry sector and its current and future role in the international forest products industry. The contents should provide a well-rounded view of forestry and associated issues in Chile and would be well suited to someone looking to gain insight on this topic, update their knowledge of the subject, compare Chile to other countries of interest, or begin to understand investment opportunities in Chile. While the document does provide investment information, someone seriously considering investing in Chile would most likely want to undertake a more thorough investigation of issues specifically related to their strategic plan and some appropriate resources for this have been cited. Chile’s favorable soil and climatic conditions allow for a rapid growth rate and production of marketable wood. They have an increasing plantation resource base (mostly radiata pine (Pinus radiata) and Eucalyptus species) and potential to expand their forestland further. Decree Law 701, now refocused from plantations and large landowner support to subsidizing planting and trimming costs for small landowners, has been the major and often criticized piece of forest management legislation since its induction in 1974. Not yet enacted, the “Recovery of the Native Forests and Their Promotion in Forestry” seeks to subsidize native forest management as well. Property rights are more respected for plantations, there is virtually no land tenure for native forest and what ownership does exist is hard to track. Chile’s forest industry has contributed about 3% of the total GDP over the last 15 years and made up 10% of all exports in Chile and 2% of the world trade in forest products. Their primary products consist mainly of roundwood, lumber, fiberboard, particleboard, wood chips, pulp, and newsprint. As the trend moves more toward secondary products such as sawnwood, molding and millwork, and furniture, they strive to strike a balance between the two. Non-timber forest products, such as sweetbriar rose (Rosa eglanteria), soapbark tree (Quillaja saponaria), and boldo (Peumus boldo), while hard to estimate due to the fragmented market, also significantly contribute to exports and may offer alternatives for more sustainable management. Wood pulp producers have made major investments in modern, low-pollution industrial plants and processing technologies to meet European market demand. Chile’s exports focus makes them a reliable trading partner. Chile’s ability to standardize and harmonize with market demand, share market information, adapt to the Argentinean crisis, and obtain more forest products marketing training; Chile’s geographical location in relation to export markets, wood quality, use of natural resource-based exports as major momentum for economic growth, and technology restrictions; and forest-certification coupled with NGO pressure or boycotts are all potential challenges to the industry and important considerations for investors. The major competitive threats regarding Chile are its likelihood of becoming more competitive in international markets as exports increase, increasing production and exports, and low production costs and labor costs relative to competing nations. Opportunities for countries interested in working with Chile include its positioning to resume higher growth, market-oriented economy, well-diversified international trade, well established State institutions, democratic government, and relatively qualified and ethical labor force. The Chilean government provides active encouragement to private sector forest activity and is seeking to promote foreign direct investment (FDI) to capitalize on developing value-added products. The greatest opportunities include investment in sawmills, pulp plants, wood composite panels, and wood preservation. However, there are potential challenges or serious considerations for prospective investors. There is extreme consolidation of the industry. Empresas Compañía Manufacturera de Papeles y Cartones S.A. (CMPC) of Matte Holding and Angelini forestry own 80% of productive forestland and wield serious political power. There is a relatively small presence of foreign capital compared to the 1980’s. Chile’s production base structuring allowed for better positioning of local groups, so foreign investors associated with local groups, but withdrew when profits decreased. Environmental pressures/restrictions and plantation criticism make it increasingly attractive to divert investments to neighboring countries with fewer restrictions. Chile has gained preferred market access to certain countries by participating in free trade agreements with Canada, Mexico, and tentatively with the European Union (EU). It has bilateral trade agreements with the Andean Pact countries, the Southern Cone Common Market (MERCOSUR) countries, and Central America. It has also received invitations to Asia-Pacific Economic Cooperation (APEC), Latin American Integration Association (LAIA), and North American Free Trade Agreement (NAFTA). Chile actively participates in negotiation of the Free Trade Area of the Americas (FTAA), but negotiations between Chile and the United States have been held up mainly due to the U.S.’s hesitation to address sensitive agricultural issues.
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Authors: Ivan Eastin, Paul Boardman and John Perez-GarciaExecutive Summary Background to the Study The lack of competitiveness of Japan’s wood producers, continued growth in imported lumber and wood products, and a growing unmanaged timber stock on Japanese national and private forests spurred the Japanese government to review lumber imports and its relation to its depressed wood products market. Although the initial Ministry of Agriculture, Forestry and Fisheries inquiry into how exports of wood products from the US and other regions of the world have proven injurious to the domestic industry never reached a pan-ministry consensus, at the time of this writing some lumber products are still on the MAFF’s list of products for potential WTO safeguard protection. A Safeguard Action under WTO guidelines requires that the Japanese government: (i) identify the affected industry, be it the forestry sector or the wood-processing sector; (ii) identify the affected product and its relation to substitute import products; (iii) determine how the sharp increase in imports resulted in injury to the affected industry; and (iv) determine how Safeguard measures would improve the competitiveness of the affected industry over the 4 to 8 year period it is in effect. Study Objectives This study, through in-country interviews, literature review, and data analysis, sought to analyze the state of the competitiveness of the Japanese forestry and wood products industries, and, using the CINTRAFOR Global Trade Model, to determine the impact of a protectionist trade policy on the domestic industry’s competitive strength and upon Japanese home-buying consumers. Summary of Findings During the period of the writing of this report it appeared that the threat of a WTO Safeguard Action subsided. However, as of July 2001 lumber products are still officially listed by MAFF for a potential safeguard action. Though this is not a study regarding the impact of protectionism on US or foreign exports to Japan the consequence of such a protectionist action on US and foreign wood exports to Japan is large. As the study findings suggest the benefit of trade restrictions to the domestic industry is mixed with the main burden of such an action being shouldered by the Japanese consumer. Many of the reasons for the lack of Japanese forestry and wood product sector competitiveness have more to do with internal systemic issues than with external issues traceable to exports. Potential Impact of a Safeguard Action Although the intended objectives of the Government of Japan forestry and forest products policies and subsidies is to realize “an era of domestic timber, a Safeguard Action may have the opposite effect by increasing log imports 44%.
Since 1955, Japan has seen its self-sufficiency in wood products decline from approximately 95% to below 20% by 2000. While there are a variety of factors that have contributed to this decline, the net effect has been that domestic forest products manufacturers have lost tremendous market share to imported wood products. Similarly, the competitiveness of the forestry sector has declined significantly relative to imported softwood logs. The dominance of the timber market by imported timber has contributed to a fundamental structural change within the forestry and forest products sector. Analysts and politicians have charged that these structural changes in the forestry and forest products sector have not only adversely affected the competitiveness of the domestic forest products sector but that they have severely restricted the ability of forest owners to actively manage forests in Japan, both private and public. In an attempt to rectify this inability to manage its forests and to bolster the competitiveness of its forestry and wood-products industries the Government of Japan has considered a Safeguard. However, the conclusion of this study is that given the burden that this trade restriction will likely cause to the Japanese consumer coupled with the probability of a significant increase in log imports, protection is not the road to profitable and well-managed forests and wood products industry. Perhaps more importantly, given the internal systemic issues described earlier, there appears to be little likelihood that a Safeguard would result in the increased competitiveness of the sawmill industry.
