Policy & Positions Manual

Policy Priority Area - A Vibrant Resource Sector

The Future of the Forest Industry (2010)

The forest industry continues to be an important contributor to the Province’s economy.  During normal economic conditions, it sells approximately $18 billion of products annually, contributes about $4 billion to Government revenue each year, and employs more than 200,000 British Columbians.

In recent years, the Provincial Government has made significant changes to forest policy, intended to diversify the forest sector, enhance its competitiveness, and improve the regulatory environment in which it operates.  The Government is to be complimented for many of these initiatives, as well as its ongoing efforts to strengthen the sector.

Ongoing efforts are necessary because the industry still faces very significant challenges that policy changes to date will not overcome.  Some of these challenges, such as the global economic downturn that has significantly reduced demand for BC forest products and adversely impacted the people, communities and businesses that depend on the industry is, hopefully, shorter term in nature.  Other challenges are of a different nature, and include the Mountain Pine Beetle (MPB) devastation in the Interior, working within the framework of the Softwood Lumber Agreement with the United States (SLA), periodic strengthening of the Canadian dollar that adversely affects exports, marginal investment returns, increasing demands on the forestry land base and, on the Coast, inadequate capital investment and a changing timber profile with increasing emphasis on second growth and hemlock.

The complexity of these challenges is compounded by the fact that there are distinct forest industries within the Province both on a regional and product basis. Regionally, there is a coastal industry and an interior industry – each managing similar, but also very different threats and opportunities to the success of the respective regions. The Interior could be seen as at least two separate industries, divided into a southern industry that has many of the same issues as the coast and a northern industry that is dealing with the mountain pine beetle (MPB) epidemic, and, for some policy solutions, should be further subdivided. The industry is also divided into important product segments. There is a logging and forest management segment, with many small, non-integrated firms. There is a primary – or sawmilling – industry that breaks down logs into lumber and residual products. This sawmilling sector is the single largest component of the industry’s manufacturing sector.  In addition, however, there is a very significant secondary industry in value-added wood products and in pulp and paper. The pulp and paper industry depends on the primary breakdown industry for most of its fibre supply in the form of chips; the primary industry relies on the pulp and paper sector for important revenue from the purchase of those residual products.  Although bioenergy has been a part of the established forest industry for some time, a bioenergy industry independent of established sawmills and pulp and paper mills is emerging and growing, presenting both opportunities for greater utilization of our forests, jobs and economic diversity as well as challenges in integrating this sector into the established industry without undermining the stability of the existing industry.

There is no one solution that will help all industry types but it is clear more change is needed to ensure the province’s forest industry can be globally competitive and capable of generating the returns on capital necessary to support reinvestment. 

To its credit, the provincial government continues to work toward solutions for these ongoing issues.  In January 2008, it established the Working Roundtable on Forestry.  In March 2009, the Roundtable issued its report, “Moving Toward a High Value, Globally Competitive, Sustainable Forest Industry”. In 2009, the government recommitted to a commercial forest reserve, issued a discussion paper on being a world leader in growing trees and a discussion paper on promoting further manufacturing of forest products in BC. The government has begun to implement the Roundtable’s recommendations, and is pursuing additional short and medium term solutions.

The Interior
Sawmills in the Interior are some of the lowest cost producers of commodity lumber in the world.  The Interior has undergone consolidation in recent years, and invested massive amounts of capital to upgrade sawmill technologies. This has been required in order to lower unit production costs in the face of lumber duties arising from the Softwood Lumber Dispute with the US (SLD) that preceded the SLA and to increase the manufacturing efficiencies necessary to effectively saw MPB affected timber.  Government’s recent market-based policy changes, combined with new tenure offerings, have encouraged this investment in lumber as well as in other products such as OSB and wood pellets.

