An Economic Strategy to Develop Non-Timber Forest Products and Services in British Columbia Forest Renewal BC Project No. PA97538-ORE Final Report Russel M. Wills and Richard G. Lipsey Cognetics International Research Inc. 579 Berry Road, Cates Hill Bowen Island, British Columbia V0N lG0 tel. 604-947027l fax: 604-9470270 email: [email protected] [email protected] March 15, 1999 acknowledgements We wish to express our deep appreciation to the companies which provided the information upon which this research is based and to our project colleagues from the Mount Currie Band, Lyle Leo, Loretta Steager and Sarah Brown. For information or for reviewing drafts of this work, we are also grateful to these people: Robert Adamson, Lynn Atwood, Paige Axelrood, Kelly Bannister, Shannon Berch, Keith Blatner, Tim Brigham, Sarah Brown, Todd Caldecott, Jim Cathcart, Jeff Chilton, Julien Davies, Fidel Fogarty, Steven Foster, Jim Frank, Shawn Freeman, Christopher French, Sharmin Gamiet, Swann Gardiner, Nelly De Geus, Steven Globerman, Andrea Gunnar, Richard Hallman, Evelyn Hamilton, Wendy Holm, James Hudson, Shun Ishiguru, Murray Isman, Eric Jones, Morley Lipsett, Yuan-chun Ma, Howard Mann, Allison McCutcheon, Richard Allen Miller, Stephen Mills, Darcy Mitchell, Gerrard Olivotto, Gabriel Perche, Scott Redhead, Hassan Salari, David Smith, Randy Spence, Neil Towers, Ian Townsend-Gault, Nancy Turner, Stephen Tyler, Gunta Vitens, James Weigand, and Charles Weiss. The mistakes which remain are ours. We express our gratitude also to Forest Renewal BC for funding this economic strategy and to our program officers at the Science Council of British Columbia, Louise Rees and John Matechuk, for their timely and efficient administration of this project. i 1. Table of Contents EXECUTIVE SUMMARY PART I. THE INDUSTRIES INTRODUCTION 1 I. FLORAL GREENERY 2 II. ECOTOURISM IN BC 3 III. WILD FOOD MUSHROOMS 4 Introduction 4 Pine Harvests and Exports 4 Prices for BC Pine Mushrooms in Tokyo 6 Prices and Pests 7 The Japanese Market for Pine Mushrooms 8 Market Values for Pine Mushrooms vrs.Timber 10 Japanese Price Trends for Pine Mushrooms 11 BC Industry Structure 11 Pine Mushroom Research in BC 12 Other Wild Food Mushrooms (Chanterelles, Morels, and Boletes): 13 Chanterelles 13 Boletes 13 Morels 14 Additional Food Mushrooms 14 Price Trends for Wild Food Mushrooms in the US 16 IV. MEDICINAL AND NUTRACEUTICAL MUSHROOMS 17 Nutraceuticals – Immune Stimulators and “Adaptogens” 18 Prices for Nutraceutical and Medicinal Mushrooms, Mycelium and Extracts 23 Production Technology 25 Markets for BC Medicinal and Nutraceutical Mushrooms 25 V. PLANT-BASED MEDICINES AND NUTRACEUTICALS 26 Introduction 26 The World Markets for Herbal Medicines 28 Industrial Trends 29 Pharmaceuticals From Plants 31 Underlying Production Technologies 33 Natural Products Chemistry 33 Institutional Models for Bioprospecting 35 Combinatorial Chemistry 35 The BC Pharmaceutical Industry 37 BC Public Research Effort 37 BC Company Profiles 38 ii Ethnobotanical Clues for BC Medicines and Nutraceuticals 46 Summary 46 A Methodical Screening 49 Summary of Screenings 49 Phase I Anti-Fungal Screening 51 Phase I Anti-mycobacterial Screening 51 Phase I Antiviral Screening 52 Phase II Screening 53 New Product Source II --Wood “Waste” 55 New Product Source III --Soil Microfungi and Lichens 55 New Product Source IV. – Canopy Arthropods and Insects 56 VI. BC MEDICINAL HERB WILDCRAFTING 56 Introduction 56 Medicinal Wildcrafting Industry Structure 58 Wildcrafted Harvest of Medicinal Botanicals in the Pacific Northwest 59 July l998 Prices Paid to Wildcrafters 60 Market Opportunities for Wildcrafting Medicinals and Nutraceuticals 60 l997 Top Selling Herbal Supplements in US Mass Market 63 North American Market Trends 64 VII. BC NUTRACEUTICAL AND MEDICINAL HERB PRODUCTS MANUFACTURERS 65 Industry Structure 65 Sales 66 Products and Sources of Ingredients 66 Sales Areas 67 Botanicals Desired in the Future 67 Production Technology -HPLC 67 VIII. BIOCIDES (NATURAL HERBICIDES, INSECTICIDES AND FUNGICIDES) AND ANTI-PHYTOVIRALS 68 Introduction 68 Substances Which Modify Behaviour 69 Biorational Insecticides 69 Markets for Biocides 70 Biocides and Biological Control 71 BC Biocide & Biocontrol Industry 72 BC Biocide and Biocontrol Research Effort 73 Anti-Phytovirals 75 PART II. THE ECONOMIC STRATEGY INTRODUCTION 77 PINE MUSHROOMS 79 ADAPTIVE RESEARCH EFFORT 80 SET UP CULTIVATION FORESTS 81 SUPPORT PRIVATE SECTOR MARKETING IN JAPAN 82 STEMAGE 82 iii TRACK THE RESOURCE 82 HELP THE PRIVATE SECTOR BUILD LOCAL PROCESSING INFRASTRUCTURE 82 NUTRACEUTICAL AND MEDICINAL MUSHROOMS 84 THE COMMONS AND CULTIVATION FORESTS 84 WILDCRAFTING OF MEDICINAL BOTANICALS 86 ATTRACTING INVESTMENT 87 AGROFORESTRY INCENTIVES 87 THE REGULATION OF NATURAL