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This article was featured in our newsletter and does not have an abstract. Click on the PDF below to get the full newsletter.
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Authors: Ivan Eastin, and E.E. Mawhinney
After the Kobe earthquake in 1995, the Japanese Government introduced a series of changes to improve the integrity of new homes. Part of the changes included a rating system designed to indicate the potential for formaldehyde off-gassing by a variety of primary and value-added wood products. Excessive off-gassing of formaldehyde has been identified as a contributor to a phenomenon known as “Sick House Syndrome” that has resulted in a large number of home owners having to leave their houses. Referred to as the F Four Star system (F****), the program was designed to cover much more than interior air quality and was not targeted at any particular product or building system. However, it is the interior air quality provision that concerns North American firms looking to export laminated products into Japan.
Products covered by the F**** regulation include:
Value-added wood products manufacturers should ensure they comply with the provisions of this regulation to protect and maintain market access.
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The Impact of Green Building Programs on the Japanese and Chinese Residential Construction Industries and the Market for Imported Wooden Building Materials
Authors: Ivan Eastin, Daisuke Sasatani, Indroneil Ganguly, Jeff Cao and Mihyun Seol
Green or sustainable building programs incorporate the environment, the economy, and human aspects into the design and construction of a building. Green buildings are created through an integrated process where the site, the building design, the construction, the materials, the operation, the maintenance, and the deconstruction and disposal of a building are all seen as being inter-related with the environment. As a result of this integrated process, it is thought that buildings can be made more environmentally friendly, more cost-effective and more resource and energy efficient, while providing a healthier living and working environment. Green building programs are slowly but surely emerging around the world in developed countries. The focus of this report is on the green building programs in Japan and China. The Japanese green building program is called CASBEE-Sumai (House) and the green building program in China is the Chinese Evaluation Standard for Green Building (also called the Three Star System). In addition, two other programs that have the potential to influence materials use in residential housing (the 200 Year House program and the Eco-Points program) have been adopted in Japan. This report provides an overview of these programs, explains the sections of the programs that relate to wooden building materials, and discusses how these programs could affect the use of wooden building materials in Japan and China.
To better understand builder’s, architect’s and design professional’s perceptions and attitudes towards green building programs in China and Japan, surveys were conducted in both countries. A total of 406 surveys were collected in Japan and 150 surveys were collected in China. In addition, a series of informal interviews with building professionals were carried out in each country. These results of the surveys and interviews are summarized in the following report.
While Japanese housing starts declined substantially in 2009, they exceeded those in the US for the second year in a row. With approximately half of its housing starts being constructed from wood, Japan remains an attractive market for US manufacturers and exporters of wooden building materials. The recent adoption of the CASBEE green building program provides an opportunity to increase exports of wooden building materials from the US to Japan, particularly those that improve energy efficiency. However, the results of this research suggest that Japanese builders remain reluctant to use the CASBEE program as they perceive that there is little market demand for environmentally friendly houses and even less desire on the part of homebuyers to pay a premium for them, particularly given the slow economy that prevails in Japan. In contrast, Japanese builders expressed much more optimism about two other programs that could increase the demand for US value-added wood products in Japan, the 200 Year House program and the Eco-Points program.
The results of the survey clearly show that Japanese building professionals perceive wood to be the most environmentally friendly structural building material across all six of the environmental performance measure included in the survey. In contrast, steel is perceived as being the least environmentally friendly structural building material across most of the environmental performance measures. Energy efficiency of the house was found to be the most importance environmental attribute and it was rated as being significantly more important than all of the other attributes. Using water saving appliances and fixtures was found to be the second most important environmental attribute. Based on the results of this research, it appears that the various green building programs in Japan could provide new market opportunities for a variety of US value-added wooden building materials, including environmentally certified wood, energy efficient windows, water saving plumbing fixtures and insulation materials.
Finally, US government agencies and industry associations should be wary of the potential for CASBEE-Sumai to act as a non-tariff trade barrier by providing preferential treatment for domestic wood products. For example, the CASBEE program provides preferential points for domestic wood materials while both the national government and an increasing number of prefectural governments provide subsidies to home buyers and home builders for homes built using domestic wood. These Japanese programs undermine the environmental benefits of wood by promoting an agenda designed to increase the demand for domestic wood relative to imported wood. In doing so, they ignore the environmental superiority of wood relative to non-wood building materials as clearly demonstrated by a life cycle analysis. In effect, these programs promote a myopic strategy that pits domestic wood against imported wood in a fight for market share within a fixed market segment. In contrast, the goal of the wood industries in both countries should be to expand the demand for all wooden building materials by promoting their environmental superiority relative to steel and concrete; an approach which would effectively increase the total market for wood products to the benefit of both domestic and foreign suppliers of wooden building materials.
With nearly twice the total floor space of the US and more than four times as much as Western Europe, China was expected to overtake Japan in 2009 to become the second largest construction market in the world. Yet green building in China’s expanding building market is comparatively rare. The China Greentech Initiative, for example, estimates that certified green floor space constituted less that one percent of the new built environment in 2009. Recognizing the benefits of sustainable building, China’s government has set ambitious targets and guidelines for green building, and developers, designers and builders are increasing their use of green materials and building principles.
Set against the backdrop of the global economic downturn, the Chinese housing sector has shown some encouraging signs of recovery. China’s construction industry has grown at an average annual rate of 20% since 1990. Housing markets in major cities have recently started to pick up again thanks in part to the government’s 4-trillion yuan stimulus package. According to China Data Center, investment in new construction between January and May 2009 reached over 2.5 trillion yuan, an increase of 43% compared to the same period last year.
Since 2006, the Chinese government has been working to promote its “4-savings and 1-environmental” housing ideology, which stands for: energy-saving, land-saving, water-saving, raw material-saving and less pollution. The Center for Housing Industrialization was founded in 1998. Since then, it has initiated several key national projects and drafted guidelines for improving productivity of construction and improving the “healthy” and “environmental” properties of residential buildings in urban areas. According to the 11th five-year plan initiated by the Ministry of Housing and Urban-Rural Development (previously, the Ministry of Construction), by the end of 2017 the level of industrialization of the Chinese housing sector will reach 30% from the current 7-8%, and the average service life of residences will increase from 50 to 100 years. China has started to develop 10 demonstration housing projects, 10 experimental cities, and 10 model construction enterprises. Currently, most construction in China is concrete and brick, while the market for wood frame construction has been growing very slowly due in large part to the government’s tight restrictions on land use in urban areas. After the Sichuan earthquake last May, the Canadian Wood Association participated in the region’s reconstruction projects and donated $8 million to help build wood frame houses for local residents. This has been reported widely in China and in turn has helped wood frame house win wider market recognition.
The new green building program in China, the Three Star System, has the potential to increase the demand for wooden building materials (both primary and secondary wood products) used in residential construction. The extent of its impact on demand in China will be influenced by the degree to which it is accepted and utilized by developers, builders, architects and home buyers. However, the Chinese green building program makes no specific mention of wood as a material of choice, suggesting that the US government and industry groups need to continue working with the Chinese government to encourage the use of life cycle analysis as the basis for future revisions to the green building program.
Despite this shortcoming of the Chinese Green Building Program, green building materials (particularly those related to energy-saving) will be increasingly in demand in China, led by public/commercial buildings and high-end residential projects in major cities such as Beijing, Shanghai and Guangzhou. These opportunities include energy efficient wood windows for high end apartments and condominiums. In particular, wood windows with either vinyl or fiberglass cladding on the exterior have strong potential because of their lower maintenance requirements. Other value-added wood products with strong market potential in China include cellulose insulation, environmentally certified wood, and high quality wood cabinets and flooring produced from certified wood targeted towards high–end apartments, condominiums and detached homes.
In China, almost 95% of respondents have heard of the green building program, a third planned to use the program and just over ten percent have used the green building program. Chinese builders report that the most important material attribute is using energy efficient products and materials, followed closely by using renewable materials. Both of these observations suggest that opportunities exist to market energy efficient wood products (e.g., wood windows and cellulose insulation) for use in multi-story, multi-family condominium and apartment buildings. The survey results obtained for the relative environmental performance of wood, concrete and steel clearly show that Chinese construction professionals perceive that wood and wooden structures provide superior environmental performance across a variety of environmental measures spanning the life cycle of a material. This trend is similar to the trend observed in Japan.
Finally, it should be noted that the US, Japan and the EU have all passed legislation requiring that importers of wooden products must be able to demonstrate that these products do not contain illegally harvested wood materials. As a result, we can expect to see the demand for certified wood in China continue to increase, particularly if the Russian government carries through on its intention of increasing its log export tax to 80% in January 2012.
Wood frame houses have increasingly been accepted into the Chinese market. In February 2009, the Shanghai government approved a B.C.-designed roofing system as part of a plan to renovate 10,000 city apartment buildings in the lead-up to the World Expo 2010 in Shanghai. As China moves to develop more and more “green” houses, experts predict that timber structures will continue to gain recognition by the government and construction sectors in China and open up new opportunities for green building materials and engineered wood products. Also, the projects being promoted by the Canadian Wood Association in Sichuan suggest that wood frame houses could be successful in the rural areas of China where land use is less regulated by local governments.
A number of programs (including green building programs) focused on improving the environmental performance and energy efficiency of homes have been adopted in China and Japan. At the same time, builders, architects and design professionals in both countries perceive wood to be the most environmentally friendly building material. They also believe that homes built from wood are more energy efficient than homes built from steel or concrete. These trends set the stage for promoting wood as a superior building technology as well as for promoting the superior environmental performance of value-added wood building materials such as wood windows and doors. For example, the Eco-Points program in Japan provides a unique opportunity to promote energy efficient US wood windows in both new home construction as well as the growing repair and remodel sector of the housing market (although wood windows must still gain approval under the Japanese fire code to be used within urban fire and quasi-fire zones).
The results of this research project clearly show that there are a variety of market opportunities for expanding US exports of value-added wooden building materials into both Japan and China. Perhaps the best market opportunity exists for increasing exports of wood windows given the emphasis in both countries on increasing the energy efficiency of new buildings. This will be easier to accomplish in China than in Japan where restrictive fire codes require the certification of wood windows used in fire and quasi-fire zones. In addition, the green building programs in Japan and China provide a good market opportunity to expand exports of cellulosic insulation, structural insulated panels, environmentally certified wood and value-added wood products used in interior applications that are made from certified wood (e.g., wood cabinets and flooring). Finally, good opportunities exist to increase exports of certified structural wood products such as glue-laminated beams, metric sized lumber, dimension lumber and treated lumber using the new generation of less toxic wood preservatives.
In order to increase the exposure of US value-added wood products among building professionals in Japan and China, US exporters should strongly consider participating in the wide variety of trade shows and trade missions by joining industry associations that are active in international markets and have a proven track record of providing access to qualified buyers in these countries. For example, the Evergreen Building Products Association offers trade missions to Japan and China several times a year. Similarly, the State of Washington sponsors trade missions for wood products manufacturers in Japan. Finally, industry associations such as the Softwood Export Council and the American Hardwood Export Council provide opportunities for US companies to rent booth space within the US Pavilion at trade shows in Japan and China. All of these associations provide tremendous logistical support for US exporters and manufacturers of wood building materials, allowing them to focus their energy on meeting potential customers for their products (a list of upcoming trade shows and missions is included in Appendix D).
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This article was featured in our newsletter and does not have an abstract. Click on the PDF below to get the full newsletter.
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This article was featured in our newsletter and does not have an abstract. Click on the PDF below to get the full newsletter.
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Authors: Daisuke Sasatani, Ivan Eastin and Joseph Roos
This study presents exploratory research about the transitional Japanese home building industry. The Japanese housing industry changed significantly during and since the “lost decade” of the 1990s because the business environment changed dramatically. The main goal of this study is to classify Japanese builders by their business strategies and business behaviors in order to provide a useful market segmentation strategy for forest products exporters targeting Japanese markets. In order to do so, we first collected extensive secondary information on the background of the Japanese housing industry. Then we surveyed Japanese large builders and analyzed the data.
After its bubble economy burst in the early 1990s, Japan experienced a serious economic slump that lasted over a decade. This period is called the “lost decade” in Japan. During the lost decade, Japan experienced deflationary pressure on land prices, securities, and consumer goods. The Bank of Japan set the interest rate essentially to zero in order to stimulate the economy, and the overnight call rate is still very low. In the past, Japan practiced unique business customs including keiretsu and interdependent collusion between politicians and business, which undermined competition. In order to recover from the economic slump, it was necessary to reform inefficient business practices in Japan. Although political uncertainty between reformists and anti- reformists within and outside the Liberal Democratic Party remains, Prime Minister Koizumi was able to reform some business practices and influence the vertical keiretsu structure, which has been weakening. As the market continues to liberalize, there should be fair competition for all participants, including small- to mid- size enterprises and foreigners, in the Japanese market. These socio-economic changes have contributed to the reform of the Japanese building industry and, as a result, some small- to mid-size builders have grown quickly.
The Japanese residential housing market underwent substantial change during the lost decade as well. The Kobe Earthquake in 1995 led to major changes in the Building Standards Law (BSL), which accelerated the adoption of pre-cut lumber. Pre-cut lumber allowed mid-size builders to lower the cost of post and beam (P&B) construction through labor efficiencies and reduced waste. Many mid-size builders contracted with komuten (small builders) or independent carpenters to expand their businesses. Demographic changes have also played a huge role in the changing housing market in Japan. For example, Japanese Echo baby boomers started buying their first homes, and some mid-size builders targeted their homes to this large population.
Deflationary pressure on land values allowed builders to acquire large parcels of land in suburban Tokyo. Builders then subdivided these parcels and built tract spec P&B houses. Those builders were called “power builders,” and many small- and mid-size builders all over Japan have adopted their business strategy to survive.
