Econ1221 - Assignment 1 Question 4 Using information found or implied in the following article, answer the eight multiplechoice questions. B.C.'s New In-demand Commodity is . . . Sawdust; Forestry Fallout Long Waiting Lists and High Prices Hit Agriculture, Pulp and Paper Sectors as Sawmills Close Gordon Hamilton. The Vancouver Sun. Vancouver, B.C.: Apr 12, 2008. pg. D.1 http://search.proquest.com.ezproxy.langara.bc.ca:2048/docview/243871060?accountid=37673 Blueberry grower Paul Gill used to be able to pick up the phone and order a truckload of sawdust for immediate delivery to his family-run Surrey farm, where he spreads it around young plants to keep moisture in and weeds out. Sawdust was once considered a waste product, spewing out of the sawmills that used to dot the Fraser River. If it were not for a variety of niche customers -- from pulp mills to small users like Gill's M&M Pacific Coast Farms -- the mills would soon choke in sawdust. But now, when Gill needs sawdust, he has to put his name on an allocation list, as if he were buying a rare wine, and hope the wait won't be too long. "Getting sawdust never used to be a problem. People would approach us to take sawdust -if not for free, then pretty close to free," said Gill. Gill's family has grown berries in the Fraser Valley for several generations. Sawdust, which used to be incinerated province-wide in beehive burners as a waste product, is now a commodity in tight demand. It's basic economics: Supplies are shrinking as sawmills, in the face of the worst U.S. housing market since the Second World War, shut their doors. Recent mill closures have led to a 21-per-cent drop in B.C. lumber production during the past year, Statistics Canada reports in a recently released bulletin for 2007. Since January, even more sawmills have curtailed production. At the same time, demand for sawdust is soaring. It's not just the Fraser Valley blueberry industry that needs it. Sawdust is replacing more-costly natural gas to heat greenhouses, livestock producers use it in their barns to bed animals, and it can be mixed with compost to make soil. But the big users are B.C. pulp and paper mills who use it in manufacturing kraft pulp, and pellet manufacturers, who ship a million tonnes a year from B.C. to Europe to fuel power generators. Pulp is currently selling near record highs, and the pellet industry has mushroomed into a $250-million-a-year enterprise. And it is still growing. The result: Sawdust prices have roughly doubled since January of last year. "The product has a much broader use than it did just a year or so ago," said Gerry Herman, sales manager at Ardew Wood Products, an independent sawmill located at Merritt. Herman refers to Ardew as a small sawdust producer at 1,000 tonnes a month. Ardew has responded to the depressed lumber market by cutting production by 30 to 40 per cent. Fewer logs being made into lumber means sawdust production is also down. "There are more users, demand is tight, and producers have been able to affect increases in price. It's a supply-and-demand world," Herman said. "We have some of our [sawdust] customers on allocation." Sawmills keep the prices confidential, and different grades attract widely different prices, but Herman confirmed that in general, prices have doubled since the beginning of 2007. Sawmills are losing money on lumber, and the price they can get for their residual products is often the thin line between operating and shutting down, said industry analyst Kevin Mason. "Residuals are the only reason some mills are operating," he said. In the scheme of things, the Gill family is a small user. They have 180 acres of blueberries, almost half of which are young plants that need a mulch of sawdust spread over their roots for moisture retention and to keep weed growth down. Without sawdust, the plants can dry out in summer, and face competition from weeds, affecting the berry crop that will show up in Metro Vancouver supermarkets later this year. Three years ago, Gill paid $100 per truckload for sawdust. Last year, he was unable to get enough sawdust, even at a price of $350 a truckload. This year, Gill has received some sawdust, but he has yet to be billed, he said. He expects the price to be much higher. "Even at these prices, we just can't get enough," he said. Les Butler, fibre manager at Tolko Industries, one of the Interior's major lumber companies, said farmers are seasonal users of sawdust and are feeling the pinch the most because in the past their off-and-on needs were supplied from surpluses. Tolko's biggest contracts are with pulp mills in the Southern Interior and pellet manufacturers in the North. Tolko produces 400,000 tonnes of sawdust and wood shavings a year. Butler said demand for sawdust is also growing from wood-pellet producers. The province has nine pellet plants, with two new ones in the works. But the main reason for the supply crunch is that sawmills, faced with declining lumber prices in the United States, are curtailing operations. There's not as much sawdust being produced, Butler said. "Before, there was a surplus. Now, there is a deficit." The Coast, where the sawmilling industry has shrunk the most, is being hit the hardest by the sawdust shortage. At least 21 mills have shut down since 2002. Robbie Gill is manager of Cloverdale Fuel, a family-run business that has been delivering sawdust since the 1940s when it was used to heat homes. He said the dramatic decline of the Coast forest industry has precipitated a shortage that is causing prices to climb. "A lot of businesses depend on sawdust, and [the product is] just not there any more," he said. "Ten years ago, we had so much that we just couldn't get rid of it all. Now, it's gone completely the other way. "There used to be a lot mills What sawdust is left is being need it too and they employ a still hurts our local farmers on the Fraser River, and now almost all of them are gone. consumed by the pulp mills, and rightly so because they lot more people directly from that waste