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Authors: John Perez-Garcia and Scott MarshallExecutive Summary The study examines where excess wood exists, how much can be imported to the US, and what opportunities exists for US investments overseas. The study begins with an examination of global demand. Data on global consumption of industrial roundwood reveals a structural break in consumption patterns during the early 1990’s. Part of this break is the result of the collapse of the former Soviet Union. The shut down of not only its consumption but also its production sectors has had a visible impact on global consumption. Also efforts to produce timber in a sustainable fashion in tropical forests and environmental restrictions on softwood timber harvests significantly constrained timber supply in the 1990’s, leading to reduced global consumption of forest products. Two projections of future consumption are made. Using a growth rate of consumption observed prior to the 1990’s results in projected consumption of nearly 3 billion cubic meters by 2050. Using a growth rate of consumption estimated during the 1990’s results in a projection of 2 billion cubic meters by 2050. Near-term consumption is projected to increase from 300 million to 800 million cubic meters over the next 20 years. The study also examines global timber supply projections using the ATLAS timber projection model, and their implication for excess supplies of wood fiber. Excess supplies are defined as the volume over rotation age assuming no growth in current demand. The model produces the biological potential for timber production for plantations established in New Zealand, Australia, Indonesia, Brazil, China, Argentina, Uruguay and Chile. The projections are based on specific assumptions about growth rates, rotation ages and areas planted in 1995. The projections indicate that in the short to medium term (from now to 20 years from now), there may be up to 400 million cubic meters (MMm3) of available wood in the Asian wood basket. These wood resources are close to China and represent 3.5 times the timber consumed in China in 1997. The Asian plantation wood is likely to compete with non-plantation wood particularly from Russia, and to some extent Scandinavia. Over the longer term, it is likely to compete with Chinese plantations as well. Several countries in Latin America have the potential to develop inventories above rotation age totaling over 500 MMm3. Much of the additional short-term fiber from these plantations may fill European and North American markets, but are likely to come under competition from large non-plantation wood fiber sources in the northern hemisphere, such as Canada and Scandinavia, as well as the US fiber resource in the South. The study also estimates economic supply for softwood logs using the CGTM. We develop cost curves by ranking the quantity of sawlog supply available at a given price. The cost curves assume no growth in demand over the projection period from 1993 to 2040. An additional 200 MMm3 of sawlogs would be produced with an increase of $188/mbf (2000US$ or $40/m3 in 1980US$). Finland produces the lowest cost sawlogs followed by New Zealand and then the US South. The three regions provide the bulk of the first 100 MMm3 of addition sawlogs. The interior region of western Canada, sourcing wood fiber from native forests, provides additional wood in the mid- to longer-term. Regions such as the US West provide little or no additional wood supply because they are meeting current demand. Supplying the least cost manufacturing capacity is modeled in a similar fashion as supplying least cost sawlogs. The European region of Finland, Sweden and the western continental countries provide the majority of the lower cost manufacturing capacity. The study concludes that while plantation wood may have a biological potential to produce nearly 1 billion cubic meters of wood fiber in the near-term term, there will be competition from wood fiber from non-plantation sources including Scandinavia, Canada and the US. The sourcing of non-plantation wood fibers from these regions appears to remain more competitive with plantation fiber according to simulations with the CGTM. The 1 billion cubic meters of potential wood fiber is greater than the upper bound of 750 million cubic meters projected for the near-term demand for industrial roundwood. However, the projection of biological supply is sensitive to plantation growth rates and rotation ages used in the study. Timber inventory projections decline significantly with changes in these assumptions. Future work will require better information on area planted, their growth and management intensities defining rotation ages.
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Authors: Kyle Cunningham and Ivan EastinExecutive Summary Japanese housing starts reached a high of 1.64 million in 1996 as homeowners rushed to beat the consumption tax increase scheduled for 1997. The Asian economic downturn and various other factors caused housing starts to fall to 1.2 million in 1998. The decline in housing starts, in conjunction with a Japanese recession, contributed to a dramatic decrease in imports of wooden building materials. Japan, the most important export destination for PNW solid wood products, accounts for almost 31% of PNW exports. During the economic downturn, Japanese imports of PNW primary wood products fell 30%, to $670 million in 1998 while exports of secondary wood products fell 36%, to less than $100 million. Events that occurred before and during the recession have caused structural changes in the flow of wood products to Japan. During the downturn, the Japanese yen weakened against the US and Canadian dollar, effectively raising the price of US wood products in Japan. The consumption tax rate increase, strong US dollar, and the extended economic recession combined to heighten price sensitivity among Japanese consumers. These factors combined to reduce the competitiveness of US wood products in the Japanese market. The majority of firms engaged in exporting wooden building materials to Japan were affected by the Japanese recession. While most firms reported a decline in export revenues from Japan, some firms experienced increases in their exports to Japan. This anomaly prompted an investigation into why some firms were successful in increasing their exports while other firms were not. The objectives of this study were to document the perceptions of PNW exporters and manufacturers on the importance of services offered to Japanese customer, to discover the key characteristics of successful exporters and to identify the impact of the marketing mix on export performance. A mail and fax survey was designed to elicit specific information on the demographic and operational characteristics of exporting firms in the Pacific Northwest. The survey population included firms that exported or manufactured and exported wooden building materials to Japan. The survey was administered by fax with follow up faxes and letters. Of the 163 US and 71 Canadian firms, 44 US (27%) and 15 Canadian (21%) firms were judged to have gone out of business. Out of 173 viable firms, 72 returned completed surveys for a response rate of 41.6%. US firms returned 41 surveys from a population of 119 for a return rate of 34.5%; while 31 of the 54 Canadian firms returned surveys for a response rate of 57.4%. An open-ended question prompted the respondents to identify the factor that had the greatest impact (positive or negative) on their business in Japan. The most frequently mentioned factors were the Japanese recession and the strong US dollar, while marketing factors, such as distribution and services were mentioned less frequently. The survey data suggests that shorter channels were used more often than the traditional Japanese multi-layered channel. On average, 58% of the respondents export sales went directly to Japanese homebuilders, while an additional 7% went through a company sales office. Other distribution channels included Japanese distributors, Japanese wholesalers and other trade intermediaries. Respondents perceived a significant advantage to having a sales office and sales/technical representatives in Japan. They also perceived a significant advantage to using a Japanese distributor to take control of product distribution. Overall, the survey data suggests that distribution channels for wooden building materials to Japan are becoming shorter. Softwood lumber was the most commonly exported product (22%), followed by wooden doors (17%) and wooden windows (16%). The remaining products exported included prefabricated housing components (10%), structural panels (8%), cabinets (8%), and glulam beams (3%), while other products accounted for 16% of the export mix. Survey respondents were asked several questions related to the importance of the offering specific services to their Japanese customers. In general, the importance of providing these services was perceived to be significantly more important by the firms that provide them relative to the firms that do not provide them. The services included in the survey were: warehousing spare parts in Japan, offering a product warranty, providing translated product information, providing translated installation instructions and providing translated maintenance instructions. Of 68 respondents, 53% reported that they provided translated product information, 46% provided translated installation instructions, and 36% supply translated maintenance instructions. An analysis of the data suggests that as the product becomes more technically complex, there is a lower likelihood that the exporter will provide translated technical information. Nearly all of the survey respondents reported that their Japanese customers had become more price sensitive. Most firms reported that this increased price sensitivity had a negative impact on their export performance. However, a small set of respondents indicated that their exports to Japan increased despite the increased price sensitivity of their Japanese customers. A comparison of US and Canadian firms revealed some basic differences in the products and distribution channels used to service the Japanese market. Canadian firms shipped 71% of their total exports to Japan, while the US only shipped 53%, a significant difference. Canadian firms also tended to ship a larger volume of primary wood products through shorter channels than their US counterparts. US firms were more likely to ship value-added products through longer distribution channels. Finally, Canadian firms were more likely to know the segment of the residential construction industry in which their products were used. The distribution channel and product mix of firms that successfully exported to Japan during the Asian downturn differs greatly from the unsuccessful exporters. The firms that did well had export product mixes containing high amounts of wooden prefabricated building components and other value added products. Unsuccessful exporters tended to focus more on lumber, structural panels and doors. Successful exporters tended to report a higher use of short distribution channels, often exporting directly to the homebuilder or to a company sales office. Finally, successful exporters tended to supply a higher percentage of their products to post and beam builders and into other (non 2x4) segments of the construction industry. Market knowledge appeared to play a vital role in export success as unsuccessful firms were over three times more likely not to know how their products were used. This lack of market knowledge makes offering after market sales support difficult and successful promotion within those market segments almost impossible. This research suggests that the firms that were successful during the downturn exported more than twice the amount of products into other market segments (primarily post & beam, prefabricated homes and log homes) than did unsuccessful firms. These segments of the housing market may be less sensitive to changes in the overall economic conditions than are the larger post and beam and 2x4 housing segments. Analysis of total sales by export success reveals some interesting patterns. The medium-sized firms (export sales revenues between $1 million and $5 million) appear to have done much better than both small firms (export sales revenues less than $1 million) and large firms (export sales revenues above $5 million) (Figure 5.5.7). It is interesting to note that a much higher percentage of the medium-sized firms reported an increase in export revenues. Fully two-thirds of the companies who reported an increase in export revenues were medium-sized firms. In contrast, the firms who reported a decline in export revenues were fairly evenly distributed, although almost forty percent of these firms were large firms while just 13% of the successful firms were large companies. As mentioned previously, exports tend to be a much higher percentage of the total sales revenue of the small- and medium-sized firms in contrast to the larger firms who tend to have a heavy focus on the domestic market with exports rarely comprising more than 10% of their total sales. Thus, we might conclude that the medium-sized firms are more committed to the export market and have developed a marketing strategy that provides them with a greater chance of succeeding in Japan even when the markets are poor. While smaller firms are also more focused on their export markets it would appear that they do not have the financial and marketing resources to withstand a significant decline in the export market, as indicated by the fact that 83.3% of the small firms reported declines in export sales revenues in Japan. A factor analysis reduced the larger number of eleven marketing factors into just three factors. The average importance ratings for each factor clearly show that not all of the factors were perceived to be equally important in marketing wood products in Japan. The factor with the highest average importance rating was “Providing translated product information to Japanese customers” which received an average importance rating of 5.52. The second factor, “Providing customized in-country services”, was considered to be somewhat important with an average importance rating of 3.94. The third factor related to the use of specific distribution strategies in Japan, was perceived to be the least important of the three factors with an average importance rating of 3.42. This study has documented structural changes in the trade of PNW wooden building materials with Japan. It has also provided quantitative and qualitative insights into the impacts of the Asian downturn on the performance of exporters in the PNW. The Asian downturn may have served to accelerate the changes occurring in the distribution channels, product mix, and services offered to the Japanese housing market. Changes in the demands of the Japanese consumers have opened new areas and created new opportunities for firms to develop or increase their competitiveness. These changes include shortening the distribution channel and shifting the export mix to include more value-added products. Also, providing more after-sales support, primarily translated product information was also perceived to be important. While some of these strategies may not be suitable for all firms, exporters should realize the need for increasing their competitiveness in the expanding global economy.
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Authors: Steven R. Shook, Ivan L. Eastin, Samuel J. FleishmanAbstract Approximately 85 percent of all single family homes in the US include a deck or deck-like structure (e.g., patio, porch, or balcony), which is equivalent to roughly 30 million decks. Sixty percent of all new homes are constructed with a deck, while nearly 2.75 million decks are replaced on an annual basis (the average deck has a life expectancy of about eleven years). Furthermore, slightly over 4 percent of all households add a deck to their home on an annual basis, resulting in another 3 million new decks. Collectively, over 6.5 million new decks have been constructed throughout the US on an annual basis since 1995, which represents approximately $3 billion spent annually in deck materials. During the decade of the 1990s, the deck market grew at an average annual rate of 8.1 percent. Assuming a constant rate of growth of 8.1 percent, the deck market in 2010 could be as large as $6.5 billion. Despite the enormous size and healthy growth of the residential deck market in the US, very little research has been conducted evaluating consumer perceptions of the various deck materials available to them in the market. The objective of this study was to review secondary information regarding the residential deck material market in the US. Additionally, a survey of residential homebuilders in the US was conducted to characterize the industry’s use of various deck materials, as well as to assess the industry’s perceptions of these deck materials.