The survey results show that many mid-size builders call themselves power builders, but we failed to find statistical significance of a common business strategy among power builders. Over the last few years, many small- and mid-size builders have tried to imitate the business strategies of the original power builders and to emulate one another in order to survive. However, it is not always possible to copy an entire business strategy from other firms. The power builder strategy is currently little more than a marketing slogan used by many firms to attract price-sensitive customers. Yet builders who build a lot of tract houses and have grown quickly in terms of the number of houses that they build still tend to refer to themselves as power builders.
The most important success factor of builders between 2001 and 2005 in Japan was how many tract houses they built. Interestingly, the prices of the homes were not significantly different from those of fast-growing builders and other builders. Tract house builders service a significantly higher percentage of first-time home buyers and tend to build smaller houses than do custom house builders. Other characteristics of tract house
builders are that most prefer to use glulam lumber, and that they do not have a defined land acquisition strategy, tending to acquire any available land in suburban areas.
Since the original power builders’ success in the industry has attracted many imitators and undermined the old market traditions of the housing industry in Japan, it is not useful to focus on the traditional builders categories when developing a marketing strategy. The traditional categories were: 1) national home builders, 2) regional builders, and 3) komuten. In order to reflect the changing nature of the industry, we propose four new strategic groups of Japanese builders: 1) premium big builders, 2) economy big builders, 3) mid-size regional builders, and 4) komuten (independent carpenters).
Firms in the same strategic groups have similar business models, so their supply channel choices can also be expected to be similar. For example, Komuten or independent builders typically construct only a couple of houses a year, and our survey did not cover them. Mid-size regional builders construct between 25 and 100 houses per year and prefer domestic lumber such as sugi or hinoki. They are focused on a local market and usually build post and beam houses. Economy big builders tend to pursue a low-end pricing strategy and this segment of the market increased at an average annual rate of 10.4% between 2001 and 2005. Economy big builders usually build post and beam houses and tend not to import lumber or building materials directly from foreign countries. Finally, premium big builders tend to build value-added houses; they are interested in adopting a marketing strategy based on design differentiation and prominent advertising. Generally, premium big builders sell their houses at a premium price, although their growth rate is less than that of the economy big builders. Some of the premium big builders directly import lumber and building materials from foreign suppliers.
Currently, economy big builders have a strong market share, and this market has grown very quickly. However, they will face substantial difficulties in the near future. The industry is currently going through a period of consolidation, since many builders have attempted to imitate the power builders’ business models. In addition, many echo baby boomers have already purchased their own houses, so this market segment has begun to shrink. Further, the high volatility of the foreign exchange rate creates uncertainties regarding the supply of raw materials. Builders need to re-create their business strategies and adapt to this changing market environment. Their success in changing their business strategies will depend on their management capabilities. U.S. forest products exporters may be able to inspire them, thus enjoying mutual benefits.
Our exploratory research has derived the following strategies for U.S. forest products and building materials exporters:
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Authors: Indroneil Ganguly, Ivan Eastin, Pablo Crespell and Chris Gaston
OverviewThe demand for decking and fencing materials is driven by several factors, including the macroeconomic environment, demographics, construction expenditures, and the repair and remodel sector. In addition, competition within the decking and fencing markets has recently been significantly altered by regulatory constraints on the forest products industry that have restricted harvest levels, by increasing imports of softwood lumber and by expanding competition from non-wood substitute materials. These last two factors are likely to have the greatest impact on the specification and use of decking and fencing materials in the mid to long term as the markets adjust to the changing regulatory environment and changing consumer perceptions and preferences. This report will explore the extant literature related to the demand for decking and fencing materials in the residential, non-residential, public and non-building segments of the construction industry.
US Decking MarketThe demand for decking products is projected to increase from 4.7 billion board feet (bbf) in 2000 to 5.6 bbf in 2010, a 19.3% increase over the ten year period. This market expansion will not be distributed evenly across the three major types of deck materials, however. Whereas wood-plastic composite decking (WPC) is expected to increase by an astronomical 491% and plastic decking by a healthy 152%, the demand for wood decking is expected to decline by 8.5%. Further, the demand for redwood is projected to decline by over 15% between 2000-2010, although the decline in the demand for redwood lumber is attributed to supply constraints rather than declining demand. These demand outlooks are driven by two fundamental end-user attributes: durability (long-deck life) and low maintenance. Very little consideration was paid to price and price sensitivity of either new home builders or home owners. As a result, these demand estimates are more heavily weighted towards the higher priced substitute materials than the actual market situation might otherwise justify, particularly in the 2005-2010 period.
The primary construction application for decking is repair and remodel (approximately 86%) followed by new home construction (approximately 14%). While the demand for decking products in new construction is expected to experience strong growth between 2000 and 2010, the sheer size of the repair and remodel market make it a much more attractive market segment for producers. In addition, new home builders are a much more price sensitive set of buyers compared to home owners given the nature of the project expenditures. In addition, decks on new homes tend to be smaller than repair and replacement deck projects.
Residential construction is the primary market for decking materials, followed by non-building projects (docks, marinas, park structures, etc.) and non-residential construction. The demand for decking materials in the residential market is expected to grow by 24.3% between 2000 and 2010 while demand is expected to grow by just 6.9% in the non-building market. Again, contractors in the non-building segment are much more price sensitive given the nature of the bidding process in these types of projects.
Almost 80% of decking material is installed by professionals as opposed to homeowners (DIY). While demand is expected to grow substantially in both segments, the highest growth is projected to occur within the DIY segment (27.7%) rather than the professional segment (15.9%). Given the profit constraints facing most professional installers, this segment of the market tends to be more price sensitive than the DIY segment.
Finally, the deck market can be segmented into deck platforms versus rails and accessories (benches, stairs, planters, etc). It is important to note that only 59% of the total demand for decking materials is derived from the construction of deck platforms. The remaining demand can be attributed to deck rails and accessories, suggesting that overall demand for a specific product may be influenced to a substantial degree by the availability of rails and accessory products manufactured from the same material. Growth in both of these market segments is expected to be strong.
The projections indicate that the largest demand region for decking products is the US south while the US west is the smallest demand region. Interestingly, the largest growth in demand for decking materials is expected to come from these two regions.
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Authors: Indroneil Ganguly, Ivan Eastin, Pablo Crespell and Chris Gaston
OverviewThe demand for decking materials is driven by several factors, including the macroeconomic environment, demographics, construction expenditures, and the repair and remodel sector. In addition, competition within the decking market has recently been significantly altered by regulatory constraints on the forest products industry that have restricted harvest levels, by increasing imports of softwood lumber and by expanding competition from non-wood substitute materials. These last two factors are likely to have the greatest impact on the specification and use of decking materials in the mid to long term as the markets adjust to the changing regulatory environment and changing consumer perceptions and preferences. CINTRAFOR has been collecting market information on the material usage trend in the U.S. deck building industry since 1995. This report will present an analysis of the material usage trends and practices in the decking materials market.
Further this report will provide a comprehensive product positioning and marketing analysis of the major decking materials in the US.
An interactive web-based survey was used to collect the data and information presented in the report. Sufficient care was given to ensure that the respondents of the survey had significant deck building experience, hence, only those deck builders who had built more that 5 decks over the past two years were allowed to take the survey. A total of 372 qualified respondents completed the survey, representing 44 states and providing representation across all regions of the US. The number of residential decks built by the respondents in 2008 ranged from 1 to 250, with more than 60% of the respondents building between 3 to 8 decks. A substantial number of respondents (12% of the respondents) indicated that they built more than 20 decks in 2008.
US Decking MarketWith the decline in US housing starts in 2007 and 2008 the focus of the deck building industry has shifted away from new decks for new houses. This study shows that the primary revenue generator for the US decking industry in 2008 was repair and remodel (approximately 44%) closely followed by building new decks on existing houses (approximately 42%). Under the present scenario, constructing new decks in new homes only marginally contributes (approximately 14%) to the overall revenue of the US decking industry. This trend is more or less consistent across all the regions of the country with the repair and remodeling projects and deck construction in existing houses strongly dominating the industry’s revenue generation. This result confirms that when homeowners live in their houses longer they tend to invest in remodeling their houses; remodeling existing decks or installing new decks has traditionally been important aspects of renovating and remodeling houses. Moreover, such a trend also indicates that the deck building industry is at least partially insulated from the housing downturn.
The survey results reveal that the size of the decks built in the US have not changed significantly since a previous survey conducted by CINTRAFOR in 2003, averaging 438 square feet. However, the average unit construction cost of decks built in the US has increased substantially from $13.50 per square feet in 2003 to
$18.62 in 2008. Regional differences in the unit construction cost were also observed in the study. The average unit construction costs of decks built in the Northeastern and Western regions were approximately $20 per square feet, whereas, the average unit construction costs of decks built in the Southern region of the country were approximately $16 per square feet. Finally, the average cost of decks built in the Western region (approximately $9,533) was significantly higher than the national average ($7,319).
Decking Material Usage TrendsThe market for residential decking materials in North America has become increasingly competitive over the past decade. Past studies have indicated that wood plastic composite decking (WPC) and plastic lumber (PVC) are increasingly replacing treated softwood lumber and naturally durable timber species (i.e., redwood, western red cedar and tropical hardwoods) in deck building applications. Our 2009 survey results indicate that this trend of gradual market displacement of naturally durable timber species and treated softwood lumber decking materials has continued. Over 66% of the respondents surveyed indicated that they have increased their usage of WPC and 37% of the respondents increased their usage of PVC between 2006 and 2008, with less than 10% reporting that they had decreased their use of WPC and PVC. In contrast, a high percentage of respondents indicated that they have decreased their usage of pressure treated lumber (31%), western red cedar (36%) and redwood (35%) while less than 20% reported increasing their use of these materials.
The deck market can be segmented into the three main end-use applications; deck substructure, deck surface, and rails/accessories (benches, stairs, planters, etc). It is important to note that only 59% of the total demand for decking materials (based on value) is derived from the construction of the primary substructure and deck surface. The remaining demand can be attributed to deck rails and accessories, suggesting that overall demand for a specific decking material may be influenced to a substantial degree by the availability of rails and accessory products manufactured from the same material. Growth in both of these market segments is expected to be strong. While pressure treated lumber (PTL) remains the dominant material used in substructure applications, with a market share over 80%, PTL only has a 30% share of the national deck surface market.
WPC is now the market leader in deck surface applications across all regions of the US, with the exception of the South where almost 40% of deck surfaces were still built using PTL. In contrast, only about 10% of the deck surfaces built in the western US used PTL and WPC has emerged as the market leader with a 34% market share. The western US is also the region with the greatest use of naturally durable wood decking, perhaps reflecting the greater availability of these products. Plastic decking made its greatest inroad in the northeast where almost 18% of deck builders reported using this product.
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A Comparative Assessment of the North American and Japanese 2x4 Residential Construction Systems: Opportunities for US Building Materials
Authors: Ivan Eastin and Rose Braden
The purpose of this project was to perform a comparative assessment of the US and Japanese 2x4 construction technologies, evaluate Japanese builders perceptions of US value-added wood building materials and identify opportunities to increase the use of US wood building materials within the Japanese 2x4 construction sector.
In 2008, housing starts in the US and Japan totaled 906,200 and 1.05 million units, respectively. Two by four housing starts in Japan totaled 107,747 (up 9.3% from 2007) and reached a record market share of 21.3% of total wooden housing starts and 9.8% of total housing starts. Approximately half of the prefectures in Japan had a ratio of 2x4 housing starts above the national average of 20.8%. However, in many of these prefectures, the total number of 2x4 housing starts is relatively small. The prefectures where the adoption of the 2x4 construction technology is well established, as well as where the housing market is relatively large, include Saitama, Tokyo, Hyogo, Kanagawa, Chiba, Hokkaido, Fukuoka and Aichi. These 8 prefectures represented 51.7% of 2x4 housing starts in Japan in 2008.
While the global economy performed poorly in 2008, exports of wood products from the US to Japan increased substantially. Total wood exports from both the US and Washington to Japan, which had been declining since 2004, recorded increases in 2008, with US wood exports growing by 6.6% while Washington exports rose by 5.2%. Softwood logs and lumber remain the primary wood products exported to Japan, although exports of OSB and veneer sheets increased significantly in 2008. Exports of value-added wood products from Washington to Japan were dominated by prefabricated buildings (25.3% of total value-added wood exports), builder’s joinery (44.8%), wooden windows (16.9%) and wooden doors (6.4%).
Despite the success of the 2x4 construction system in Japan, imports of US wooden building materials are constrained due to the fact that there is a Japanese version of the 2x4 construction technology that co-exists with the North American-style. The primary difference between the two systems relates to the size of the basic construction module used in the construction process. The Japanese-style 2x4 system utilizes a 3’x6’ panel size which is based on the size of a traditional tatami mat, whereas the North American-style 2x4 system employs 4’x8’ panels in the construction process. Another difference between the two construction systems is the spacing of studs and joists; 17.9 inches (455 mm) on center in the Japanese system versus 16 inches (405 mm) on center in the North American system. In addition, the Japanese system tends to use more wood in the construction process (particularly in the structural framing) and thus tends to have higher material and labor costs, making the Japanese system less cost effective. Finally there is less labor specialization and efficient scheduling of construction tasks with specialist crews; significantly slowing down the construction process, reducing housing quality and increasing labor costs.
Despite the fact that most builders interviewed in this project recognize the cost effectiveness of the North American-style 2x4 construction system, relatively few Japanese builders have adopted it. Discussions with Japanese 2x4 home builders point to a broad range of factors that influence this decision. Perhaps the most important factor is that home builders in Japan are not customer-oriented in the sense that they work closely
with their customers to maximize customer satisfaction and reduce overall cost. Another factor which contributes to the widespread use of the 3x6 module relates to the strong relationship that exists between Japanese 2x4 builders and Japanese manufacturers of wooden building materials, particularly commodity wood products. Home builders interviewed during this study universally emphasized that reliability of supply and just-in-time delivery of building materials to the construction site are very important to them. Domestic manufacturers of structural panels and wood products are willing to provide this service for them whereas few foreign suppliers will.