HEALTH PRODUCTS 89 COMMERCIALIZATION BARRIERS TO BIOCIDES 91 TAX AND FISCAL INCENTIVES 94 CAPITAL, SALES AND MACHINERY TAXES 94 CANADIAN FEDERAL R&D TAX CREDITS 95 PROVINCIAL R&D INCENTIVES 96 SELECTIVE PROFESSIONAL TAX DEFERRAL 98 TAX HOLIDAY ON SELECTED NTFP INDUSTRIES AND SERVICES 98 REVENUE IMPACTS 100 SECURING ABORIGINAL RIGHTS TO TRADITIONAL KNOWLEDGE 100 IX. REFERENCES iv Executive Summary This report describes some of the most economically-valuable non-timber forest products and services emerging from BC wildlands and analyses their associated industries, production technologies and markets. It then presents an economic strategy for rapid development of these industries. The products and services highlighted are: C wild food mushrooms C nutraceutical and medicinal mushrooms (mycomedicinals) and fungi C nutraceuticals and pharmaceuticals from plants, bark, lichens, insects, soil organisms, and wood waste C biocides (non-toxic insecticides) from the same sources C anti-phytovirals (medicines for plants) C floral greenery C ecotourism The term nutraceutical broadly means a substance with both nutritional and therapeutic benefits, something one consumes when healthy to remain so or get healthier. Nutraceutical food products and herbal supplements had estimated global sales of between US $10-$12 billion in 1998, and a variety of popular nutraceuticals are found on BC wildlands. Saskatchewan, Alberta and several US states are actively supporting their nutraceutical companies. Emerging products and industries typically have high risks and high development costs at the outset, and, if successful, high payoffs in terms of employment and diversification over the long haul. Asian market economies, Ireland and many other countries which have been successful in diversifying on the basis of new industries have often done so with substantial government assistance at the outset. The key facet of such assistance is that small amounts of seed money early on can yield dividends in terms of employment, profits and government revenues once the initial hurdles are surmounted. Part I: The Industries 1. Wild Food Mushrooms --The most valuable BC wild food mushroom export (almost entirely to Tokyo and Osaka) is our species of pine mushroom, Tricholoma magnivelare. No one to date has been able to culture pine mushrooms artificially to achieve levels of commercial production, but as the demand and in-situ cultivation technologies improve, both pines and mycomedicinals will be grown in dedicated cultivation forests, in mushroom plantations or in commercial agroforestry operations which seek to maximize both timber and pine mushroom production. v C In an Aaverage-to-good” year such as 1996, around 392,000 kgs. of T. magnivelare were harvested in BC, but in a less-than-average year such as 1995, this figure falls to around 250,000 kgs. C The Pacific Northwest (BC, Washington and Oregon) supplies around 15% to 20% of the annual Japanese consumption of around 5,000 tonnes of pine mushrooms, which represent a luxury market (and a fall from the mid-1800s when the smaller population consumed around 12,000 tonnes annually.) In the foreseeable future Japanese consumers will absorb all the pine mushrooms which BC can export; therefore, the limits to export become the limits of sustainable harvesting plus cultivation. These general market prognoses point toward: C intensive forest-based cultivation of pine mushroom areas to increase the export volume; C targeting forest types best suited to enhanced commercial yields (coastal and alpine stands of lodgepole pine); C implementing agroforestry projects in appropriate productive stands; C more extensive marketing and market research support for the private sector effort in Japan and the US. A three tier market has arisen in Japan: Japanese pine mushrooms command the highest price; Korean pines fetch a half to a third of this price; and BC pines average a third to a half of the price of the South Korean imports. In 1997, a lower-than-normal year for prices, BC buyers selling to Japan reported prices of US $35/kg. on average for all grades, although at times prices spiked to US $95/kg. for the best grade. One reason for the price differential between BC pines and those of Japan and Korea is that the latter are farmed in cultivation forests under stringent conditions including controls for insect infestation. Canadian pine mushrooms are attacked by several species of fly larvae and the resulting discard rate is a major factor in our lower prices. Meanwhile, the Korean species are so devoid of flavour that they are sometimes injected with pine oil before being imported to Japan. Nevertheless Korean pines are worth more than Canadian because they look much like Japanese pine mushrooms. (Since Japanese