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Authors: Juan Luo and John Perez-GarciaExecutive Summary Prior to the 1980’s, the government provided its citizens with public housing. As a consequence, there was a lack of investment in this sector. State-Owned Enterprises (SOEs) were responsible for providing its workers with an apartment or other housing unit. SOEs allocated apartments under a series of rigid administrative regulations that resulted in a rental market with artificially low rents, no home ownership and average living space per capita that was less then 4 m2. These conditions led the Chinese government to consider housing reforms by the end of the decade. During the 1980's, along with other aspects of their economic system, China started to reform its urban housing sector. The housing reforms increased investment in the private (also know as commercial) and public (also known as non-commercial) housing sectors. As a result of these reforms, there are roughly 1 million annual housing starts today. The average living space is 8-10 m2, with a goal of 12m2 by the year 2010. So far, the housing reforms are focused mainly in the cities of Beijing, Tianjin, Shanghai and those in Guangdong Province. The introduction of reforms has produced a dual-housing system in China. One segment of this dual system is the SOEs, which continue to provide the majority of housing to its employees. The other segment is the private housing sector, which operates in a more conventional, open housing market. Eventually China hopes to eliminate this dual-housing system. To do so additional market mechanisms must be undertaken to further develop an open, competitive housing market. These mechanisms involve reforms to price setting mechanisms that set current home sale prices and government-set rents. An important consideration will be a households’ income in establishing market price setting mechanisms. The recent reforms have led to two problems. One is that the price on the ‘open housing market’ is too high to be affordable by average urban residents. As a result there is currently an overstock of newly built housing that was constructed for affluent households. The other problem is that government-set rents can’t be raised to market levels without a significant wage adjustment. Thus wage reform will be just as important for housing reform to be successful. Housing reforms will need to be monitored along with other economic reforms in China. SOEs still control much of the urban housing stock—i.e. the majority of housing is in the public, non-commercial housing sector. The reliance of employees on their work units for their housing needs has not fundamentally changed under the reforms undertaken to date. Successful housing reforms will depend on the reform of SOEs. Wage and housing reforms, and controlling unemployment are a part of much larger and more complicated SOEs reforms. In large part, SOEs reforms will be key for housing reforms to be successful. It is estimated that housing reforms generated $80 billion in new household-related spending in 1998 (9% of GDP) and $150 billion in 1999. However, housing reforms are major undertakings, which will gradually, rather than immediately, bring opportunities for foreign firms. Continued success in generating economic activity will promote further reforms. China’s prediction of 10% annual growth in domestic demand over the next ten years may be over-optimistic, but disposable income has increased by an average of 6% in urban areas over the last five years, and 5.4% in rural areas. A continued growth in income is likely to have a substantial effect on the domestic demand for wood products, hence the outlook for a growing market in China for wood products is optimistic. Rising incomes among China’s emerging middle class, many of whom still live in accommodations provided by their employer, has also raised spending levels on furniture and interior wood products. Demand will initially depend on affluent families that can afford a home purchase and separation from SOEs housing subsidies. As more middle class families become affluent, they also will likely renovate existing units or move into new apartments. Those dependent on heavily subsidized state housing are not likely to contribute much to any potential increase in wood products demand, however. Hence the transition to a western-style housing market is likely to be slow and intimately coupled with wage reforms and the transformation of SOEs to competitive industries. As this happens, over the next several years, demand will grow for higher quality products such as flooring, molding, windows, doors, cabinets, paneling, wall units and furniture. It is expected that consumption of these products will develop into a significant market following these transitions. Over the last decade and more, China’s furniture industry has attained unprecedented development; its output during the period 1986-1997 had developed from 120 million pieces to 476 million pieces, with an average annual increase of 39.8%. Total output value of the industry as of 1998 reached 78 billion RMB and then in 1999 with growth rate to an estimation of 12%. Timber is an important raw material for the furniture industry. A large furniture sector will depend more heavily on imports of timber.
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International Timberland Investments: Linking the Mean-Variance Approach to Country Assessments1/1/2001 Author: William J. TurnerExecutive Summary Given the entrance of institutional investors such as pension funds, onto the timberland ownership scene, timberland as an asset is viewed differently now than it was in the past. Traditional asset management practices based on the portfolio selection framework are chiefly responsible for demonstrating the diversification benefits of U.S. timberland investments. This research evaluates international timberland investments by utilizing traditional asset allocation practices and individual country assessments. Asset performance descriptive statistics are documented for the sample (1981-1998) and an analysis of correlation between international timberland investments and assets of portfolios of U.S. pension funds (e.g. stocks, bonds, treasury bills) is conducted in order to gauge basic asset return relationships. The correlation analysis is followed by a portfolio selection process and then the study addresses characteristics specific to international investments, such as foreign currency exchange issues and qualitatively assessing countries risk characteristics as they specifically relate to international timberland investments. When analyzing international timberland investments, a distinction is be made regarding the treatment of currency exchange. Two, separate international timberland asset classes are considered. One includes returns influenced by changing exchange rates and is based on a return in U.S. Dollars. The other international timberland asset class only considers the returns in the foreign currency and attempts to eliminate exchange rate effects through hedging. The underlying research objective is to demonstrate the effects of investors adding international timberland investments to an investment portfolio by including an examination of currency exchange effects and an assessment of country-specific risk characteristics.