This same bias is somewhat less evident in the use of value-added wood products such as wood windows, door and cabinets. In this case, we found that 2x4 home builders were much more willing to use imported building materials. However, the biggest concern for them when specifying these products is that they should be readily available in Japan and they must be able to obtain spare parts and installation support in a timely manner. For example, some home builders indicated that they do not use US wood windows because they have difficulty obtaining spare parts and replacement windows in a timely manner and because technical support in Japan is generally not available (although some US wood window manufacturers do have representatives in Japan to handle product and installation issues quickly).
Another issue that affects the use of US wood building materials is Japanese home builders’ perception that US manufacturers and exporters are not committed to the Japanese market for the long-term. The perception that US exporters are ‘inners and outers’ is problematic and must be overcome in order to make greater inroads in Japan.
This project included a survey of Japanese 2x4 builders, with survey respondents representing 62.1% of total 2x4 housing starts in 2007. Not surprisingly, given the design of the sample frame, almost 85% of the houses built by respondents were 2x4 houses with the remaining houses being post and beam. Virtually all of the P&B builders reported that they used the 3’x6’ module. While over a third of the 2x4 builders reported that they have used the 4’x8’ module, the number of houses that they build using the 4x8 module was less than 5% of the total houses they built in 2008.
With respect to the specification and sourcing of value-added wooden building materials, the survey found that home owners specified these products between 17% and 30% of the time, depending on the type of product.
The survey also found that 2x4 homebuilders are quite willing to use imported value-added wood building materials, with their use of these products ranging from 20% in the case of kitchen and bathroom cabinets to almost 50% for hardwood flooring and wood windows. Japanese 2x4 builder’s use of US value-added wood products was highest for hardwood flooring (18.4% of total use), interior doors (16%), wood windows (16%) and exterior doors (14%). It was lowest for kitchen cabinets (4%), bathroom cabinets (6%) and softwood flooring (7%).
Survey respondents reported that the most important product attributes for them were high quality (6.6 rating out of 7), reliability of supply (6.4) and low price (6.2). In terms of product quality, they reported that US value-added wood products were perceived as having only average quality. Interestingly, small builders rated the quality of US value-added building materials much higher than did large builders. Respondents also reported that US suppliers provide below average levels of products support, although small builders again reported substantially higher ratings than did large builders.
The survey results clearly show that the large, national 2x4 builders have a poor perception of US value-added wooden building materials, both in terms of quality and service, relative to small and medium-sized local builders. This suggests that US manufacturers and exporters should focus their marketing efforts on small and medium-sized 2x4 builders in the short-term. However, long-term success in Japan will require that US manufacturers and exporters understand and address those factors that adversely affect large builder’s perceptions of US value-added wood building materials. This should provide the basis for additional research in the future.
One product for which there is strong market potential is dimension lumber. Many of the 2x4 home builders reported that they were having trouble sourcing 2x8 and 2x10 joist material, as well as most other sizes of dimension lumber. More 2x4 home builders are now willing to accept a “home center” grade of lumber rather than the traditional higher quality J grade. This suggests that now may be a good time for dimension sawmills in Washington to reenter the Japanese market.
In summary, the struggling domestic housing market in the US combined with the relatively weak US dollar and strong Japanese yen provide a unique for manufacturers and exporters of wood building materials increase their presence in Japan. However, they must demonstrate a long-term commitment to the Japanese market in order to be successful.
The Japanese 2x4 market continues to represent a good opportunity for US manufacturers and exporters of wood products who are confronted with the worst US housing market since 1945. However, re-establishing US wood products in the Japanese market will require substantial effort on the part of manufacturers and exporters, especially those who abandoned the market during the period 1996-2006. US manufacturers and exporters who are returning to the Japanese market or who are new to this market will need to demonstrate a long-term commitment to their Japanese customers if they are going to be successful. They also need to develop a strategy for providing after sales support for their products in a variety of areas, including: timely claims evaluations, assistance with installation questions and providing spare parts and replace
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Authors: Ivan Eastin, Indroneil Ganguly, Daisuke Sasatani, Larry Mason and Bruce Lippke
Investment by value-adding wood industries is critical to sustaining forestland ownership. An increasingly complex array of forest owners and investors suggests a business climate that views forests as a financial, rather than an industrial, asset. However, maintaining the ecological, environmental and economic health of the forests in Washington requires a vibrant and competitive forest products industry. The lack of a diversified and competitive forest products industry to process the logs, small diameter timber and thinnings removed from the forest undermines the ability to manage forests in Washington in a sustainable manner and reduces the range of management options available to forest managers in the state. The lack of competitive markets for intermediate forest products derived from forest management operations undermines the economic rationale of forest management, adversely affects forest health and ultimately results in increased fire risks. At the same time, the forestry and forest products industries make significant contributions to the economy of Washington State, particularly in rural, timber dependent communities.
The analysis of the economic data suggests that the forestry and wood products manufacturing sectors have played an increasingly important role in the economy of Washington State since 2001. Not only did this sector provide over 45,000 jobs in 2005 but it also generated approximately $16 billion in gross business revenue, paid out over $2 billion in wages and over $100 million in tax receipts. As a result, the forestry and wood products sector of the state economy employed 1.43% of the workers in the private sector in Washington, accounted for 1.8% of the total wages paid within the private sector and generated 3.2% of the gross business income within the private sector.
The sawmill industry in Washington state suffered through a tough period between 1987 and 1993, much of which can be attributed to the 1990-1991 recession and the loss of federal timber as a result of the listing of the spotted owl as an endangered species in 1989. Between 1987 and 1993 softwood lumber production in Washington decreased by 23.5% as 45 sawmills closed and almost 1,400 jobs were lost. Industry consolidation ensued throughout much of the past decade and by 2005 the number of sawmills had declined from 217 (in 1994) to 128. Much of this decline in sawmills can be attributed to the closure of older, inefficient sawmills that relied on the large, old-growth logs coming from the federal forests. Despite the huge drop in sawmills, employment in the sawmill sector actually increased from 7,721 to 8,565 between 1994 and 2005 as larger more efficient sawmills were built to replace the older mills being closed.
The plywood industry in Washington, previously one of the largest in the US, has been in decline since 1962. The number of plywood mills has dropped from 35 to 8 during this period although plywood production has only declined from 1.8 billion square feet (3/8 inch basis) to 1.1 billion square feet (3/8 inch basis). As seen in the sawmill industry, the closure of smaller, inefficient mills has been offset to a degree by the establishment of larger, more efficient plywood mills. Annual production per mill in 1962 was just 52 million square feet whereas this has jumped to 137 million square feet in 2005. It is important to note that as the end-use market transitions from plywood to oriented strand board (OSB), there are no OSB mills located in the state of Washington. The challenge for the structural panel industry is to successfully make the transition from plywood to OSB.
The Washington pulp and paper sector is the second largest following wood products manufacturing. In addition to its importance within the economy, this sector also plays an important demand role within the forest products industry. Pulp and paper companies are important consumers of lower quality pulp logs as well as providing a demand for by-products from other forest products industries such as sawdust and planer shavings from the sawmill industry. Given the cost structure of the sawmill industry, lumber manufacturers often break even at best with their lumber production and it is the sales of their by-products that provide them with an operating profit. Thus this industry segment is particularly important to the health of the sawmill and logging sectors. From a strategic industry perspective, it is extremely important that this industry remain healthy and viable within the state of Washington.
The regional inter-industry econometric model called the Washington Projection and Simulation Model (WPSM) has been used to estimate that in 1992 there were 7.7 direct jobs and 32.3 indirect jobs linked to each million board feet of timber harvest in Washington. In 1994, it was further estimated that 29.7 Washington jobs would be lost for every $1 million in tax increases to replace lost trust revenue from reduction in timber harvests from the state forestlands. Further public benefits derived from DNR timber sales through the generation of state and local, and federal tax revenues were calculated to be 11% and 19% respectively, of the Gross State Product, in 1996.
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Authors: Joseph A. Roos, Daisuke Sasatani, Valerie Barber and Ivan Eastin
With the U.S. housing market at a seventeen year low, it is becoming increasingly important to find global markets for U.S. forest products. One market that values Alaska forest products and offers tremendous opportunity is Japan. However, due to a previously strong U.S. Dollar, increased competition from Europe, and other factors, Alaska forest products have lost significant market share in Japan. The purpose of this research project was to examine recent trends that affect Japan’s forest products market and present potential opportunities for Alaska forest products. Data was collected from government and industry organizations and industry experts were interviewed. The research identified five major trends affecting Japan’s forest products market:
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Authors: Jean M. Daniels and John Perez-Garcia
Lumber manufacturing remains an economically important industry in the State of Washington. The sector has added value to Washington’s timberlands and continues to generate the majority of regional timber demand. Lumber production contributes to rural economic development and employment. Lumber manufacturing has remained particularly viable in western Washington, despite macroeconomic uncertainty, regulatory constraint, and competition from foreign and other domestic producers. The last economic assessment of the western Washington lumber industry was performed in 1991 (Stevens).
This study applied classical economic techniques to provide insight into how lumber manufacturers in western Washington responded to market conditions from 1972 to 2002. Lumber manufacturing activities were investigated using a three-input Cobb-Douglas and a transcendental logarithmic (translog) cost function.
Analyses were performed using a panel data set with biennial time series observations from 1972 to 2002 for sixteen western Washington counties. The measures used to assess economic performance were economies of scale, Allen and Morishima partial elasticities of substitution, own- and cross-price factor demand elasticities, and technical change. These measures were investigated at regional, biennial, and county level scales.
This study shows the western Washington lumber manufacturing sector can be modeled with nonconstant returns to scale, nonunitary elasticity of substitution, and biased technical change among the inputs capital, labor, and logs. Substantial substitution possibilities between factors of lumber production exist, and a fixed- proportion functional form like the Cobb-Douglas is inappropriate to model the lumber industry structure. The estimated translog cost function was well-behaved and an appropriate choice of functional form for the western Washington lumber industry.
Lumber production costs are most sensitive to the price of logs, followed by the price of labor and least impacted by the price of capital. Mean cost share values for logs, labor and capital are 58, 24 and 18 percent, respectively. At the regional level, sawmills have captured economies of scale in the production of lumber. A 10 percent increase in output resulted in a 0.418 percent reduction in costs. Economies of scale values jumped during the 1980s recession as firms produced radically less output and faced higher input costs; values subsequently declined as firms exhausted scale economies during times of harvest level reductions in the 1990s.
At the regional level, Allen and Morishima partial elasticities of substitution agreed that all inputs were inelastic substitutes with the greatest substitutability between capital and labor and least substitutability between logs and labor. Capital demand was the most own-price responsive and log demand the least. Cross- price demand elasticity was greatest between capital and labor; cross-price elasticities for all input combinations including logs were near zero. Demand for logs was highly inelastic with respect to own-price and the price of other inputs. This pattern was relatively consistent across time and across counties, although at finer scales greater evidence of complementary between inputs was noted.
Expansion of lumber production and capacity over time primarily occurred in Lewis, Pierce, Clallam, and Cowlitz Counties owing to new sawmill infrastructure. Gains in Cowlitz County were primarily made from investments in existing mills. Lewis gained one large mill in 1998, increasing the total number of large mills to seven, but additions in existing sawmills contributed to increase capacity. The number of large mills in
Pierce County remained constant from 1996 to 2002; capacity investments in existing mills led to increased lumber output. Although capacity in Snohomish County sawmills rose, the loss of three large mills between 1998 and 2002 caused an overall decline in lumber production. Results point to processing capacity centers developing in two areas, Clallam County on the Olympic Peninsula and counties along the I-5 corridor south of King County. Restructuring of log export markets, proximity to Interstate-5, and port access seem to be factors in industrial expansion, but the magnitude is unknown.
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Authors: Joseph A. Roos, Valerie Barber, Daisuke Sasatani and Ivan Eastin
The Japanese glulam beam market has been growing steadily since the early 1990’s. From 1993 to 2007, total glulam beam usage increased from 199,300 cubic meters to 1,814,100 cubic meters. Japanese glulam beam supply comes from both domestic production and imports. In 2007, 65% of Japan’s glulam beam production was from domestic manufacturers. However, even though these glulam beams are manufactured in Japan, much of the lamstock lumber used to produce glulam beams is imported. Two of the major imported lamstock species are European whitewood and Russian red pine.
Recently, a number of factors have combined to constrict the imported lamstock supply including a Russian log export tax, the increasing strength of the Euro and Canadian Dollar, and increased demand for wood in Europe and the Middle East. The researchers travelled to Japan and interviewed representatives from Japanese glulam manufacturing facilities. The company representatives were asked what species they are currently using for lamstock, technical specifications, market conditions, and what species they intended to use in the future.
The results of these interviews support the conclusion that there is potential for Alaska hemlock, Alaska yellow cedar, and Alaska Sitka spruce to supply Japan with lamstock lumber. However, the Japanese lamstock market requires that lamstock lumber be kiln dried and milled to exact metric dimensions. In order for Alaska forest products manufacturers to gain entry into the Japanese market, the following recommendations should be considered:
1. Organize workshops to teach Alaska sawmills about the technical requirements of the Japanese lamstock and glued laminated beam market.
2. Pre-qualify sawmills in Alaska that have the technical capability to produce kiln dried lamstock for the Japanese market.
3. Organize a trade mission to visit glulam manufacturers in Japan.
4. Display Alaska lamstock samples and literature at the Japan Home Show held annually in Tokyo.
5. Invite potential Japanese customers to visit sawmills in Alaska.
6. Create Alaska lamstock brands based on the established WWPA registered trademarks. For example, Alaska Hem Lam, Alaska Yellow Cedar Lam, and Alaska Sitka Spruce Lam.
