VANCOUVER - Canada stands at the very bottom of the world's forestry industries in a new PricewaterhouseCoopers comparison of global capital returns that only adds to the gloom that has overwhelmed the struggling sector for the past year.

Latin America topped the list, compiled using 2006 figures, with a 9.3% return on capital employed, followed by China at 6.5% and South Africa at 5.5%. Canada was the global laggard, posting a 2% return, down more than half from the 4.5% it managed in 2005.
That was despite the $4-billion cash infusion that arrived under the softwood lumber rebate, and despite the massive capital investments made by some of the world's best performers, which made their returns even more impressive compared with Canada, which has seen little forestry investment in recent years.

"In Europe and North America we're not investing a whole lot of money in new equipment, whereas in Brazil and South America the denominator's huge. So you have to have a bigger return to get the 9.3%," said survey author Craig Campbell.
Blame for Canada's poor performance lies largely in a rising currency, which hurts export profits, and lumber prices that have been dragged into the basement by the flailing U.S. housing market, observers said. It is also suffering from competition in more tropical markets that have significant advantages in labour costs and the time it takes to grow a tree.
Canada's lumber production declined by 3.5% last year; paper production dropped by 8%. The only bright light came in pulp, where prices hit 12-year highs and provided "a little bit of a lifesaver that cushioned the losses," Mr. Campbell said.
Norbord Inc. led the Canadian industry with an 11.4% return on capital employed, followed by International Forest Products Ltd., or Interfor, at 6.7% and West Fraser Timber Co. Ltd. at 4.3%.
Still, Canada lagged far behind the United States, where the forestry industry posted a 5.4% capital return on the year, although that figure received a sizable boost from International Paper's $5-billion sale of some forest lands.
Canada's poor numbers portend "further consolidation, further cost reduction and further fine-tuning of the supply side relative to demand," Mr. Campbell said.
The numbers reflect what looks to be a long-term downturn in the Canadian sector and demonstrate a need for the industry to take on a more global mindset, he said.
"The emerging-market companies and countries are doing very well. There's lots of opportunities and the Canadians aren't in that game, whereas the Europeans are, and, to a lesser extent, the Americans," he said. "It's a higher risk, but I think the Canadian companies are going to need more diversity in terms of their geographic presence."
Rick Slaco, Interfor chief forester, called the numbers "an awakening call to anybody in the business or people that are connected from a governance point of view around the business."
John Allan, president of the Council of Forest Industries, said the report points to the need for Canada to re-examine its "hosting conditions" for forestry, and called on government, industry and labour to look at ways to "get that ROCE number back up in order to attract the capital that's needed to stay competitive."
To do that, industry needs more favourable transportation, tax, energy, competition and forest allocation policies, said Avrim Lazar, president of the Forest Products Association of Canada.
"We have provincial governments interfering with rationalization and consolidation," he said.