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Author: John Perez-GarciaExecutive Summary Current tariffs on wood products act as a barrier to trade. They restrict market access to more efficient producers. When a multilateral tariff elimination policy is simulated with a global trade model the results project greater trade activity in softwood lumber and plywood, and a greater market share for the US, Canada and European producers. Smaller but similar effects are found in the hardwood sector. The scenario analysis also suggests the possibility that, in the short term, tariff elimination may not lead to increase global consumption. A tariff elimination policy may result in a strong demand effect in the North American market, and, as a result, may lead to higher prices. Supply tightness may come from either stronger than expected demand growth and restrictions on supply availability in North America. Demand rigidity in Asian economies for lumber and plywood lead to positive, but small consumption gains with tariff liberalization. Initial changes in softwood lumber trade flows reach 20% from baseline dropping to 13% by 2010. The result suggests that tariffs in softwood lumber have restricted markets mostly for North American and European producers. Because the North American, particularly the US market, and Europe are also the major consumers of softwood lumber, a tariff elimination scenario results in greater international demand for their products raising domestic prices and lowering domestic consumption. This reduction in North American and European domestic consumption outweighs consumption gains in Japan, Australia and Mexico, regions where tariff elimination occurs. The current economic outlook for Asia is likely having a strong influence on the above result. Baseline results suggest a strong demand in the US while Asian consumption has fallen. The current global market condition has raised product prices in the US and lowered prices in Asia, an effect expected from lowering tariffs, but due to different forces. With an expanding US domestic markets and little consumption growth in Asian, the tariff elimination policy places further upward price pressure on US consumers as US and other producers shift some production from domestic to international markets. A further strengthening of foreign demand through a tariff elimination scenario reinforces upward price pressures affecting consumers in the US. Hence, the simulation suggests a global consumption decline in the short term with a price rise in the North American and European markets. This result suggests low cost producers are constrained from meeting expanded demand from tariff liberalization in the short run. A dominant North American market characterizes the global softwood plywood sector. The simulation results suggest that tariff elimination in the softwood plywood sector increases trade activity as well as global consumption and production. The US, a major consumer and producer of softwood plywood, acts as an exporter reducing its consumption and increasing output. As such the US dominates the response from a tariff elimination scenario in the model. Since many of the producing sectors outside the US have exogenous behavior for this sector, production changes in the model are limited. The limited production capacity outside North America for softwood plywood is likely to lessen the importance from these exogenous production constraints. Tariff effects on plywood trade are substantial percentage-wise; they reach 8% immediately and attain 14% by 2010. Softwood plywood is viewed as a mature product in decline being replaced by alternative engineered materials. Production capacity expansion in these engineered materials outside the U.S. are more likely to lessen the expanded production and consumption associated with the simulated tariff elimination policy in softwood plywood. Currently, fiberboard and reconstituted products are projected exogenously in CGTM. Tariff elimination in the softwood lumber and plywood sectors has a direct impact on the sawlog and pulpwood sectors. There is little evidence of any substantial effect from a tariff elimination policy in the softwood sawlog sector and no recorded changes in the pulpwood sector due to tariff elimination. This is because tariffs currently exist in countries with limited market behavior, such as China, or with small trade flows such as Mexico. Hence, changes observed in the log sector are driven primarily by the softwood lumber tariff elimination. Softwood log trade is lower under the tariff elimination policy. Changes in trade activity in the softwood log sector reach 8% from baseline due to lumber and plywood tariff elimination. Hardwood sector results are smaller than the softwood sector impacts. Assumptions regarding China’s consumptive behavior have a strong influence on the results. Sensitivity analysis with higher Chinese consumption projects greater imports originating from nearby Asian countries. Otherwise, much of the increase in production would come from the US. The above results suggests the major part of increased softwood harvests would involve Canadian forests which are mostly natural followed by secondary forests in the US and Europe. Depending on Chinese consumption changes, the major increase in hardwood harvests would originate from Southeast Asian producers under high Chinese consumption growth. Otherwise, the increase in hardwood consumption would flow from US forests.
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Authors: J. Cameron Crump, Dorothy Paun and Paul M. BoardmanExecutive Summary Over 20% of the world’s population, or 1.2 billion people, live in China, and more than 20% of the urban workforce is employed by foreign and private firms. Disposable income is growing, 10% annually since 1991, making imported products more accessible. China continues its transformation from a centralized to a market economy, and gross national product has grown from 10% in 1978 to 36% in 1996 (Luo, 2001). China’s real estate industry is expanding rapidly due to privatization, tax incentives, and plentiful mortgages. Due to housing reforms that encourage Chinese citizens to own homes, there has been a steadily increasing demand for building products. Though the Chinese market seems promising, relatively few US firms report successful participation, and managers say this is due to a dirth of complete China business information. Current research on interior building products in China falls short of specific market information, concluding only that there is a potential market. There is little information identifying Chinese product-market characteristics, company competitive advantages, entry strategies, and company performance. This study sought to fill this information gap. The research first developed a model depicting the affects of business objectives, product-market, competitive advantages, and entry strategies on firm performance. Based on this model, a questionnaire was developed and administered using in-depth interviews with Chinese firms and foreign firms doing business in China. Study findings suggest that foreign firms in China successfully leverage competitive advantages to overcome entry barriers. Cost advantage entry barriers were overcome by scale and scope economies; product barriers lowered by customization and broad product mixes; capital barriers by partnering with Chinese firms experienced in global business; switching cost barriers through shared promotion and education; distribution barriers by increasing Chinese representation, and government barriers by acquiring policy knowledge.
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Author: Jun FukudaAbstract The trade of softwood lumber between the United States and Canada is one of the major forest products trade flows in the world. Since 1996, exports from the four major softwood lumber producing provinces in Canada (British Columbia, Alberta, Ontario, and Quebec) into the US have been regulated by the voluntary export restraint (VER) as defined within the "Softwood Lumber Agreement between the Government of Canada and the Government of the United States of America" (SLA). The SLA allows Canadian producers to export up to 14.7 billion board feet (bbf) of softwood lumber without export fee and imposes high export fees on volumes exceeding the limit. The SLA is a temporary resolution of the trade dispute between the two countries that has lasted for more than fifteen years and is set to expire on March 31st, 2001. The objective of this study is to determine if the expected effects of the SLA on the US softwood lumber market during the period 1996-1999 have actually occurred. The study discussed four possible direct effects and five possible indirect effects that the SLA might have had on the US softwood lumber market from a simple economic model and a review of the literature. The expected direct effects include: 1) a regulated volume of softwood lumber imports into the US from the four major provinces in Canada, 2) an increase in the price of softwood lumber in the US, 3) an increase in US softwood lumber production, and 4) a decrease in US softwood lumber consumption. The expected indirect effects of the SLA include: 1) a shift in the composition of countries exporting softwood lumber into the US, 2) an upgrade in the quality of softwood lumber exported from the four major Canadian provinces into the US, 3) an increase in the volume of softwood logs and value-added wood products exported from Canada into the US, 4) some attempts by Canadian manufacturers to avoid the export permit requirement under the SLA, and 5) an increase in the use of alternative products (both wood and non-wood) as substitutes for softwood lumber in the US. The study also provides a discussion of the alternative solutions that might be implemented upon the expiration of the SLA on March 31st, 2001 and a discussion of desirability/undesirability of the SLA based upon future softwood resource availability in the US.