7. In addition to lamstock, lamstock blanks could also be considered for export to Japan.
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Author: Ivan Eastin
Japan is a timber deficit country that requires substantial volumes of imported timber to meet its domestic demand for wood. To a large degree, wood demand in Japan is tied to housing starts where approximately 43% of new homes are framed with wood. This reliance on imported wood has always caused a tension in Japan where forests cover two-thirds of the country and there is an extensive sawmill industry skewed heavily to small, rural sawmills using out-dated technology. A high cost structure has made both the forestry and sawmill industries uncompetitive on a global scale and, as a result, imported softwood lumber has come to dominate the Japanese market. Over the years, the Japanese government and the forest products industry have tried a number of strategies to improve the competitiveness of the forestry and sawmill sectors. Despite the closure of more than 10,000 sawmills over the past twenty years, the Japanese sawmill industry remains uncompetitive and plagued by small, inefficient sawmills located in rural areas far from the main demand markets. It is against this backdrop that the most recent regulatory initiatives to protect the domestic sawmill industry from international competition must be viewed. These regulatory initiatives include: 1) providing preferential treatment for domestic timber within the proposed CASBEE-Sumai green home building program, 2) using subsidies at the prefectural level to increase the share of domestic timber used in post and beam wooden homes to at least 50% and 3) and using subsidies at the national level to target an increase in the market share of domestic timber used in the post and beam industry from the current 30% to 60% by 2015.
Concerns about global warming and the environment and their commitments under the Kyoto Protocol have led the Japanese to develop a green building program, called CASBEE, to reduce the environmental footprint of commercial and residential buildings (CASBEE is the acronym for Comprehensive Assessment System for Building Environmental Efficiency). As part of its commitment as a signatory of the Kyoto Protocol, Japan is committed to reduce its emissions of greenhouse gases through a variety of strategies. The Kyoto Protocol was negotiated in Kyoto , Japan in December 1997 and came into force on February 16, 2005 following ratification by Russia on November 18, 2004. The Kyoto Protocol is an agreement under which industrialized countries commit to reducing their collective emissions of greenhouse gases by an average of 5.2% over the five year period 2008-2012 relative to the year 1990 (Wikipedia 2007). Japan , which became the 73 rd signatory to the Kyoto Protocol on May 31 st , 2002, has a target reduction of greenhouse gas emissions of 6% over the five year period. As part of its strategy to reduce greenhouse gas emissions, Japan has mandated that new commercial buildings incorporate energy efficiency in their design and operation.
The Japanese government has moved to improve the environmental performance of residential buildings with the drafting of the CASBEE-Sumai (Home) green building program. While the aim of the CASBEE-Sumai green building program is to reduce the environmental footprint of new homes, the program suffers from a weakness in that it is not based on a comprehensive Life-Cycle Inventory of the construction materials used to build Japanese homes. Additionally, the CASBEE-Sumai program has incorporated criteria which arbitrarily place imported wood at a competitive disadvantage by implying that wood harvested from Japanese forests is environmentally preferable to imported wood. These weaknesses of the draft program could be a source of confusion to architects and home builders regarding the overall environmental superiority of wood relative to other structural building materials. The two specific features of concern with the CASBEE-Sumai draft green building program are: 1) the specification of locally sourced wood (obtained from within a specific, but as yet undefined, distance from the building site) as being preferable to imported wood and 2) the determination that
domestic timber is de-facto defined as being sustainable and harvested from sustainably managed forests without independent third-party verification of forest management practices.
The de-facto declaration that all domestic (Japanese) softwood is assumed to be derived from sustainably managed forests runs completely counter to the fundamental premise of sustainable certification: transparency in certification programs, third-party verification and certification based on objective science. The lack of credible third-party verification of sustainability and legality also undermines consumer confidence since there is no guarantee that the wood being used is, in fact, legal or sourced from a sustainably managed forest. For example, a recent report in the Kyodo News (2008) on illegal logging in the Akan National Park in Hokkaido , Japan , illustrates the need for independent third-party certification programs, even in Japan . The decision to define domestic wood as sustainable violates the principal of reciprocity and places imported wood at a cost disadvantage in the marketplace since domestic lumber producers will not have to pay for the cost of certification for their lumber.
The fundamental reason for the preference of domestic wood over imported wood within the CASBEE-Sumai program appears to be to provide regulatory support for domestic wood processors whose lumber products are uncompetitive against imported wood. However, the blame for this lack of competitiveness cannot be placed at the feet of foreign manufacturers but rather at the reluctance of the domestic sawmill industry to implement the measures and investments required to achieve consolidation and modernization within an overly large and technically inefficient industry. For example, the pre-cutting industry, which manufactures the structural components for over 80% of the post and beam houses built in Japan , requires kiln dried lumber that is straight and machined to highly accurate tolerances as a raw material input to their manufacturing process. In response, most imported lumber now arrives in Japan kiln-dried and cut to the demanding specifications required by pre-cut manufacturers. However, despite this change in material specifications within the largest demand segment for structural lumber, the domestic Japanese sawmill industry has been extremely slow to invest in new kiln drying capacity. In fact, by 2007, less than one-quarter of the structural softwood lumber produced in Japan was kiln-dried (22.6%) and only 16.5% of Japanese sawmills had invested in kiln drying facilities. Examples such as this clearly show that Japanese sawmills remain reluctant to invest in manufacturing technology to improve their competitiveness, preferring instead to rely on government regulation and subsidies to provide protection from more efficient foreign producers.
Some organizations in Japan have advocated using the CASBEE-Sumai program to provide preferential consideration for domestically manufactured wood products under the rationale that the increased carbon emitted during the international transport of lumber to Japan increases the carbon footprint of imported lumber, thereby making domestic softwood lumber a more environmentally preferable material. However, this argument overlooks the fact that most container ships carrying lumber products are returning to Japan on a backhaul leg after having delivered Japanese exports to their foreign destination. In addition, the argument for local wood further ignores the fact that ocean transport is an extremely efficient mode of transportation given the large size of the bulk ships used to transport logs and the container ships used to transport lumber. As a result, the amount of carbon emissions for these two transport modes (on a cubic meter per kilometer basis) are just 2.7% and 5.9%, respectively, of the carbon emissions generated from transporting lumber by truck in Japan. Thus, transporting the volume of structural lumber used in the typical Japanese post and beam house (14 m 3 ) from North America (either Seattle or Vancouver, BC) to Tokyo generates the same amount of CO 2 as shipping this volume of lumber just 112 km by truck in Japan. This analysis suggests that the international transportation of softwood lumber, at least from North America to Japan , might well produce less of an environmental footprint than transporting domestic lumber given the increase in transportation distance resulting from the widespread acceptance of precut lumber within the post and beam industry. A more detailed analysis of the distribution channels for domestic wood from forest to sawmill to wholesaler to precutting facility to building site should be performed to better understand the carbon trade-offs during transportation between domestic wood and imported wood.
Quantitative Impact of Domestic Wood Programs
There are two programs that could adversely affect the value of US softwood log and lumber exports to Japan . The first relates to the favorable consideration of domestic wood while the second relates to a program being supported by MAFF that aims to increase the market share of domestic wood use in the P&B industry from its current 30% to 60% by 2015. An economic analysis of these scenarios demonstrates that favoring the use of
domestic lumber would not only impact the demand for imported lumber, but the demand for imported logs as well. Since the US is a large supplier of logs to Japan (approximately 2/3 of which are Douglas-fir logs), this would adversely impact both log and lumber imports from the US . The estimated impact of the domestic wood programs being proposed on the value of US lumber exports to Japan over the 2007-2015 period ranges from $84.5 million to $95.6 million. In the case of logs, the value of US exports could potentially drop by between $196 and $735 million over the period 2007-2015. The total impact on US softwood log and lumber exports to Japan ranges from $84.5 million and $735 million, depending on the success of these programs in promoting the increased use of domestic wood in place of imported lumber and the extent to which imported logs are replaced by smaller, lower quality domestic logs. Considering the current constraints on the ability of domestic timber to substitute for imported timber (e.g., timber supply, lower timber quality and lower mechanical strength properties, among others), it is more likely that the lower estimate of the reduction in the value of US log and lumber exports to Japan ($84.5 million) is more accurate. While this analysis is sensitive to a number of assumptions, it clearly shows that a program targeted towards substituting domestic wood for imported wood could have a substantial adverse impact on the US forest products industry.
The myopic strategy of protecting the inefficient and uncompetitive forestry and sawmill sectors in Japan through preferential regulatory policies (such as the de-facto specification of domestic wood as being sustainable managed) or by providing subsidies to achieve an arbitrary market share for domestic lumber within the post and beam construction sector ignores the superior environmental performance of wood relative to non-wood building materials. More importantly, these types of preferential programs have been specifically targeted to the post and beam market segment; a shrinking segment of the residential construction industry. As a result, these policies distract attention from opportunities to expand the demand for wood products in non- traditional market segments such as wood multi-family housing, hybrid construction and low-rise commercial construction. Housing start statistics clearly show that whereas the ratio of P&B housing starts has been declining over time, the ratio of housing starts in the multi-family (both mansion and apartments) sectors, where steel and concrete dominate, has been increasing.
If the Japanese forest products industry is truly interested in promoting the environmental benefits of wood, encouraging the adoption of a green building program and expanding the demand for domestically produced structural lumber, then they would do well to consider a strategy that grows the overall demand for structural lumber by promoting the increased use of structural lumber in non-traditional sectors of the market rather than encouraging an artificial competition between domestic wood and imported wood within the shrinking P&B segment of the residential construction industry. This promotional effort would utilize LCI data to document the superior environmental performance of wood frame multi-family and commercial (including hybrid) structures relative to non-wood structures. To support this effort, preliminary research should be done to identify: 1) the relative market shares of steel and concrete structural materials within these non-traditional market segments, 2) the material selection process used by architects and builders and 3) the factors that influence the material selection process.
Given the agenda of promoting domestic wood over imported wood, it is important for US wood products associations to maintain open communication with the CASBEE-Sumai committee to reinforce the message that the CASBEE-Sumai program should focus on rewarding the use of any wood over less environmentally friendly building materials. This should be reinforced by the message that wood houses use a broad range of sizes, qualities and wood species in their construction based on specific structural end-use requirements.
Limiting the material selection to only locally produced lumber severely restricts the material options available to builders and may encourage them to use less environmentally friendly non-wood materials in place of other “non-local” wood products so that they can still meet the 50% local building material requirement and therefore qualify for prefectural subsidies. The bottom line is that these subsidy and regulatory programs distort the market and could encourage architects and builders to make material choices based not on the environmental performance of a specific material but on a set of artificial proxies that reflect a political agenda rather than objective scientific environmental data.
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Authors: Yuan Yuan and Ivan Eastin
Forest certification is becoming an important issue within the forest products industry and also a new trend in forest products markets. Although forest certification was initiated to confront the severe deforestation of tropical rain forests, certified forests are unbalanced in geographical locations, with 60% of certified forests being located in North America and 36% in Europe in 2006. The end markets for certified forest products, especially certified wood products, are also concentrated in European countries (particularly the United Kingdom, Germany, Belgium and the Netherlands) and North America, because the price premium for environmentally friendly products is only available in these mature and value-added markets. In manufacturing, countries such as Germany, Italy, the Netherlands, Poland, United States, Brazil, Japan and China are competitive in the area of certified wood products.
China is attracting more attention for its increased use of certified timber in wood products manufacturing. In accordance with its leading status in traditional labor intensive manufacturing industries, the Chinese forest products industry has an advantage in low cost labor, convenient infrastructure, and favorable export trading policies. The number of Chain-of-Custody (CoC) certified companies, mostly wood products manufacturers, soared between 2004 and 2006, reaching 200 by the end of 2006. Certification of forest farms in China , however, has been relatively slow and difficult, with only four forests (less than 1% of all the FSC certified forest area in the world) having obtained Forest Management (FM) certification by 2006, representing a total area of 439,630 ha.
This study consists of two sections: a case study of a certified state-owned forest farm and its downstream wood products manufacturers located in Northeast China, and an email survey of all FM/CoC and CoC certified companies in China , including manufacturers, forest farms with wood mills, and traders. Unless mentioned specifically, FSC is the default forest certification program in China because of its widespread use within the country (to the virtual exclusion of all other certification programs).
Case StudyYouhao Forest Bureau is currently the largest certified forest farm in China with two associated certified furniture manufacturers, Hualong and Huali factories, mainly supplying solid wood furniture for IKEA. The certification of Youhao's forest farms and the Hualong and Huali factories helped to maintain product orders from IKEA, which has committed itself to sourcing its wood materials from certified forests through the four steps of the IKEA Forest Action Plan (FAP). Although the high cost of certification determines that profits from certified wood products are often lower than non-certified wood products, both the forest farms and manufacturers view certification as a new trend in the forest products industry, and hope the niche market for certified wood products will grow in the future, assuring a higher price premium.
Governmental administration played an important role in the certification of Youhao through administrative commands and favorable policies. As a country with diverse forest resources, China 's central and local governments actively initiated forest certification, took part in the process of certifying two important state-owned forest farms, organized training projects on forest certification in several more state-owned forest farms after Youhao and Baihe's certification, and drafted the “Criteria and Principles of Forest Certification for China ”.
While these actions made certification favorable for state-owned forests, complicated forestry property rights reform and unstable tenure length represent significant obstacles to the certification of privately owned forests.
Survey ResultsA survey of all the FSC (CoC) certified companies in China was conducted to investigate the basic issues related to forest and chain-of-custody certification and their influence on the international trade of forest products in China. Although there are only 200 certified companies, a general pattern on this new trend within the industry was obtained. Out of the population of 200 companies, 41 usable responses formed the sample of certified companies, including 2 forest farms with wood mills, 31 wood products manufacturers, and 8 trading companies. Most of the certified companies in China are located along the eastern and southern coast of China , from Guangdong Province to Jiangsu Province . Nearly half of the companies (46.3%) are domestic private companies, and 29.3% are wholly foreign-owned enterprises. More than half of the companies (53.7%) have over 500 employees, indicating a labor intensive production process. Evaluated by annual sales, more than half of the companies (51.2%) achieved annual sales of more than US$13 million (RMB ? 100 million) in 2006, which can be viewed as medium to large sized companies.