The unprecedented MPB infestation continues to present the single largest forestry challenge to Government, industry and Interior communities.  However, because of improved understanding of the “shelf life” of attacked trees for lumber production, the policy choices today are different from what they were only a year or so ago.  Research has shown that deterioration rates of attacked trees are slower, that it varies by area and, due to new mill technology, lumber recovery is higher than previously thought.   While this shelf life was previously thought to be only about 3 years, it is now considered to be 9 to 15 years.  This means the Interior lumber industry will have a larger viable supply of timber over a longer period of time than previously recognized. As well, the non-sawlog harvest and roadside residue volumes available for use will be significant as the sawlog of beetle killed timber continues. Although the industry and communities continue to face significant challenges coping with the MPB issue, government policy must adapt to these developments.

It is reasonable to continue development of government policy that enables industry and communities to adapt and diversify, but a longer time horizon and, following economic recovery, a less radical, more gradual drop in medium term timber supply and lumber output should be the basis of this policy in many cases. In regions where the solid wood sector will be dramatically reduced, policies need to be developed to promote diversification and access to fibre that will stimulate economic development.

THE CHAMBER RECOMMENDS

That the Provincial Government:

  1. maintain the competitiveness of the lumber Sector.  Policies should facilitate the efficient and economic use of the affected timber through:

    • a continuing effort to streamline regulatory systems and approval processes;

    • further enhance market-driven industry rationalization; and

    • ensuring the stumpage system reflects and responds to the market,  and  to updated and moderated projections regarding the extent and timing of the decline in the quantity and value of this timber and the products that can be produced from it;

  1. encourage alternative forest product uses.  Policies should encourage uses for residual chips and other by-products that are being generated from pine beetle harvesting  and lumber production, which could include energy generation and alternative wood products as well as ongoing supply for the pulp and paper sector.  Similarly, after taking into account that opportunities for lumber production will continue for a longer period than previously forecast, policies should encourage alternative uses for timber that can’t be converted to lumber.  In both cases, the primary target for these policies and new uses should be roadside debris and standing dead timber, as these are significant sources of fibre that, if used in alternative products, should not adversely affect supply for existing forest products;

  1. address forest protection.  Policies should continue to address forest fire hazards that will increase to the extent that affected timber cannot be utilized;

  1. encourage and facilitate new forest investment.  In light of the increased harvest levels, policies should, through innovative tenure arrangements, as well as through encouraging more traditional investment, enable the massive silviculture effort and new forest management initiatives that will be required to generate a new, healthy forest that will be economically viable in the long term;

  1. revise timber supply projections.  Previously projected severe reductions in short and medium term allowable annual harvests in MPB attacked areas should be revised to reflect the evidence of increased shelf life of this timber, which will avoid unnecessary economic hardship to communities and enable mills to financially justify investment in innovative technologies that will allow them to utilize the damaged timber over a longer time frame; and

  1. promote new opportunities without undermining existing rights.  The foregoing polices should promote new opportunities, uses and investment without undermining existing rights by, in part, encouraging private sector solutions that do not require new rights to be issued by Government or, where new rights are issued by Government, by avoiding the creation of overlapping tenures on the same land base.

The Coastal Industry
The Coastal Forest Industry, which encompasses the West Coast from Prince Rupert to Southern Vancouver Island, is going through a massive transition. On the southern coast, harvesting levels have declined for a number of reasons:

  •  the economics of operating on the coast have become increasingly difficult because of:

    • the legacy of the Forest Practices Code;

    • after making a significant effort to replace the Code with forest practices rules that are more results-based, innovative and cost competitive, the Government is now adding costly “ecosystem-based” management requirements on top of the requirements of its new forest practices rules; and

    • access to much of the available timber is in remote areas;

  • areas of high value accessible timber have been put into Protected Areas and Parks through environmental and aboriginal pressures;

  • global competition and product substitution has radically reduced the market share and profitability of coastal forest products such as softwood pulp and hemlock lumber;

  • low returns on investment have prevented capital reinvestment in old, inefficient manufacturing facilities resulting in widespread closures of sawmills and pulp mills;

  • lack of reinvestment has resulted in high labour costs and lower productivity levels compared with other competing regions;

  • stumpage paid to the Government has not reflected the underlying value of the lower grades of timber;

  • a fibre supply that no longer fits the traditional model of creating lumber from old growth stands of timber; and

  • the SLA has restricted market access for coastal lumber to the US.