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Authors: Ivan Eastin, Joseph Roos and Paul BoardmanExecutive Summary In response to weakened demand for imported wood building materials within the 2x4 segment of the housing industry, a number of US exporters have begun to explore opportunities in the post & beam and prefabricated housing markets. In order to develop a better understanding of the problems and opportunities confronting US wooden windows in the post & beam segment of the Japanese residential construction industry, this project was designed to integrate with the ongoing market development programs being undertaken by OTED. The objectives of this project are to: 1) describe the factors driving technological change in the Japanese post and beam industry, 2) characterize and describe the major construction technologies used in the post and beam industry, 3) document the technical specifications and construction details required for wooden windows within the post and beam industry, and 4) recommend strategies for increasing the competitiveness of US wooden windows in the Japanese post and beam industry. This results of this project support the idea that standard US wooden windows can be incorporated into the post and beam construction system used in Japan. However, product design and accessories as well as the range of support services offered by Japanese window manufacturers have a substantial impact on the competitiveness of US windows in Japan. US wooden window manufacturers (including clad wood windows) need to ensure that their windows are properly installed, finished, and maintained in order to ensure that their long-term durability and performance meets Japanese expectations. Significant technical and installation issues exist and US manufacturers must take the initiative to develop training programs and strategies to effectively address these issues so that window performance meets homeowner expectations. While the fire codes in Japan describe the performance standards that windows must meet, it is interesting to note that the fire codes specify that aluminum is a non-combustible material and therefor exempted from the performance standards. Several people in Japan noted that, although it is difficult for wooden windows to meet the performance standards specified in the fire codes, to date approximately 15 wooden windows have been certified as meeting the fire code criteria. In contrast, they noted that most aluminum windows used in Japan, if exposed to the test criteria described in the fire tests, would melt and fail early on in the test process. It is obvious that the exemption of aluminum as a non-combustible material has played a critical role in providing aluminum window manufacturers with their dominant position in the industry. During our visits to construction sites it was noted that the majority of windows had not been sized to fit the rough opening between adjacent posts. Rather, the rough opening for these windows was often framed in between the posts to accommodate the size of each window. Given this practice of in-fill framing for windows, it would be no more difficult for Japanese carpenters to frame in US standard size windows than Japanese metric size windows, a fact that our discussions with Japanese builders and carpenters confirmed. However, the different post sizes used in post and beam construction means that the casing width used to frame out the window in the wall varies based on the size of post being used. To address this complication, Japanese carpenters usually rip the window casing from a wide piece of casing after the window has been installed in the rough opening. So what is limiting the specification and use of US wood windows in Japan? Certainly price is one factor. But beyond this, product design and the range of services offered are equally important factors. Another factor that impacts the window specification decision relates to the fact that Japanese home builders are usually provided with a range of services by domestic window manufacturers and wholesalers that are often not available from US manufacturers and exporters. These services include extended credit (tegata), on-site product delivery, on-site installation crews, and locally available parts and replacement windows. This research suggests that standard US window sizes can be easily accommodated within the post and beam construction system used in Japan. However, product design and the range of services being offered have a substantial impact on the competitiveness of windows in Japan. US wood window manufacturers should at least consider the following factors to increase the competitiveness of their products in the future: 1) establishing of training and education programs for Japanese builders and carpenters, 2) developing a certification program for Japanese window installers and carpenters, 3) producing and distributing a generic window installation manual in Japanese, and 4) maintaining technical support, parts and product inventory in Japan. This research clearly shows that with a well thought out strategy, US wood window manufacturers could be competitive in the Japanese post and beam segment of the residential construction industry.
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Author: Jun FukudaExecutive Summary Since the early 1980s, the US has worked to persuade Japan to open its wood products market to US products through various channels including bilateral talks, multilateral negotiations, and regional alliances. In response, Japan has reluctantly liberalized and deregulated its wood products imports through tariff reductions, building standards revisions, and foreign product standards recognition over the last fifteen years. Although the US-Japan trade dispute has been a widely discussed topic in general, the dispute over trade liberalization and market deregulation of the wood products sector has been often neglected or seldom mentioned. At a time when discussions of new multilateral trade talks are beginning within the WTO, and Japan is reevaluating its stance toward liberalized wood products imports by initiating a preliminary investigation to the possible implementation of a safeguard action against softwood lumber imports, it will be useful to look back and understand the process through which the US-Japan wood products trade dispute has progressed, the outcomes it has achieved, and the lessons that can be drawn from this experience. The objectives of this study are 1) to describe the historical development of the US-Japan wood products trade dispute, 2) to summarize the trade liberalization and market deregulation measures taken in Japan as a result of these trade negotiations, 3) to analyze the performance of US products in Japan’s mix of wood products imports, and 4) to conduct a preliminary evaluation of US trade liberalization and market deregulation initiatives on Japan’s wood products market. Historical Development of the Us-Japan Wood Products Trade Dispute The US-Japan wood products trade dispute began in the early 1980s under the conditions of a growing US trade deficit with Japan, the economic recession in the US, and the relative decline of the wood products industry in the western US. In 1985, Japan’s wood products sector was chosen as a target for the MOSS talks, mainly due to Japan’s strong opposition to the reduction of tariffs on veneer and plywood. Both countries reached an agreement to reduce specific wood product tariffs and to modify product standards so as to meet the requests of the US. In spite of the trade policy changes achieved in 1985, US legislators remained dissatisfied with the growing trade deficit with Japan and legislated the Omnibus Trade and Competitiveness Act of 1988, including the Super 301 provision. Due to US industry frustration with Japan’s reluctance toward continuing the MOSS process, Japan’s wood products sector was identified as a "priority practice" under the Super 301 provision in 1989. Under the threat of retaliation, both countries concluded the "1990 Agreement on Wood Products." Although the Agreement did not deal with tariff issues directly, it required an overhaul of Japan’s building standards and products standards. After the completion of Super 301 negotiations, the US wood products industry turned to a new trade issue: the zero-for-zero initiative in the GATT Uruguay Round, by forming the Zero Tariff Coalition in cooperation with other industrial sectors. Although several industrial sectors achieved mutual tariff elimination during the Uruguay Round, the wood products sector failed to achieve tariff elimination primarily due to Japan’s opposition. Following the end of the GATT negotiations in December 1993, the US continued its pressure on Japan to eliminate tariffs on wood products. Due to Japan’s resistance, coupled with the failure of the Framework talks in February 1994, the US revived the Super 301 provision to name Japan’s wood products sector in the watch list, forcing Japan to compromise. With Japan’s promise to fully implement the 1990 Agreement and new initiatives in Japan’s housing sector that was partly stimulated by the Kobe Earthquake disaster, the US industry finally allowed the removal of Japan from the Super 301 watch list in 1996. Although the tariff elimination issue was also discussed during the bilateral negotiations following the Super 301 revival, it was eventually transferred to the regional discussions held within APEC. While the elimination of wood products tariffs was successfully included in the EVSL initiative, Japan refused to participate in the wood products tariff measure citing the APEC principle of voluntarism. Finally, APEC members agreed