Product mix of certified wood products
The mix of certified wood products made by survey respondents can be divided into ten major categories: indoor furniture and accessories, craft products, stationeries and toys, outdoor furniture and accessories, wood material, garden and BBQ tools, flooring, doors and windows, logs, pulp and paper, and others. Most of the certified wood products are small piece, uni-material, finished products. This is natural as large, mutil-material, semi-finished products would increase the complexity of production, management and the percentage calculation according to CoC requirements.
End markets for certified wood products
The two biggest export markets for certified wood products were Europe and the United States , accounting for 54.6% and 29.8% of exports respectively. The giant DIY chain stores such as Home Depot and B&Q are important retail markets for certified wood products. Furniture retailers, pulp and paper companies, public procurement by governments, and other users form a niche market for these products. A recent report showed that from 1999 to 2000, annual sales of all certified wood products by retailers in Britain increased from £351 million (1.8% of total forest products annual sales) to £629 million (3.4% of total forest products sales). No similar data was found for the United States .
Certified wood raw materials
The US is currently the most important source of certified wood raw materials for wood products manufacturers in China , with 24.9% of certified wood originating from the US . Other countries supplying certified wood raw materials are New Zealand (with 18.5%), Brazil (12.4%), and European countries (10.8%). Domestic forest farms in China supply about 14.5% of the raw material mix for domestic manufacturers. The species of certified wood is almost evenly distributed among conifer species, tropical broadleaf species and semitropical/temperate broadleaf species. More than half (56.4%) of the companies in China indicated that they are now facing a shortage of supply for certified wood raw materials.
Cost and benefit analysis
The costs and benefits of using certified wood products is inevitably the critical problem confronting all certified companies. The issue of profitability can be viewed from several different perspectives: the market share of certified wood products; the market growth rate; the increased cost of certified wood; the small price premium obtained for certified wood products; and the lower profit margin for certified wood products relative to non- certified wood products. The profitability of certified wood products will influence both the short-term and long- term marketing strategies of companies considering selling certified wood products.
The market for certified wood products in the world is relatively small, and the total sales of these products by all the certified companies in China were estimated to be around US$697 million. The market for certified wood products is growing, with nearly 39% of the sampled companies reporting that their sales increased about 22.7% between 2005 and 2006, while just 2.4% of companies' reported that their sales decreased. There are increased costs that contribute to the higher price of certified raw materials, including the cost of certification (both the initial evaluation and a semiannual audit fee) and the cost of production updating and management adjustment for certification. The increased cost of using certified raw materials is the most significant cost factor, with the
average price of certified wood being 22.3% higher than non-certified wood. The cost of certification varies dramatically between forest farms gaining forest management certification and wood products manufacturers obtaining CoC certification. The cost of certification for forest farms was reported to be about ten times higher than the cost of certification for manufacturers. The average cost of certification for all certified companies including the two forest farms was about $9,037 per year, while the average cost of certification without the forest farms was around $5,912 per year. However, it is important to note that the annual cost CoC certification is likely to decline over time as the initial adjustments in management and manufacturing practices that are required for certification are implemented and they become part of the routine operating procedures for the companies.
Certified companies obtained an average 6.3% price premium for certified wood products in European markets, a 5.1% price premium in the United States and a 1.5% price premium in Canada . About 24.4% of the companies reported that the profit margin for certified wood products was 6.7% higher than for non-certified wood products, while 39.0% of the companies reported a loss of about 5.6%. The profit margin for certified wood products is highly dependent on the price premium companies can achieve. A simple linear regression model was developed to estimate the profit margin based on the price premium. The regression model results suggest that as long as the price premium obtained for certified wood products exceeds 11% (relative to non-certified wood products), the profit margin for certified wood products will exceed that of non-certified wood products.
Attitudinal evaluation on certification
Certified companies expressed a positive attitude towards most of the survey statements regarding forest certification and its influence on the industry. Statements viewed positively included the belief that certification can help companies enter new markets (especially markets in Europe and North America); certification can help maintain a company's existing markets if new requirements on environmental issues are implemented; certification is helpful in enhancing the competitiveness and public image of companies; and companies were optimistic about the increased market share and profits that would be generated from selling certified wood products over the next two years.
This study focused on FSC certification in China because there were only four companies that had received certification from programs other than FSC (i.e. PEFC). Therefore, FSC is currently the dominant certification program in China for the forest products industry. The survey respondents were asked an open-ended question about their reasons for choosing FSC certification, and their reasons can be summarized into three main categories: specific requirements dictated by their buyers; specific strategies companies took for entry into new markets; and FSC's highly credible reputation.
Some common problems that certified companies in China face relate to the cost and supply of certified wood raw materials. Lacking domestic accredited certification bodies not only increases the cost of certification, but also hinders the improved communication and training among foresters and manufacturers about certification issues.
Due to the supply shortage of certified wood, companies have to communicate with importers more efficiently to obtain reliable information about the origin and supply of certified wood from foreign countries. Although domestic forest farms are in the process of being certified, which may alleviate the dependence on imported raw materials to some extent, the complexity and ambiguity of the forestry property rights reforms being considered and implemented in China will slow the privatization and consolidation of local forests, and further impede the process of certifying private forests.
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The Market for Softwood Lumber in Japan : Opportunities for Douglas-fir Structural Lumber for Hirakaku
Authors: Ivan Eastin and Craig Larsen
For fifteen years between 1989 and 2004, US exports of softwood lumber were mired in decline. During this period, the volume of US softwood lumber exports plunged from approximately 8 million m 3 to less than 2 million m 3 . This trend was a reflection of the relatively strong dollar which undermined the competitiveness of US softwood lumber, coupled with regulatory changes in major export markets (particularly Japan ) and a strong housing market in the US . This combination of adverse factors influenced many US softwood lumber manufacturers to abandon their traditional export markets. This was especially evident in Japan where US exports of softwood lumber dropped from 3.5 million m 3 in 1989 to just 115,000 m 3 by 2005.
Recent years have seen a rapid reversal in some of the macroeconomic factors affecting the US softwood lumber industry. The US dollar has weakened considerably against both the Canadian dollar and the euro, greatly increasing the competitiveness of US wood products in export markets. Since 2002 the US dollar has weakened by 33.7% against the Canadian dollar (and is now almost at par with the Canadian currency) and by 34.1% against the euro. This alone has substantially increased the competitiveness of US softwood lumber in most markets.
At the same time, demand for softwood lumber in the US has fallen substantially as a result of the weak housing market. Since 2005, housing starts in the US have declined by 12.8% from 2.06 million starts in 2005 to 1.8 million starts in 2006. Housing starts are projected to drop further in 2007 to between 1.5-1.6 million. In response to the weak housing market, demand for softwood lumber in the US dropped by 6.4%, from 64.3 bbf in 2005 to
60.1 bbf in 2006. More worrying is the fact that US softwood lumber demand is projected to drop to 54.2 bbf in 2007 before recovering only slightly in 2008 to 56.7 bbf.
With prices low and demand weak in the US market, many softwood lumber manufacturers have begun looking offshore again. Between 2004 and 2006, the volume of US softwood lumber exports grew by 18.6% to reach 2.2 million m 3 . More importantly, the value of softwood lumber exports has jumped by 35.5% to reach $592 million. Softwood lumber exports have remained strong during the first four months of 2007, with exports increasing by 14.5% in terms of volume and 25.7% in terms of value. Encouragingly, the strong export performance of softwood lumber has not been confined to a small group of traditional softwood lumber export markets but has occurred across a broad range of markets. In the UK , softwood lumber exports are up by 675% in the four months of 2007, propelling the UK from the 14 th largest market to the third largest market for US softwood lumber.
Douglas-fir (DF) lumber used for beam applications ( hirakaku ) continues to enjoy success in Japan . This success can largely be attributed to the superior performance (with respect to strength, straightness, dimensional stability, and visual appearance) of DF relative to other timber species. Thus, DF maintains a reputation as the premier timber species for hirakaku applications. Yet despite its strong reputation, DF has seen its market share slowly eroded by alternative lumber products such as European whitewood and European redwood glulam lumber. The primary basis for this trend has been the shift towards pre-cut housing components as well as the price sensitivity of Japanese home builders and pre-cutting manufacturers.
The objective of this research was to evaluate the use and specification of structural lumber within the Japanese post and beam construction market, particularly with respect to Douglas-fir lumber in beam applications. In addition, this project follows up on the recommendation of an earlier marketing report recommending that US Douglas-fir manufacturers consider the feasibility of developing and introducing branded DF hirakaku lumber in
Japan . In order to develop a better understanding of the potential opportunity for branded DF hirakaku lumber, two focus groups sessions were held with home builders in Japan . The focus group sessions were supplemented by personal interviews with Japanese post and beam home builders and pre-cutters, the two major end-users of DF hirakaku. Finally, visits were conducted to the major DF sawmills in Japan to develop a better understanding of the competitive role of Japanese DF lumber producers in the market and to explore the role of branding in the marketing of domestically sawn Japanese DF lumber.
Material use in the residential construction industry has been affected by several regulatory changes in Japan . In May, 1998 the Building Standard Law of Japan (BSL) received its first major revision since 1950. To a large degree these revisions were in response to the widespread devastation caused by the Kobe earthquake in 1995 and the perception that the structural performance of wooden post and beam homes, as well as the regulation of construction practices, needed to be improved to ensure the safety of homeowners in Japan . However, the single most important factor affecting the use and specification of structural softwood lumber for use in residential construction in Japan has been the Housing Quality Assurance Act (HQAA). The HQAA was promulgated to improve the quality and performance of new homes and provide homebuyers with specific safeguards and rights when purchasing a new home. The HQAA was developed partially in response to the poor performance of post and beam houses in the Kobe earthquake, but also in response to increasing complaints from home buyers about construction defects and the lack of responsiveness on the part of home builders in correcting those defects.
Japan 's domestic lumber industry presents a contrast to the overall low level of timber self-sufficiency. Whereas over 80% of Japan 's total timber supply is derived from imports, only about 40% of Japan 's softwood lumber demand is provided by imports. Despite Japan 's relatively high level of self-sufficiency in softwood lumber, the domestic lumber industry is characterized by declining production levels as smaller, less efficient sawmills have closed down. The domestic sawmill industry was particularly hard hit by the Asian economic crisis, with the number of sawmills declining from 14,028 in 1996 to 12,810 in 2001. These sawmill closures resulted in large declines in productive capacity from 1997 to 1998. Over the past five years, domestic lumber production has declined from 25 million m 3 to less than 14 million m 3 (and the number of sawmills in 2006 has declined to 8,590), while lumber imports have increased to approximately 9 million m 3 . The combination of declining domestic lumber production and slowly increasing import volumes means that self-sufficiency dropped from 74% in 1991 to the current 60%.
Recent developments in Japan and the US have favorably affected the competitive position of US softwood lumber in Japan and renewed US exporters interest in the Japanese market. The weakening of the US dollar relative to its major competitors in Japan , a weak US housing market and the announced export tariffs on Russian logs all bode well for US lumber in Japan . Therefore, it is in the US forest products industry's best interest to work to work with their Japanese customers to convince Japanese home builders and home buyers that using DF hirakaku is worth the small price premium it commands in the market. For example, a promotional campaign emphasizing the strength, durability and natural beauty of Douglas-fir structural lumber could be very helpful in Japan . In the absence of this type of promotional effort, DF hirakaku products can be expected to continue losing market share in the long-term. One recent estimate derived from interviews with pre-cutters and lumber wholesalers suggests that between 2000 and 2010 the market share for DF hirakaku could shrink from 83% in 2000 to 70% in 2010.
There are a number of factors that constrain the competitiveness of solid sawn US DF hirakaku in Japan, including: high cost of kiln drying large size DF hirakaku, the difficulty in shipping green hirakaku to Japan without developing surface mold and discoloration, the difficulty in maintaining a stable moisture content for kiln dried DF hirakaku during the shipping period to Japan, price fluctuations, reluctance to cut to the lengths required by pre-cutters, the size of the domestic Japanese DF sawmill industry, the high cost of maintaining inventory in Japan, the ready availability of lower cost hirakaku products from domestic DF sawmills and foreign glulam suppliers, the extremely large number of hirakaku size combinations that require a huge number of different hirakaku product sizes (approximately 140 size combinations) and the attendant high inventory costs, and the difficulty in establishing an effective distribution system in Japan
Given the serious constraints associated with establishing and maintaining an adequate supply of imported DF hirakaku in Japan , we would recommend that the US industry not develop a branding program for DF hirakaku in Japan . This decision is further supported by the fact that there is currently a large, well established domestic DF
sawmill industry in Japan . The fact that Japanese DF sawmills have already developed branded hirakaku products further supports this recommendation. It is difficult to see where US sawmills would have a competitive advantage over Japanese sawmills producing branded products, particularly considering the well established distribution channels that the Japanese sawmills have already developed within the pre-cutting and home building industries. Despite this, there are substantial opportunities for US DF sawmills to establish direct supply relationships with medium-sized regional homebuilders and larger national homebuilders. These homebuilders have become extremely cost conscious in the past decade and many expressed interest in purchasing building materials directly from US sawmills as a way to reduce distribution channel costs and improve product quality.
In addition, there is a good opportunity to export kiln dried DF glulam lamina to glulam manufacturers in Japan . This is particularly true if the US industry were to promote DF glulam hirakaku as a superior product to either European whitewood or redwood glulam. However, it would be important for US lamstock producers to resolve the forward pricing issue that currently provides European glulam manufacturers with a competitive advantage. There is also an opportunity to export lamstock produced from other species as well. For example, Alaska yellow cedar lamstock for glulam sill plates ( dodai ) and Sitka spruce for glulam hirakaku. Further research would be required to develop a better assessment of the potential for exporting lamstock to Japanese glulam manufacturers.