These are reasons why the coastal industry is not the vibrant business it was 25-30 years ago. While Government has made efforts to invoke policy to resolve some of these issues through its revitalization strategy, the industry continues to languish behind the Interior in generating economic returns sufficient to bring about re-investment. Harvesting levels continue to drop and sawmills continue to close. The profile of the timber harvest is changing from the traditional source of old growth timber to smaller diameter, second growth forests (similar in size to the Interior). As such, older mills have closed because of the inability to efficiently process the smaller logs, with much of this supply being exported to the United States for processing.  This is because the SLD effectively blocked, or severely restricted, market access to the US from any new coastal small log mill.   These issues have not disappeared with the SLA.

For the coastal industry to prosper in the future, Government needs to help create a climate that will make the industry competitive in the global marketplace, foster the development of new value-added products, encourage new entrants into the industry and open competitive access to the timber supply. If a new coastal model is to be successful, manufacturers/licensees need to look at focusing on new manufacturing technologies and extracting the maximum value, or margin from the timber resource. Government can aid in developing research chairs to foster new product development. At the same time, small business should be encouraged and have the ability to access timber resources to supply large manufacturers and to create small business opportunities. This will enhance employment stability in resource communities and bring about increased economic development.

THE CHAMBER RECOMMENDS

That the Provincial Government:

  1. create incentives for new entrants and existing firms to invest capital in manufacturing facilities aimed at making products from second growth timber. Such incentives would include investment tax credits on plant and equipment purchases, employment incentives, lower municipal taxation, and reduced logging tax rates;

  1. apply similar incentives to the harvesting sector, in an effort to encourage innovation to reduce the high cost of getting fibre/logs to market; and

  1. foster diversification and increased markets for logs through competitive bids and new tenure opportunities or diversification. Encourage the extraction of lower value timber from cut blocks through stumpage rates that reflect the market value of lower value timber or other incentives to fully utilize the coastal timber profile.

In addition to these region-specific issues and recommendations, there are actions the Provincial Government can take on matters having province-wide application, including the following:

Forestry Revitalization Timber, Including BC Timber Sales (BCTS)
With the implementation of the “Forestry Revitalization Act”, about 20% of the allowable annual cut held by major licenses was taken back for redistribution to First Nations, community forests and the competitive timber sales program under BCTS.

Since BCTS, the new First Nations and community licensees have not been accustomed to operating programs to develop and harvest this amount of timber, there have been difficulties accessing timber that was available in the past.

Together with previously allotted volumes, BCTS is now responsible for about 20% of the Crown timber in BC No other single entity controls this much of the Province’s timber harvest.  This represents a major source of work for timber harvesters and a major source of fibre supply for manufacturing facilities. In addition, with the government implementing market-based pricing for stumpage, bids on BCTS timber influence the stumpage that is paid on much of the rest of the provincial timber harvest. It is therefore essential that the BCTS program operate on a commercial basis.

Rather than acting as a regulator or policy maker, its focus should be on the needs of the market for wood. In this role it should not be influenced by issues related to impacts on Government revenue. Being a regulatory and policy arm is the legitimate role of the Provincial Government and the Ministry of Forests and Ranges, not an organization with a mandate to get wood into the marketplace.  However, in a recent reorganization of the Ministry of Forests, BCTS has been re-integrated into the Ministry, and its formerly independent Assistant Deputy Minister is now also responsible for the Ministry’s field operations.  Rather than becoming more independent, BCTS may become subject to more bureaucratic constraints imposed by government objectives and goals.