to move the renamed ATL initiative to the WTO, hoping to reach agreement during the Third WTO Ministerial Meeting in Seattle. However, no progress was made on the ATL initiative, or on the initiation of the WTO New Round. Results of Trade Liberalization and Market Deregulation The US industry succeeded in the trade liberalization and market deregulation initiatives in Japan’s wood products sector. As the result of fifteen years of negotiations, Japan reduced tariffs on wood products, changed its building standards from prescriptive to performance-based, and recognized wood products graded in the US for construction use in Japan. First, regarding tariffs, the MOSS agreement reduced tariffs on specific products including veneer and plywood, and the Uruguay Round Agreement reduced tariffs on most wood products by approximately 30% from the applied level in 1993. The final bound rates were implemented in 1999 following a five-year staging period. However, due to shifts in Japan’s wood products imports from logs to processed products, the trade-weighted average of wood products tariffs increased slightly during the 1985-1999 period. Second, in 1999, Japan revised its Building Standard Law from a prescriptive to a performance-based system, as promised in the 1990 Agreement on Wood Products and the 1996 Emergency Priority Program. Additionally, Japan immediately implemented specific building standard measures listed in the ANNEX of the 1990 Agreement. It is expected that the revised BSL will increase the number of 2x4 wood frame housing starts and promote the use of imported value-added wood products for post and beam homes. Third, Japan introduced new systems, which recognized imported wood products for construction use in Japan. Regarding JAS, MAFF implemented the FTO system, which permitted the use of test data conducted by recognized foreign testing organizations for the mill certification and product testing process as a result of the MOSS agreement. Later, in 1999, MAFF revised the JAS Law to incorporate the RCO/RFCO system which authorized specific (foreign) certification organizations to certify (foreign) manufacturers to test their own products and self-label them as JAS approved. At the same time, MOC reached a mutual recognition agreement with the US industry which recognized the use of dimension lumber, MSR lumber, and finger-jointed lumber bearing the grademark of US testing agencies for 2x4 wood frame construction in Japan. These measures will surely provide easier access for foreign products, not limited to just US products, in Japan’s wood products market. Effects of Trade Liberalization and Market Deregulation In spite of its success in the trade liberalization and market deregulation initiatives, the US wood products industry has been losing market share in Japan’s imports of softwood lumber, softwood plywood, softwood veneer, structural laminated lumber, wood doors, and wood windows. In some cases, the US increased its exports to Japan, but exports from other countries, mostly Canada and EU, increased more rapidly than those from the US, resulting in a lower market share for the US. This trend indicates that as the US industry was negotiating trade liberalization and market deregulation initiatives in Japan, structural changes were occurring that would adversely impact the competitiveness of the US wood products industry. These structural and market changes include changing material preferences in Japan toward kiln-dried products, the strength of the US dollar relative to Canadian and European currencies, and higher transportation costs from the US to Japan than from the EU. In addition, it should be noted that some studies indicated that other successful countries made substantial efforts to develop a better understanding of Japanese market conditions and accommodate Japanese customers’ extra requirement for products and services. Preliminary Evaluation The declining share of US products in Japan’s wood products imports can be attributed to two factors: an increase in US domestic consumption of wood products, and the reduced international competitiveness of US wood products. First, wood products exports have become less important to the US industry with the increasing consumption of wood products under the strong economic growth of the 1990s. Second, the US industry has been slow to develop its advantage relative to its competitors in Japan, where some market conditions, including a shift in material preferences toward kiln-dried products, less favorable changing exchange rates, and higher transportation costs, have adversely impacted the competitiveness of US wood products. If the US industry wants to increase its wood products exports, it would be advisable for the industry to develop its advantages relative to its competitors in addition to improving market access. Important factors for success include developing a better understanding of the market, making stronger efforts to match product offerings with changing customer preferences, accommodating customers’ extra requirements for products and services, improving product quality, and offering competitive prices. Additionally, the US industry may wish to reconsider their export strategies in response to increasing domestic consumption and constrained resource availability and the impact of these factors on their ability to commit to long-term relationships with their foreign customers. At this time, it is too early to reach a final conclusion regarding the competitiveness of the US wood products industry. Given Japan’s changing market conditions, new opportunities could emerge for the US wood products industry to further penetrate Japan’s import market. In that case, future success is dependent upon the US industry’s efforts to develop its advantages relative to their competitors.
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Authors: Ivan Eastin and Rose BradenExecutive Summary The export segment of Alaska's forest products industry is characterized by its supply of high-quality Sitka spruce, western hemlock, western red cedar, and Alaska (yellow) cedar, all highly valued in domestic and export markets. The industry, however, is also characterized by its limited in-state and out-of-state transportation infrastructure, low economies of scale at most processing facilities, and harvest regulations that threaten the consistent supply of timber. Alaska firms have clearly been dependent upon exporting primary wood products, deriving over $660 million in revenue in 1993, the industry's peak. However, by 1998 export revenue had dropped below $200 million. This sharp decline is due to a variety of factors including the Asian economic crisis, declining international timber prices, lower cost competitors, changes in forest harvest regulations that led to a decline in Alaska's timber harvest, rising domestic processing costs, and expensive and time consuming shipping logistics to export markets. Alaska producers must confront several challenges in order to survive and expand their role as a competitor in the international timber market. An important aspect of succeeding in an increasingly competitive market is product differentiation. Alaska suppliers must identify what products are in high demand in which markets and effectively match their production capabilities with specific product/market opportunities. This report describes some market opportunities for Alaska wood products and evaluates the ability of Alaska firms to compete in these product markets. The markets examined were: 1) Japan, 2) Korea, 3) China, and 4) Western Europe.
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Introduction PULP (pulp) n. 1. A soft, moist, shapeless mass of matter. 2. A magazine or book containing lurid subject matter and being characteristically printed on rough, unfinished paper. American Heritage Dictionary, New College Edition (1993) Many commodity products have similar characteristics. They are relatively homogenous products that can be produced using readily available technology, and are traded internationally on competitive markets. They are based on natural resources, the availability of which is subject to shocks. They are intermediate inputs with few short-term potential substitutes. As a result of these characteristics, commodity prices tend to be volatile. Market pulp is in many ways a typical commodity. It also has some particular characteristics that contribute further to price volatility. These include high capital intensity, long-lived capital equipment, and speculative inventory management behavior on the part of consumers. Because of this volatility, accurate forecasting of market conditions is a difficult but potentially very useful exercise. Investment decisions are made on the basis of price forecasts, and improving their accuracy can lead to better decision making on the part of producers. This may in turn reduce the volatility of prices. Considerable energies are devoted to the task of forecasting pulp prices. A number of recognized short-term leading indicators for price movements exist, and these are widely studied by industry participants. However, less attention is paid to forecasts of the more distant future. This is surprising, given that the relevant time horizon for some of the most important decisions made by the industry (namely, investments in new capacity) is at least five years. This may perhaps be explained by a relative dearth of useful long-term leading indicators on which to base forecasts. The purpose of this research is to contribute to our understanding of how the market functions and to our ability to forecast market conditions, in both the short term and the long term.