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Authors: Indroneil Ganguly and Ivan Eastin
The United States residential construction industry, traditionally the largest end-use market for softwood lumber, has been undergoing a period of change for more than a decade. Builders' acceptance of substitute materials and new innovations has increased, providing a unique challenge to softwood lumber producers. In such a situation, understanding the ways in which residential builders specify and use softwood lumber and lumber substitutes is essential to the success of any softwood lumber manufacturer. The Center for International Trade in Forest Products (CINTRAFOR) completed its first study on material substitution in 1995 (CINTRAFOR Working Paper No. 57), providing a benchmark for softwood lumber use in structural applications in residential construction.
This was followed by surveys looking at material use in 1998 (CINTRAFOR Working Paper No. 73) and 2001 (CINTRAFOR Working Paper No. 93). The current study, undertaken in 2005, represents the fourth in this series and is intended to describe the trends in material use and substitution in the residential construction industry in 2004. The 2005 survey also explores builders' awareness, usage and perceptions of certified softwood lumber and sets a baseline for tracking certified lumber usage in residential construction.
In 2004, single family construction accounted for over three-quarters of construction firms' revenue. The larger firms reported a high proportion of new single family housing than their smaller counterparts. Additionally, there appears to be a negative relationship between firm size and the amount of revenue generated from repair and remodel activities. These findings are consistent with previous survey findings. The 2005 survey also reveals that the larger firms are more involved in non-residential construction. Builders in the southwest region of the US reported significantly less involvement in the repair and remodeling sector and significantly more involvement in the non-residential sector. The share of single family construction reported by builders was found to be consistent across all regions.
A longitudinal analysis (from 1998 to 2004) of substitute material usage revealed that the largest changes occurred in the usage of glulam beams, LVL, steel framing, wood I-joists, open-web trusses, and structural insulated panels, with wood I-joists, LVL, steel framing and glulam beams recording significant decreases between 2001 and 2004. In contrast, structural insulated panels, panelized wall systems and open-web trusses have experienced an increase in use since 2001. Survey respondents in the southeast and southwest regions of the country reported a steady increase in their usage of finger jointed lumber between 1998-2004. However, the usage of finger jointed lumber nationally was found to be constant over this period. The usage of glulam beams decreased substantially in the eastern US while remaining fairly constant in the western US. Nationally, glulam beams recorded the largest drop in reported use (12.6%). Use of wood I-joists declined across all regions, with the exception of the northwest, as solid wood joist prices moderated. In addition, use of Parallam TM remained relatively constant between 1998 and 2004, whereas the use of TimberStrand TM lumber increased in the western US while declining in the eastern US. The use of non-wood material substitutes (steel framing and reinforced concrete) generally declined in the southern regions and increased in the northeast.
An analysis of material usage within specific end-use applications revealed that softwood lumber use has either increased or remained relatively constant in all applications with the singular exception of load bearing walls. For headers, wall framing and roof framing applications, softwood lumber remained the dominant material with a market share of more than 70% in each application. For floor framing, the market is split between softwood lumber, wood I-joists and open-web trusses. However, it should be noted that for all structural applications, softwood lumber recorded the largest market share. The market share for softwood lumber increased in floor and
roof framing applications, remained constant in header and non-load bearing wall applications and declined in load bearing wall applications. In wall framing applications, none of the substitute materials had a market share of more than 6% whereas softwood lumber (both solid sawn and finger-jointed studs) enjoyed a market share of approximately 88.3% and 80.9% in non-load bearing and load bearing wall applications, respectively. The usage of softwood lumber in floor framing increased from 39% in 2001 to 43% in 2004, making softwood lumber the primary material for floor joists. Significantly, the market share for wood I-joists in flooring applications (its major market) declined by almost 12%. The use of wood trusses for roof framing has experienced a steady increase since 1995, rising from a market share of 46% in 1995 to 53% in 2004.
Builders rated strength, straightness, lack of defects and the availability of softwood lumber as the most important attributes of softwood lumber; a result that has been consistent over the course of the four surveys. The importance ratings for two attributes, price and price stability, have begun to decline in importance. On a positive note, home builders consistently expressed higher satisfaction levels with all of the softwood lumber attributes in the 2005 survey. A review of the data shows that the respondents consistently recorded higher satisfaction levels for all the softwood lumber material attributes between 2001 and 2004. The 2005 survey also marks the first time that builders indicated satisfaction with two important softwood lumber quality attributes: lumber straightness and lack of defects. In all of the previous surveys, builders had consistently indicated dissatisfaction with both of these attributes. The fact that straightness and lack of defects are ranked as two of the most important lumber attributes, combined with the large increase in the satisfaction ratings for both of these attributes, suggests that builders have begun to view softwood lumber as a much better value over the past several years.
It appears that builders are becoming more conscious of the environment and that this is beginning to influence the types of materials specified by some builders. Unfortunately, builders are receiving mixed messages about the environmental performance of non-wood materials. The results of this survey suggest that builders perceptions of the environmental performance of non-wood materials improved slightly between 2001 and 2004 whereas it decreased substantially for wood-based structural materials. With the exception of SIP's, all of the substitute materials are considered to be more enviromentally friendly than softwood lumber. This result sugggests that it is important that the forest products industry in general, and softwood lumber manufacturers in particular, continue to educate builders about the environmental benefits of using wood relative to non-wood materials.
A new section of the 2005 survey considered home builders awareness and use of certified lumber. The results of the survey showed that only 40% of homebuilders indicated that they were aware of certified wood. On average, only about 14% of homebuilders indicated that they have used certified wood. Among the users of certified lumber, the average percentage of homes framed with certified lumber was approximately 50%. Almost 15% of the builders who have used certified wood reported that they framed all of their houses with certified lumber.
Further, in looking at certified wood awareness and use within individual states, it was noted that awareness of certified wood was much higher in the states along the west coast of the US relative to states in the central and eastern US. About 77% of builders surveyed on the west coast reported that they were aware of certified wood products. Similarly, among the builders who were aware of certified wood, the percentage of builders who actually used certified softwood lumber was also much higher for builders in the west coast states (70%) relative to builders in other parts of the country. Previous research has shown that the willingness of customers to pay higher prices for certified wood plays a major role in the usage of certified lumber. This research shows that only 17% of the respondents in the eastern states and 29% of the respondents in the central states believe that their customers would be willing to pay higher prices for homes built using certified wood products. The percentage for respondents in the west coast states was higher at 50%. These survey results suggest that the awareness and usage of environmentally certified wood among builders is much higher on the west coast relative to the rest of the country.
The survey results suggest that in the future large home builders may well lead the effort to increase the use of certified wood in building homes. This observation is based on the fact that 67% of large builders have heard of certified wood (this represents the largest segment for this question), 43% have used certified wood to build homes (this is the second largest segment for this question), 50% think that their customers would be willing to pay a premium for a home built from certified wood (this represents the largest segment for this question) and 75% expect that their use of certified wood will increase in the future (this represents the largest segment for this question). Further research is needed to understand home builders' motivation for using certified wood and to
explore the relationship between the use of certified wood and regulatory factors (such as green building codes and efforts to improve the energy efficiency of residential homes).
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Authors: Jeff Cao, Rose Braden, Ivan Eastin and Jeff Morrell
As China’s economy has grown and personal income has risen over the past decade, spending on landscaping and public works projects has increased dramatically, and with it China’s demand for treated softwood lumber. New luxury residential developments commonly include traditional Chinese landscape design, which includes man- made lakes and waterways traversed by footbridges and flanked by wooden fences, gazebos, and pavilions with decks. Government projects to revitalize shopping areas and tourist destinations has boosted demand for high- quality US treated southern yellow pine (SYP) lumber used to build walkways, bridges, stages, and landscaping elements.
Treated softwood lumber is a relatively new product in China, yet imports have increased steadily over the past several years. However, as demand for treated softwood lumber has increased, the number of domestic wood treaters has also increased. These new Chinese lumber treaters pose a competitive threat because many produce poor quality treated lumber which threatens to undermine the good reputation that US treated SYP has established.
This research is intended to provide US suppliers with a description of the Chinese treated softwood lumber market and strategic marketing recommendations. This report is based on information collected through interviews with treating plant managers, softwood lumber distributors, and other industry experts. Additional information was collected from surveys completed by Chinese architects, distributors, and other construction professionals.
The report consists of four parts: 1) an overview of the China’s wood preserving industry, 2) a description of the Chinese treated softwood lumber market, 3) results of surveys about user perceptions and attitudes about various treated softwood lumber species used in China, and 4) strategic implications for US manufacturers, exporters and industry associations.
Key findings include the following:
Chinese manufacturers follow international environmental standards as a means of accessing international markets, interest in environmentally-friendly treating chemicals should increase. Survey responses indicate that Chinese construction professionals rate the importance of environmentally-friendly treating chemicals fourth highest in a list of ten quality and service attributes associated with preservative treated softwood lumber. With no regulatory body however, the majority of Chinese treaters will likely use substandard preservative treating chemicals and treating procedures to keep product costs low.
construction professional’s awareness of the superior performance and durability of softwood lumber that has been properly treated to international wood treating standards. The results of this research clearly demonstrate that there is a brand awareness of US preservative treated southern yellow pine as the “gold standard” of treated softwood lumber products in the Chinese market. Like any successful branding effort, the rapid development of the preservative treated softwood lumber market has spawned low-cost domestically treated products with inferior performance and poor durability. Often, domestically treated SYP is marketed as US-treated SYP. In other cases, pine from South America is marketed as US SYP. In a price sensitive market like China, where markets tend to move towards a commodity focus, it is hardly surprising that these domestically treated, low-priced products have gained a surprising degree of market success.
The success of these inferior treated lumber products threatens to undermine the entire market for treated softwood lumber if consumers associate the poor performance and low durability of this domestically produced inferior treated lumber with all treated softwood lumber. To the extent that US preservative lumber
manufacturers and exporters allow the commoditization of treated softwood lumber, they stand the risk of having US treated lumber be subject to consumer perceptions based on the poor quality of domestic Chinese treated lumber. From a marketing perspective, it becomes important that the US industry adopt a branding strategy that allows consumers and end-users to differentiate high quality US treated lumber from low quality domestically treated lumber. Thus, it is imperative that the US treated lumber industry work with industry associations and their Chinese distributors to implement a promotion and education strategy to differentiate US preservative treated lumber from competing products.
Fundamentally, this marketing strategy would help prevent the commoditization of US treated lumber in the Chinese market and ensure that the poor performance of domestically treated lumber in China does not adversely affect the reputation or demand for US treated lumber. Failure to do this would seriously jeopardize the market for US treated lumber in China.
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Authors: Adam Lewis, David Layton and John Perez-Garcia
This study is a meta-analysis of contingent valuation studies of rare and endangered species. The study seeks to measure non-market benefits in order to inform the limits and allowances of environmental policies. It follows a similar analysis performed by Loomis and White (1996) and employs methods developed in Layton and Lee (2006) and Buckland et al. (1997). We estimated 38 different reasonably likely models using linear and loglinear specifications. The models were then weighted according to their relative statistical fits using two criteria: the small sample size corrected Akaike's Information Criterion (AICc) developed by Hurvich and Tsai (1989, 1995), and the Bayes Information Criterion (BIC). The models reflect how well they explain the variation in willingness to pay both WTP and model economy. Use of the model-averaging approach reflects the considerable uncertainty regarding which specific model to choose. The model-averaging approach effectively broadens and makes explicit the implicit model testing process that researchers commonly pursue when determining their final models for reporting. Monte Carlo simulations were used to simulate the confidence interval for the model-averaged expected willingness to pay (EWTP).
Overall, the two criteria using the linear specification allocate weight quite similarly. Both criteria place the majority of the weight on one model. All models selected by either criterion include a variable indicating whether the survey was administered in person, by mail or by phone. With the loglinear models, the AICc and BIC criteria again allocate model weight similarly, and both allocate the most weight to a single, but different model than under the linear specification. As was the case in the linear WTP models, the loglinear models selected by the AICc are essentially a subset of the models selected by the BIC. The R-squared results for the loglinear models are higher than those of their linear counterparts. Both specifications suggest a change in the values for WTP over time. Both specifications exhibit a positive and large coefficient for phone surveys. Both specifications resulted in a significant indicator of using taxes as a payment vehicle rather than a donation or membership.
The overall results of the models revealed a consistently significant positive effect on WTP for the linear model that conducted the survey by phone, used taxes as a payment vehicle, and included protection of multiple species. Conducting the survey by phone, focusing on charismatic megafauna, maintaining current land protections, using taxes as a payment vehicle, asking for a one time payment and protecting multiple species generally had a significant positive effect on WTP for the loglinear models. The most prominent difference between model classes is that the loglinear models consistently returned the fish species indicator as negatively significant and the megafauna indicator as positively significant, whereas none of the linear models found these variables to be significant.
Three scenarios were created in order to simulate a distribution of observations from which we can obtain an estimate and confidence interval for WTP. The 3 scenarios analyzed were: an increasing the population of Chinook salmon, preventing the extinction of Orca whales and preserving old-growth forest for the Northern Spotted owl. There was considerable variability in the estimates of WTP both within scenarios and between them for the linear models. The loglinear models also displayed considerable variability in the estimates of WTP both within and between scenarios. The AICc weighted confidence interval was tighter than that of the BIC in five of the six scenarios across the two model classes.
A comparison of WTP estimates with original study estimates revealed that the salmon estimate of the loglinear AICc was higher, the marine mammal estimate was very similar, and the spotted owl estimate was considerably lower than the results of their corresponding valuation studies. Overall the meta-analysis model results confirmed earlier findings that endangered species CV studies can provide estimates that are sensitive to frequency of
payments and insensitive to WTP question format, and that respondents' value protection of multiple species more than that of a single species.
