Over the last two decades, the softwood lumber market in the U.S. has been experiencing a gradual erosion of market share (see chart below). This has been true even in years like 2005, when sales were solid. The current state of the housing market has exacerbated the problem. In addition, the steel and concrete industries have undertaken well-funded and aggressive marketing campaigns, at times turning the lumber and building products (LBM) industry’s environmental messaging against it. Until the last two years, the industry’s response has been fragmented.
In an effort to strengthen the industry and reverse the trend of market share erosion, the Binational Softwood Lumber Council determined that a check-off program would benefit of the industry and developed provisions and rules for the program with industry input. An industry referendum will be held before mid-year 2011—probably in April.
If approved in the referendum, the check-off program will require mills to pay $0.35 to $0.50/mbf, with the first two years being set at $0.35/mbf. Companies that manufacture or import less than 15 mmbf per year will be exempt; the first 15 mmbf per year manufactured annually by participants will be exempt. Once the program has taken in $20 million, a business-to-business advertising campaign will be launched. According to the Commission, the messaging for the campaign will focus on the following:
- Certified lumber is the ultimate “environmentally friendly” building material; it is renewable, energy efficient, part of the solution to climate change and an economic driver to maintain forests as forests.
- It offers unmatched versatility and is suited for a broad range of structural and appearance applications in residential and non-residential sectors.
- It offers high, proven performance characteristics.
- It offers a significant price point advantage.
The Council conducted short-term generic industry promotions and found that the preliminary results showed a 30:1 return on investment in the regions that they conducted the test. Citing the success of these early promotions, the Council claims the program will provide the same rate if return.
If a 30:1 rate of return were to be achieved, the softwood lumber check-off program would be more successful than any other check-off program to date. Currently, for instance, eighteen agricultural commodities participate in a USDA administered check-off programs. Familiar campaigns for eggs, milk, beef, pork and cotton are among these programs. Periodic evaluations of the value of these initiatives suggests that participants realized anywhere from a 2:1 to 10:1 rate of return. Because lumber is a higher value product and competes with other building material manufacturers like concrete and steel, a higher rate of return may be possible for softwood lumber. Still, the 30:1 return is almost certainly overly optimistic.
While the check-off program will suffer some of same controversy that others have—charges that larger producers benefit more than smaller ones and that some are being left out of the decision making processes—it will undoubtedly be better than doing nothing. Doing nothing will leave the industry open to continued market erosion; innovation and new market development will suffer. It also leaves a void that competing industries will eagerly fill with their own generic industry promotions. The steel and concrete industries, for instance, are already positioning themselves through advertising campaigns as superior to wood both environmentally and economically. These campaigns can only be combated effectively by similar promotional tactics from the softwood lumber industry as a whole.
Capacity at sawmills has contracted significantly during the recession. Mill owners, beset by the need to preserve cash and bankers who will not lend on mill facilities, have deferred all but emergency maintenance. As a result, mills continue to depreciate in value. Once the recession is over, conversion capacity will be an issue. Mills will need to retool. In this post-recovery environment, a check-off program that solidifies the softwood lumber brand and expands markets will be key to the industry’s ongoing success.