Cointegration methods provide a means for the modeler to take advantage of the effective treatment of short-term dynamics which time series models provide, while ensuring that long-term forecasts have sensible properties. The concept of cointegration is an intuitively sensible one. A pair of variables is said to be cointegrated if they have a tendency to maintain a fixed ‘equilibrium’ relation to one another over the long term. In a stable cointegrating relationship, the variables will adjust to eliminate any divergence from this equilibrium. Such relationships make a great deal of sense for several variables of relevance to the present case, and forecasts for these variables which show significant and long lasting violations of these relationships are not plausible. Cointegration methods allow us to test for and model the existence of long-term equilibrium relationships between the variables in a system, within the framework of a dynamic time series model. A focus of this research is to assess whether these methods prove to be of practical use for building forecasting models. One difficulty encountered in this research is that little previous time series research on pulp markets has been published. We are therefore obliged to adopt an incremental approach to model building. First, the time series characteristics of pulp prices themselves are explored. We then develop a series of multivariate time series models. These models will attempt to capture some of the short-term and long-term processes that are thought to determine prices. The success or failure of each model will be judged according to three criteria:
While these models are designed for forecasting purposes, they may also be used to an extent for structural analysis. This research is not designed primarily to test any specific behavioral hypotheses, but where convenient, structural analysis will be used to provide insights into how the market functions. The structure of this thesis is as follows. A description of the pulp market is provided in Chapter 1. This outlines the short-term and long-term dynamics of the market. It also addresses the issue of how the ‘market’ should be defined in terms of its product and geographical scope. Chapter 2 provides a brief overview of the econometric concepts mentioned above, along with a description of relevant modeling methods. Data availability for the variables found to be of importance is addressed in Chapter 3. The core of the research, which consists of the estimation and testing of several models of pulp prices and other variables, is described in Chapter 4. The forecasting performances of the different models are compared in Chapter 5. Chapter 6 concludes.
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Authors: Robert Y. Hashizume and Ivan L. EastinExecutive Summary Japan is the largest export destination for the US and the second largest export destination for Canada (after the US). The Japanese residential construction housing industry is the main driver of forest products exports to Japan. There were 1.4 million residential housing starts in Japan compared to 1.5 million starts in the US in 1997. Japan has roughly the same level of housing starts as the US but has only half the population on a land mass the size of California. North American-style 2x4 housing has grown at double-digit rates over the past 10 years. In 1996, 2x4 houses commanded 13% of the wooden house market share and 6% market share of the overall housing industry. 2x4 housing starts are expected to grow further because of active promotion of imported housing by the Japanese government, deregulation of the industry, and increasing appreciation for western design by Japanese consumers. 2x4 home construction in Japan has been observed to be less efficient and accurate than in North America. The differences in construction techniques increase the cost and tome of construction of the house, and decrease its overall quality. Various strategies are currently used by North American companies to provide technical assistance in 2x4 construction technology to Japanese construction industry professionals. This technical assistance allows Japanese professionals to be more aware of proper construction techniques to reduce costs and increase the overall quality. This project was undertaken to identify the technology transfer strategies that North American companies use, which of them are most effective, and which parties should be the most important targets of technology transfer training programs. An understanding of the most effective technology transfer methods would allow various parties involved with exporting 2x4 houses to Japan to implement more successful training programs. Survey of North American companies involved in the 2x4 housing industry in Japan A census of all companies in the Pacific Northwest involved in North American-style 2x4 construction projects in Japan was conducted. A total of 270 companies based in the US (191 firms) and Canada (79 firms) were mailed a four page survey regarding their delivery of North American 2x4 construction technology transfer to Japanese construction industry professionals. The response rate for US and Canadian companies was 48% and 58%, respectively, with an overall response rate of 52%. Overall quality of 2x4 housing built by Japanese construction industry professionals The respondents indicated that the overall quality of 2x4 houses built by Japanese construction industry professionals, relative to North American standards was only average. In addition, respondents reported that the quality of structural framing was also average while the quality of architectural design ranked well below average. Understanding of 2x4 construction technology Survey respondents were asked to rank Japanese contractors’ understanding of 14 components of 2x4 construction technology. The components least understood were drywall, ventilation and architectural design. To improve the overall quality of a 2x4 house built in Japan, these three components should have more emphasis during technical transfer training activities. The components of the 2x4 construction system that were best understood included interior carpentry, roofing, flooring, doors, windows, exterior finishing, and weatherproofing. In an open-ended question, the respondents most often identified the structural framing of 2x4 houses as the one area where Japanese construction industry professionals have the weakest understanding, with 19% of all open-ended responses. Respondents were next asked to rank which components of the 2x4 construction system they emphasize when providing technical assistance to Japanese construction industry professionals. All of the components except foundation and roofing were identified as being important. Promotion of 2x4 construction technology Despite the fact that 2x4 houses have been built in Japan for over 25 years, the overwhelming majority of respondents indicated that continued efforts to promote 2x4 construction technology are very important, with 63% indicating that was very important. There were few major differences between US and Canadian companies, and despite the double digit growth rate of 2x4 housing starts over the past 10 years, North American builders and exporters still feel that it is important to continue promoting technical transfer of the North American 2x4 construction system. Respondents were asked to rank their use of eight different training methods. It was found that hands-on construction in Japan and employing North American site supervisors in Japan were the two methods respondents most frequently use. Instructional videos, hands-on construction training in North America, and classroom seminars in Japan and North America were rarely used. When asked to identify the single most effective strategy for achieving technology transfer, 20% of the respondents identified hands on construction training in Japan. Respondents felt that North American construction companies and North American building material exporters would be the most effective in promoting technology transfer. North American construction companies were the most frequently cited group, with 27% of the open-ended responses. The organizations that were perceived to be least effective in promoting technology transfer were Japanese building material distributors and both North American and Japanese colleges. Factors restricting export potential of 2x4 houses The most important factors restricting the export potential were a lack of builder and carpenter familiarity with imported building materials and 2x4 construction technology. In terms of non-technology transfer related factors, the current severe economic condition was mentioned most often. The idea that “2x4 housing [is] a fad that will fade” was not an important factor restricting exports. Conclusion and Recommendations This study suggests that North American builders and building material exporters perceive that many Japanese construction professionals do not have strong technical understanding of the North American-style 2x4 construction technology. The vast majority of respondents indicated that they have developed technical training programs for their Japanese customers. However, several recent technical assessments of 2x4 construction projects in Japan suggest that this lack of technical understanding is much more pervasive and the extent of technical deficiencies in 2x4 homes built in Japan is much greater than exporters are aware. These studies suggest that it is time for North American builders and building materials exporters to work with the Japanese construction associations to develop a comprehensive technical training program to ensure that 2x4 homes are built correctly in Japan. The recently passed Housing Quality Assurance and House Inspection Laws further emphasize the need for a comprehensive and effective 2x4 technology transfer training program. The alternative, sporadic and uncoordinated technical transfer programs provided by individual companies, will not lead to effective and widespread transfer of the North American-style 2x4 construction technology in Japan. Ultimately, it is in the best interest of North American and Japanese companies to ensure that 2x4 homes are built properly in Japan. Otherwise, consumer perceptions that 2x4 homes in Japan are inferior in terms of overall quality or long-term performance, relative to other types of housing technologies, will lead to the decline of this important segment of the residential construction market in Japan.
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