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Authors: Indroneil Ganguly and Ivan Eastin
The economic liberalization policies initiated in 1991 have led India along the path of increased economic growth and greater macroeconomic stability. Real GDP growth averaged 6% over the period 1997-2001, exceeded 8% from 2002-2005 and is projected to be about 9.2% in 2006. This rapid economic growth has been supported by a loosening of trade restrictions which have contributed to a rapid increase in both imports and exports. Between 2000 and 2005, imports increased from $US50 billion to $US149 billion while exports increased from $US36 billion to $US103 billion. Future economic growth may be tempered by rising inflation, which is projected to be almost 7% in 2006, and rapidly increasing wage rates for skilled labor. For example, food price inflation rose by 10% in 2006. In addition, poor infrastructure (especially roads, ports and electrical power distribution), restrictive labor laws and poor quality public services (especially in education and health) also pose serious challenges to continued high levels of economic growth in India . It is estimated that almost 40% of India 's fruit and vegetable harvest rots before reaching market due to inadequacies in the transportation and electrical distribution infrastructure. India will continue the process of opening its economy due to the fact that it must create on the order of 15 million new jobs every year simply to provide employment for young people entering the job market. However, future economic growth is dependent on reducing (and eventually eliminating) subsidies and providing improvements in the road and electrical distribution infrastructure, particularly in the rural areas of India .
The forest cover in India is estimated to be 637,293 km 2 ; 19.4% of the total land area. India 's forests are mostly state owned; only 10% of the forests are classified as community or private forests. A recent survey by domestic and international organizations revealed a moderate increase in India 's forest cover. Forest plantations play a very important role as a source of raw material to the domestic wood-based industry. Since adopting the National Forest Policy of 1988 (NFP), there has been a ban on the felling of trees in all forests located above an altitude of 1,000 meters. In addition, high priority has been given for planting fuelwood and deciduous fodder producing trees in government forests. Finally, industrial wood production was restricted to farms and wastelands. As a result, there was a drastic reduction in timber harvest volumes as a number of states stopped timber harvesting and a ban was announced on all harvest operations in the national parks and protected sanctuaries.
The NFP emphasized meeting the fuelwood, fodder and small timber needs of local communities rather than the raw material requirements of the wood-based industry. It should be noted than even before the NFP was implemented in 1988, the existing forest policy was more conservation oriented than industry oriented. The raw material crisis for the wood-based industries became more acute following the adoption of the NFP. As a result, the forest-based industries have had to increase their dependence on private forests and bamboo from natural forests (bamboo harvesting from natural forests is permitted) for their raw material supply. Though large reforestation programs were proposed in conjunction with the NFP budget, constraints prevented the forestry department from meeting the reforestation targets. To meet the community demand for fuelwood, small timber plantations were designed which provided timber products that were less useful for industry. In order to improve the availability of raw materials, the NFP proposed the liberalization of log, chips and pulp imports.
The Indian forest products industry, both the wood products sector and the paper and paperboard sector, have been constrained by severe raw materials shortages. This raw material shortage for the forest products industry has been further accentuated as a result of a Supreme Court ruling limiting the felling and movement of timber within the country. In an effort to alleviate the raw material shortage, the forest products industry is increasingly relying on imported logs, chips, wood pulp and waste paper. Hence, for the wood-based industries, imports have become a very important component of their raw material mix.
The graduated structure of tariffs applied on wood product imports clearly indicates that the Indian government encourages the import of unprocessed lumber that can be used by the wood-based industries as raw material inputs. Higher tariff rates are imposed on imported finished and value added products to protect the less efficient domestic manufacturers from international competition. In addition to the basic import tariffs, India also imposes duties such as surcharges, additional customs duties and special additional duties. Other additional levies can be imposed on imported wood products depending on the nature of the product. These additional levies include countervailing duties, anti-dumping duties and safeguard duties. Other non-tariff barriers include state taxes, which can be as high as 18% of the value of imports and various port of entry restrictions which might add up to a large mark-up on imported items. Such tariff and non-tariff barriers by the government make imported products less competitive in India . Over the past decade the tariff rates and the non tariff barriers have been reduced dramatically and India has started importing large volumes of forest products.
Indian trade in forest products has increased tremendously over the period 1999-2005. This is in response to both the decline in the domestic timber harvest as well as the increased demand for wood products within the domestic wood processing industry. Over the period 2000-2005 Indian exports of wood products jumped from $US30 million to $US99 million, a 230% increase. In contrast, imports of wood products went from $US528 million to $US957 million, an 82% increase over the same period. As a result, India saw its balance of trade in wood products worsen from $US498 in 2000 to $US858 million in 2005. It is important to note that over 88% of India 's wood imports were logs, primarily from Malaysia and Myanmar .
Housing has long been neglected in India 's national 5-year plans. The unfulfilled demand for housing was estimated to be approximately 50 million units in 2001 and was projected to be increasing at a steady rate. This housing shortage stems from a lack of government funding and the inadequacy of financial institutions, coupled with an increase in building material, labor and land costs. In the tenth five-year plan, from 2002 – 2007 special emphasis has been given to the housing sector and some state governments have announced a target of achieving “shelter for all” by 2012. Efforts have also been made to reform the allied institutions in an attempt to provide support to the housing sector. The government is beginning to view the housing sector as a very important driver of economic expansion and increased employment. These new initiatives by the government and the huge latent demand for housing, coupled with an expanding economy, should result in higher housing starts in the country over the next decade.
The middle class population in India , which is almost the size of the US population, is becoming more exposed to the western life-style and is showing an interest in western style doors, windows and kitchen cabinets. India has a centuries old tradition of wood use, particularly for interior design and furniture. Although structural wood is rarely used for construction, outside observers have noted that India uses more interior wood than Japan . Recent estimates suggest that the market for high end imported value-added wood products is increasing steadily as a result of continuing economic prosperity in India . This represents one of the largest emerging markets for value-added wood products in the world. New residential construction, primarily multifamily units, are increasingly going to standardized sizes for doors, windows, and interior fittings. This has led to an increased demand for imported doors, windows and cabinets. The total annual demand for furniture in India is estimated to be $US1.25 billion of which 90% is for wooden furniture. The market for branded (higher quality) wooden furniture is estimated to be $US37 million and growing at an annual rate of 15%.
Imports of wood products into India have been growing rapidly, although the demand for wood products is heavily skewed towards raw materials such as logs, chips and pulp. While the middle class in India is growing and becoming more open towards using imported value-added wood products, much work needs to be done to take advantage of this demand. For example, India must accelerate their rationalization of import tariffs and remove those non-tariff barriers designed to protect inefficient domestic manufacturers from international competition. This will not only ensure compliance with their WTO obligations but will also force the domestic processing industry to invest in more efficient processing technologies. In addition, there remain long-term opportunities to introduce North-American wood frame construction technology in India . The combination of a severe housing shortage and interest in developing energy efficient housing both provide impetus for working to gain acceptance for wood frame construction. However, in order to achieve the successful introduction and adoption of wood frame construction it is important that the US government and industry associations work with the Indian government to develop and adopt wood frame building codes. Finally, acceptance of wood frame construction technology is dependent on increasing the familiarity and understanding of this construction technology within the architect and construction communities. A key element to gaining this acceptance could be in educating architects and residential builders on the superior environmental performance and energy efficiency of North-American wood frame construction technology.
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Authors: J. Kent Barr and John Perez-Garcia
The Washington State Department of Natural Resources (DNR) manages 2.1 million acres of timberland. Timber harvested from these lands has averaged 12 percent of Washington 's total annual timber harvest level from 1989 through 2003. Management plans have incorporated more ecosystems goals such as promoting ecosystem health, habitat conservation, and increasing the structural complexity of the timberland. The management plan adhered to by the DNR will likely result in more heterogeneous stands of timber and thus timber sales of more heterogeneous saw timber.
The goal of the study was to examine how the diversity of saw timber in a given timber sale impacted the final sale value in lump sum sales of western Washington . Saw timber diversity was defined by the distribution of volume among different species and saw log grades in a given sale. Prior research predominately located in the
U.S. South had shown a reduction in timber sale value as sales included a greater level of saw timber diversity. This result is based on the theory that increasing transaction costs associated with the processing of more heterogeneous stands led to a less desirable timber sale characteristic per sale. These processing costs include harvesting, sorting and the reselling of undesirable timber.
The study focused on lump sum state timber sales in western Washington . Lump sum sales require prospective buyers to bid on the right to harvest an entire timber sale. A parcel is first advertised and then auctioned as one unit, establishing a fixed payment for the timber sale by the winning bidder. Since this method of sale requires the buyer to purchase and harvest all timber advertised in a sale, it can result in forcing buyers to purchase timber species and saw log grades that they have little or no interest in. This rationale led to the hypothesis that a negative relationship would be observed between increasing saw timber diversity and the final sale value of lump sum timber sales in the data. The detailed inventory information provided by the DNR enabled the calculation of an index value for saw timber diversity that could be used as a metric in empirical examination of the relationship between diversity and the final sale value.
A diversity variable was created to facilitate examination of the impact increased heterogeneity of saw timber in a tract has on the final sale value of lump sum timber sales. This required the calculation of a diversity variable that would account for the species and grade characteristics of each individual timber sale. To this end the Shannon- Wiener index was selected as the best method for calculating this variable. It was an appropriate choice for this data because it could be calculated using the detailed inventory information. In this research stand diversity or heterogeneity applied only to the species of trees and log grades that were included in the timber sale data.
Wildlife and other facets of a timber stand were not included in the calculation of the diversity index.
The diversity index created had a range of 0 for a completely homogeneous timber sale to 3.689 for a completely heterogeneous timber sale. Slightly less than 800 sales had values from 1.4 and 1.7. Another 700 sales included values from 0.7 and 1.3. About 500 sales had values from 1.8 to 2.2. The remaining sales were distributed above and below these ranges. A total of 2194 sales were included in the study.
Other variables examined in the model to explain the final sold value of the timber sale included the total number of bidders on a timber sale, the total acreage of the timber sale, the contract length of the timber sale, the total number of miles of required road reconstruction, the Douglas fir volume of the saw log grades P, 2P, 3P, SM, 1S, the Douglas fir volume of the saw log grade 2S, the Douglas fir volume of the saw log grade 3S, the Western Hemlock volume of the saw log grades P, 2P, 3P, SM, 1S, the Western Hemlock volume of the saw log grade 2S,
the Western Hemlock volume of the saw log grade 3S, all other volume included in the timber sale, and the WWPA lumber index price of Douglas fir. During the process of model fitting a diversity measure of the timber sale accounting for only the distribution among eight possible tree species and a diversity measure of the timber sale accounting for only the distribution among the five possible saw log grades were used in alternative model comparisons.
The final sold value of a timber sale in U.S. dollars represented the winning bid of a timber sale. By including the volume found in the three highest grades of both dominant and co-dominant species, as well as the other sale volume on the right hand side of the equation, the problem of scale with respect to the dependant variable was alleviated. In other words, the existence of large bid values skewing estimates simply due to large volumes was eliminated.
Seven models were estimated with alternative sets of independent variables. There was consistent evidence that the final value of DNR timber sales located in western Washington were negatively influenced by increases in the level of saw timber heterogeneity over the period of study. Heterogeneity among tree species was found to impact final sale value more than heterogeneity among saw log grades. A possible reason for this result is that commodity producers generally focus on a tree species or a certain range of grade classes. For instance a sawmill may be best geared to mill #2 and #3 saw logs, or perhaps a commodity producer uses only Douglas fir in the manufacture of its products. Increasing heterogeneity of saw timber in a lump sum framework forces these bidders to bid on greater volumes that they are not interested in and may in fact have to resell. This is believed to be viewed negatively by bidders as an additional cost of doing business. Alternative theories are likely to exist as well that can increase the cost of harvesting and marketing logs.
The impacts of saw timber heterogeneity are not well serviced by the lump sum method of timber sale. Timber sales in which greater levels of saw timber diversity are observed may return greater revenues to the DNR if another method of sale is instituted. Additional empirical work on heterogeneous timber sales focusing on how the DNR can create bundles of timber from these sales attractive to different bidders would be pertinent.
In addition to the effect of saw timber diversity, this study found significant evidence that an increased pool of bidders and therefore increased competition for a timber sale had a positive impact on the market value. However, the data indicates that the level of competitiveness declined over the period of study. The existence of a competitive framework among bidding firms is a key to achieving a final timber sale value at or near its true market value. Declines in the average number of bidders on timber sales in the data set may be caused by a number of factors. Regardless, these declines may be cause for concern and further research into why they are occurring and what can be done to alleviate the impacts would be relevant.
The total acreage of timber sales in the study region displayed diseconomies of scale. While this result was not predicted, it is not uncommon in the literature. Munn and Rucker (1995) and Boltz et al. (2002) both found significant evidence that parcel size negatively impacts final sale value. However, this variable presents a clear focus for future study to explore why increasing parcel size results in reduced final sale value in western Washington . In understanding the implications of this variable it is important to consider who purchases DNR timber and industry shifts over the period of study.
Research regarding how the DNR could increase the number of bids offered on its timber sales and alter its methods of sale would also be valuable. While increasing the competition among bidders is a good way of increasing the timber revenues annually generated by the DNR's timber sale program, mill consolidation in the state of Washington suggests that there may not be a lot of room for this to occur. Additionally, the DNR would not want to adversely impact business relationships it has developed with large commodity producers. They represent a steady demand for the states timber as well as important sources of employment. Future economic research is needed to determine the feasibility and impact of attempts to improve competitiveness and marketing of DNR timber sales.
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The Potential Trade and Competitive Implications of Alternative Approaches for Harvested Wood Products
Authors: John Perez-Garcia, J. Kent Barr and Hideaki Kubota
Forests play three central roles in the carbon cycle. Forests act as sinks and sources of carbon. Second, harvested wood products (HWP) from forests store carbon over their life cycle. Third, wood products conserve fossil fuels through energy substitution and by their lower fossil-fuel usage during their manufacture. International governmental bodies have recognized these roles in their discussions. The current United Nations Framework Convention on Climate Change (UNFCCC) methodology used to prepare national greenhouse gas (GHG) inventories provides the suggested default assumption that all forest biomass harvested be recorded as an immediate source. Additionally, the convention also recognizes that the wood product sink can be included if it can be documented that existing stocks are increasing. Our study focuses on the second role -- HWP and their function in forest carbon accounting.