than we do. But it and our customers," Gill said. "The price has risen substantially over the last two years. It's harder to get, and we have to go further away to get it." Sawdust is called waste only when it is incinerated as an non-usable byproduct of making lumber, something that most urban municipalities no longer allow. Now sawdust is called a co-product, along with wood chips, wood shavings and bark, all of which have value. Sawdust is not really dust -- any wood chip smaller than three-eighths of an inch, or one centimetre, is termed sawdust. Modern computerized mills require a clean operating environment, so sawdust production is managed carefully. Typically, 10 per cent or less of a log ends up as sawdust. It falls onto conveyor belts that run beneath the saw-box, or is collected through a screening process from lumber trim ends that are chipped into fibre for the pulp industry. It is then dumped in a bunker, where companies like Cloverdale Fuel load it into giant trucks and deliver it to their customers, whether pulp mills or blueberry farmers. While farmers lament the sawdust shortage, Catalyst Paper, the Coast's largest pulp and paper company, is feeling the sawdust crunch even harder. The company won't even talk about it. Spokesperson Lyn Brown said Catalyst is in a month-long "quiet period" pending the release of its quarterly financial results and will not discuss any marketing issues. However, its Elk Falls pulp mill near Campbell River has been operating in fits and starts this year. Catalyst has told its unionized workforce they can expect to lose 90 to 100 days of employment because of a shortage of sawdust. So far, the mill has been down for 21 days this year, said Ian Simpson, president of Local 1123 of the Communications, Energy and Paperworkers union. "So we still have another 70 to 80 days of down-time ahead of us." He said the pulp side of the mill, which employs 350 people, gets much of its fibre supply from the TimberWest sawmill next door. But that mill is shutting down May 9, and Simpson said that is bound to result in an even tighter fibre shortage for Catalyst. In northern B.C., distances to markets and high transportation costs mean if there is no nearby pulp mill or pellet plant, excess sawdust is often incinerated in beehive burners. Companies like Canfor Corp., which produces about 1.7 million tonnes of residual wood a year company-wide, have been phasing out beehive burners by using waste internally or signing contracts with other users. Canfor uses its sawdust to make pellets, heat and electricity, pulp and fibreboard. Despite the increased demand for products like sawdust, however, a lot of it is still burned, especially in the North, said John Swann, executive director of the Wood Pellet Association of Canada. Swann said B.C. produces almost one million tonnes of wood pellets a year. But the province' sawmills also incinerate an equal amount of wood waste in beehive burners, he said. "There's still the better part of a million to a million and a half tonnes of sawmill residue -- depending on how hard the sawmilling industry is running -- being incinerated in beehive burners. We have 23 beehive burners in this province still operating." But even though there is demand right now, it is not easy for the northern pellet producers to sign long-term contracts with sawmills. Sawdust may become even more valuable in the future. The excitement over sawdust is being stoked by a BC Hydro request for proposals on bioenergy. How that plays out could lead to significant price increases, depending on how the new bio-energy plants will be subsidized and whether they will be required to use beetle-killed pine for their feedstock. If they are not required to harvest dead pine, they could simply buy the existing sawmill residue, bidding up its price. That's why pellet producers are finding it difficult to get supply commitments for longer than three years. They need long-term fibre security to justify new plants, Swann said. "You are not going to make a $15- to $20-million commitment on a hearty handshake and a three-year love letter, are you? That's one of the complexities of where it's at now." Sawdust is on a roll now, but one thing is certain, according to Ardew's Gerry Herman. In the commodity business, what goes up must come down. "Didn't the price of two-by-fours fall from $450 to $200?" ghamilton@png.canwest.com Credit: Vancouver Sun 1. Natural gas and sawdust are a) substitutes in production. b) substitutes in consumption. e) not substitutes or complements. 2. Increases a) the b) the c) the d) the in the demand demand supply supply 3. Lumber and sawdust are a) substitutes in production. b) substitutes in consumption. e) not substitutes or complements. c) d) complements in production. complements in consumption. price of natural gas have caused for sawdust to decrease. for sawdust to increase. of sawdust to decrease. of sawdust to increase. c) d) complements in production. complements in consumption. 4. The slump in the US housing market has caused the a) the demand for lumber to decrease. b) the demand for lumber to increase. c) the supply of lumber to decrease. d) the supply of lumber to increase. 5. The slump in the US housing market has caused the a) the demand for sawdust to decrease. b) the demand for sawdust to increase. c) the supply of sawdust to decrease. d) the supply of sawdust to increase. 6. Increases a) the b) the c) the d) the 7. Blueberries and sawdust are a) substitutes in production. b) substitutes in consumption. e) not substitutes or complements. 8. in the demand demand supply supply price of pulp have caused for sawdust to decrease. for sawdust to increase. of sawdust to decrease. of sawdust to increase. c) d) complements in production. complements in consumption. The changes occurring in the sawdust market will cause the price of blueberries to ________ and the quantity of blueberries to ________. a) decrease, increase c) increase, increase b) decrease, decrease d) increase, decrease