Past studies estimated carbon additions and emissions under alternate accounting approaches and analyzed their impacts using case studies. We calculated the emissions associated with three alternative approaches for 30 regions comprising the global forest sector and reported results for the globe and regions. We briefly investigated alternative methods to calculate the additions and emissions under alternate approaches by examining the sensitivity of alternative assumptions on landfill pools. We also investigated economic implications associated with the alternative approaches by imposing costs on the global forest products industry for national emissions of the forest carbon account.
Three approaches to calculate stock changes and estimated emissions associated with HWP proposed by IPCC are the stock change approach, the production approach and the atmospheric flow approach. The stock change approach estimates the net annual change in carbon stocks in the forest and wood products pool within national boundaries. Briefly stated, stock changes in the forest pool are accounted for in the producing country. Stock changes in HWP pool are accounted for in the consuming country. The production approach also estimates net annual changes in the forest and HWP carbon stocks. Producing nations account for forest stock changes and the changes in carbon from HWP that came from domestic harvests including exported wood products. The atmospheric flow approach estimates carbon flows between the atmosphere and the forest and HWP pools within the national boundary. Producing nations account for forest growth carbon and consuming countries count emissions from wood and wood products.
We examined the overall effect of the approaches on national emissions to compare the results to those obtained using the IPCC default. For sake of clarity, we divided the national account into the forest account and the HWP account. All that we were interested in the forest account was that portion of emissions calculated by measuring stock changes affected by the HWP accounting approaches.
Within each accounting approach there may be more than one estimation method that can be applied with different levels of complexity, depending on data availability. Two examples are alternative assumptions on the fraction of wood product leaving the in-use pool every year and degrading half lives. We examined the sensitivity of IPCC good practice guidelines default assumptions changing the default parameters associated with half-lives of discarded products. Other sensitivities are possible given the data base created but not pursued for this study.
We used an economic model of global forest sector to extend the calculations of carbon emissions under the different approaches to 2016. Economic equilibria to production, consumption, traded volumes and prices were calculated for coniferous and non-coniferous sawn wood and plywood. We maintained industrial roundwood
material balances in the production of these products using estimated input/output coefficients such that equilibrium amounts produced, consumed and traded for saw logs were also calculated for the years 2004 to 2016. Projections of other panels and paper and paperboard products and their use of industrial roundwood were required as input by the economic model so as to maintain material balances at the roundwood level. Paper and paperboard projections were made using estimated income elasticities and gross domestic product (GDP) projections differentiated regionally.
Scenario assessment was employed to examine the trade and competitiveness implications associated with alternative approaches. We imposed a cost in the country in the form of an emission tax. The tax level was determined by using the calculated forest sector removals/emissions for the default and three alternative approaches. The impact of the emission tax for each approach was then compared with the IPCC default approach. We chose to limit the analysis of economic impacts to the softwood lumber sector since other wood product sectors accounted for in the model do not use equilibrium methods to determine stock inflows in response to a cost increase. We investigated a carbon price of $10 and $35 per tonne of CO 2 .
We summarize our conclusions as follows.
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Authors: Jeff Cao, Rose Braden and Ivan Eastin
In recent years, China has become a vital market for many US wood exporters. Now the fourth largest export destination for US wood products, exports from the US to China have increased an average of 30 percent per year over the past 10 years. From 1999-2004, US exports of softwood lumber increased from $1.2 million to $27.5 million and exports of hardwood lumber increased from $29.9 million to $150.8 million. While China predominately imports raw materials, exports of value-added products are increasing. For example, in 2004, US suppliers exported almost $4 million in builders’ joinery to China, replacing Canada as the leading supplier. Sales of wood furniture from the US are also increasing. Between 1999 and 2005, wood furniture exports from the US increased from $1 million to $6.8 million.
China’s plentiful supply of cheap labor and comparatively low capital costs have made it arguably, the world’s workshop. China consumes billions of dollars in raw materials and re-exports even more in value-added wood products. As the world’s third leading importer of forest products, China has inevitably drawn the attention of the supplying nations and competition for China’s business has become intense. Russian and Canadian suppliers dominate China’s softwood lumber market and Southeast Asian suppliers are extremely competitive in China’s hardwood market. US companies, however, are competitive suppliers of high quality raw and finished building materials. For US suppliers to maintain and improve their competitiveness in China however, they must understand what US products are in demand, the sales process, the distribution system, and their competition.
While raw materials, such as logs and lumber used in China’s furniture factories, remain China’s leading wood imports, the country is rapidly transitioning from a raw materials market to a diversified market with rising demand for value-added imports. Locally produced building materials dominate the regionally fragmented and price-sensitive market, yet US building materials are making inroads into certain niche markets. Yet, China remains a challenging market that can easily consume exporters’ time and money. In order to improve their competitiveness, US suppliers must identify appropriate niches for their products, navigate through thousands of specifiers, and negotiate a fair contract. In addition to understanding market opportunities and competition, exporters must understand the markets for US products and how to introduce products into these markets.
This report presents information about opportunities, market size, factors affecting competitiveness, and makes recommendations for improving competitiveness and product positioning. These issues will be discussed throughout this paper and suggestions will be made to help US suppliers enter the Chinese market and increase their sales in China. Distribution systems for raw materials and value-added building materials will be presented and the purchasing process used by developers and contractors will be discussed. The information used for this report is a combination of secondary trade data and primary information derived through in-person interviews
Conclusions and Recommendations
Understanding government policy and directions of investments is critical for firms with long-term resource commitments in China. Although the Chinese government readily embraces the capitalist ideology, a number of housing developments are controlled by local government agencies and China has yet to develop an open exchange of information. Therefore, good relations with government officials and large real estate companies are extremely helpful for firms in obtaining project and bidding information. Most, if not all of the successful US building materials exporters spend a great deal of time developing contacts in government offices to learn about new government housing development contracts.
Over the past decade, China has invested heavily in fixed assets to maintain the country’s recent level of economic growth. According to the Eleventh Five-Year Blueprint (2005-2010), the central government will recommit investments to “building a harmonious society” by improving people’s living standards, particularly those of rural and low-income individuals. Therefore, analysts expect housing developments for middle- and upper-income consumers will gradually slow and subsidized affordable housing projects will increase. Land use restrictions for single family developments were expected to limit the number of luxury developments, but most of the large builders have already secured enough land with permits to enable them to continue to build.
Maintaining market presence is critical. Most US firms don’t have inventory capacity in China and are selling their products via a variety of intermediaries such as: trading companies, sales offices, timber markets, distributors and home centers
Key findings of this report include: 1) policies enacted to achieve an economic “soft-landing” after years of double digit economic growth could curtail demand for housing and wood-based building materials, 2) distribution channels vary greatly depending upon the product and region, 3) distribution channels for value- added products are more complicated than those for raw materials, 4) long lead times and high prices hinder US suppliers’ ability to compete with domestically produced building materials, 5) locating an aggressive local partner has an important influence on export success, particularly for technical products (e.g., treated lumber and wood windows) where technology transfer programs are required to educate builders, developers and architects, and 6) although competition from domestically produced building materials is intense, there are niche-market opportunities for hardwood lumber, hardwood veneer, windows, engineered roof truss systems, glulam bridges, treated lumber and naturally durable species, and high-end fine furniture from the US.
Hardwood lumber and hardwood veneer
While wages in China are increasing, China still has an ample supply of low-cost labor to fuel its value-added wood manufacturing plants, which will continue to drive demand for US hardwood and softwood lumber. US red oak, cherry, alder, maple, and walnut are among the most popular species for furniture manufacturing in China.
Yellow poplar lumber and cherry veneer are also in high demand, due to an increasing shortage of supply. The American Hardwood Export Council (AHEC) has predicted double-digit export sales growth in the Chinese non- structural markets over the next few years.
US wood windows have many advantages over their competitors in China, including high energy efficiency. As the Chinese government promotes energy-efficiency in buildings and building materials, Chinese window manufacturers face rising costs and high market-entry barriers with respect to window technology, quality and performance. The current market for wood windows is high-end villa projects located in the major Chinese cities. However, in the future, rapid urbanization is likely to provide new opportunities in second tier cities such as Chongqing and Nanjing.
Engineered Roof Truss Systems
As a major part of the government’s campaign to renovate older urban districts, flat roofs of aged residential buildings are to be replaced with sloped roof systems. Slope roof modification has many advantages over flat roofs, including energy-efficiency and visual appeal. For most Chinese people, it is also a design that provides increased storage and living space in the house. This initiative could provide market opportunities for US engineered roof and truss systems.
Glulam Bridges and Beams
Outdoor applications such as bridges may be an opportunity since local wood is generally of lower quality compared to imports. Current uses for glulam timbers include bridges and clubhouses in upscale golf course developments as well as structural components in the outdoor walkways built around the water features that are becoming more prevalent in upscale residential developments.
Treated SYP and naturally durable species
Although competition is intense in the treated lumber market, there is a potential for US treated softwood lumber if the market is well educated and US standards are well recognized. Critical to the success of this product market
is educating Chinese construction professionals about the importance of proper lumber treatment on the long-term durability and performance of treated lumber. This is particularly challenging given the price sensitivity of this market. Another option is the use of naturally durable wood species such as western red cedar, Alaska yellow cedar, eastern white cedar and redwood. While these species provide attractive options for builders, availability and cost can be an issue.
High-end fine furniture
Import tariffs on furniture imports were totally removed in 2005. US furniture brands, such as La-Z-Boy and Ethan Allen, can already be found at the retail level in major Chinese cities. Buyers of imported furniture are largely limited to overseas expatriates and upper income Chinese who are pursuing western lifestyles. With China’s increasing integration into the global economy, and continued economic growth, this high end segment of the market is expected to increase substantially.
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Authors: John Perez-Garcia, J. Kent Barr, Jean M. Daniels
The study produced an assessment of the lumber manufacturing sector. It analyzed the changes in this sector and its relation to timber harvest levels. The study's objective was to determine whether Washington 's sawmilling sector can expand or not, given a projection of future timber harvest levels.
We analyzed the Washington State Department of Natural Resources mill surveys from 1968 to 2002. The analysis first defined five timbersheds in western Washington and two timbersheds in eastern Washington . The study then focused on an analysis of capacity utilization by the sawmilling sector. We produced trends of utilization rates and discussed potential reasons why the rates have changed over time and among timbersheds. Periods of high prices were related with periods of high utilization rates, with exception. During the 1980's, there occurred a shutdown of capacity that improved the average utilization rate for the sector following a collapse of high lumber prices in 1979. Currently, the average utilization rate is at historically high levels as one might expect given the strong U.S. housing sector. Lumber prices have recovered from a short period of lower prices, and they are currently at near-high levels providing impetus to the high capacity utilization in the sawmilling sector. We also found differences in the utilization rates among the timbersheds, and they are presented in the body of the report.
We followed the capacity utilization analysis with an assessment of log consumption. Log use by the sawmilling sector within respective timbersheds was compared with the timber harvest level. Except for the South Coast, Southwest and eastern Washington timbersheds, sawmills were now, by far, the main consumer of the harvest level. Substantial amounts of saw logs continue to move from one timbershed to another. In 2002 approximately 600,000 mbf of timber was transported across timbershed boundaries to be used by sawmills in other timbersheds. Timber heading to Oregon continued to be significant, and logs imported from British Columbia were now occurring.
We examined the potential supply of timber for western Washington timbersheds. The complexity of projecting uneven-aged stands found in eastern Washington limited the analysis to western timbersheds. While the projection was considered preliminary, it was a useful first step to gauge the wood availability required to maintain or expand the sawmilling capacity in western Washington. Further sensitivity analysis is required but was beyond the scope of this phase of the research. The projections indicated that current harvest levels can be sustained, and in the South Coast timbershed, the harvest level can be increased over the next several decades. There did not appear to be any indication that the harvest level will fall below the current level of 2.8 billion board feet. Timber inventories in all timbersheds revealed a significant growth in volume in older age classes given the projected harvest level suggesting there exists the potential for a higher, future harvest level if these forested lands were made available for timber production.
Our projections assumed current harvesting conditions will continue to exist into the future. One conclusion we draw from the analysis is that the biological potential of the timber land itself will not likely be a constraining factor in future timber harvest levels. Rather, regulatory and land-use factors are more likely to impede a harvest level that coincides with the biological potential of the forested lands.
There are important policy implications from our findings. Lumber manufacturing in Washington has become the principal consumer of wood fiber in the state, and we projected, given their current high rates of capacity utilization by existing mills and the biological potential for increasing harvest levels, that lumber manufacturing can expand. While Washington 's forest products sector has changed substantially due to the significant decline in timber harvest level over the past decades, the sawmilling sector has maintained its level of use of the harvest during this time. There has been a substantial decline in the number of sawmills, and the volume of log that crossed timbershed boundaries continues to be significant, but still, lumber manufacturing, a sector that consumed a small percentage of the log harvest level 20 years ago, is now the predominant end-user of logs harvested in Washington, and it is in a position to grow. The change in the composition of the forest sector was not driven by a substantial growth in lumber manufacturing but rather the decline in timber harvest levels and its impacts of the other forest sectors in Washington, primarily log exports.
The lumber manufacturing sector has not been without its share of change however. There has been a consolidation of milling capacity, and with it, a reduction in the amount of labor employed by sawmills. Lumber mills in Washington have transitioned from a large number of smaller-sized mills capable of utilizing a wide range of log sizes to a consolidated sector that utilizes smaller logs with more capital and less labor. There is also much less mill-type diversity within the sector.
We conclude that harvest levels in the future are such that they should allow for lumber manufacturing to expand. We support this conclusion with the facts that capacity utilization rates have been high during the past decade and that timber harvest levels in Washington have adjusted to a lower level than in previous decades. The harvest level simulations suggested that current harvest levels are sustainable into the future over a couple of rotations. The simulations assumed conditions today will continue into the future. For this reason, further work is needed to assess changes in land-use patterns and regulatory constraints that may impact future timber harvest levels from Washington 's forested lands.