As well, BCTS is not tendering the volume of timber annually, in conjunction with what was taken-back by the Government under the Bill 28 plan.  This has created less tender opportunities for BCTS registrants and limited the amount of timber available for harvest. It also distorts the influence of BCTS bids on stumpage for other tenures because it does not include the low value, high cost wood that other licensees must harvest.  Further distortion occurs because government does not permit circumstances where BCTS receives no bids on wood it offers for sale to be treated as evidence of low market values in the stumpage system.

For BCTS, and those depending on it to make wood available in the marketplace, in order to succeed, it must have a mandate that requires clear performance and accountability measures, cost control and the flexibility to pursue a business-like vision.

THE CHAMBER RECOMMENDS

That the Provincial Government:

  1. assist new tenure holders such as First Nations and communities, to facilitate development and harvesting of their tenures and develop mechanisms to put up  competitively bid sales on these tenures that could possibly be included as additional evidence of market value in the stumpage system;

  1. not subsume the BC Timber Sales Program into the Government’s regulatory and policy arm but, rather, must as an independent enterprise, provide:

  1. as its first priority, a credible reference point for costs and pricing of timber harvested from public land in BC; and

  1. as its second priority, be a reliable and consistent supply of timber under all market conditions through open and competitive auctions, subject to meeting key requirement of being the reference for cost and price.

First Nations
In addition to being new tenure holders, First Nations are involved in the development and harvesting of other tenures as a result of their aboriginal rights and the related duty of government to consult and, in appropriate circumstances, accommodate First Nations. The timely fulfillment of this duty is integral to efficient forest operations on these other tenures, and it is also necessary for First Nations to have a greater hand in being part of the industry. The Provincial Government and First Nations have made significant efforts to enter into agreements that improve the consultation and accommodation process.

However, not all First Nations have entered into these agreements, and more recent versions of these agreements seem to be less beneficial to ensuring an efficient process and certainty of outcome.  Further, government has recently entered into shared decision making arrangements with First Nations, whereby the First Nation can, jointly with government, make decisions that affect the size and nature of forest operations of other tenure holders.

Consultation will be improved for all concerned if it follows the principles established by the Supreme Court of Canada in the Haida case, by focusing on the key issues that can affect aboriginal rights or title, doing so as early in the process as is reasonable to ensure the consultation is effective and reflecting that First Nations do not have a veto over land use decisions. 

THE CHAMBER RECOMMENDS

That the Provincial Government:

  1. continue efforts to ensure that all First Nations have these agreements in place, where applicable, and that the agreements facilitate a more efficient consultation and accommodation process; and

  1. follow the principles of consultation and accommodation established by the Supreme Court of Canada, and not:

    • implement shared decision making, if that means a veto on land use decisions; or

    • require in legislation or harvesting agreements decisions from government that attract the duty to consult, when the decisions are on issues that should not require government adjudication or at stages late in the process when earlier decisions have already effectively dealt with the issue.

Commercial Forest Land Base
In 2001, the Provincial Government promised it would establish a ‘Working Forest’ to provide greater certainty to the forest industry and that there would be sufficient land dedicated to forestry purposes over the long term.  The government did not implement that promise.  In March 2009, the Working Roundtable on Forestry recommended that commercial forest land reserves be established on key portions of the forest landbase where wood production will be a primary focus. 

The Provincial Government is now promising again to establish a commercial forest reserve, but still has not done so.  Moreover, although the details of this promise are not fully known, government’s thinking may mean the value of this initiative is not fully realized. 

First, it might cover only a relatively small landbase and potentially apply only to where intensive silviculture will be undertaken.  If so, this will produce only modest benefits, as intensive silviculture is economically viable only if it can increase the allowable cut in the present. This is possible only if there is substantial available mature timber elsewhere.  The greatest current threat to intensive silviculture and long term timber supply is not threats to the areas where intensive silviculture might be performed, but to the areas of existing mature timber where many of its benefits can be realized.  The greatest current threats to these areas is not conversion to other commercial uses and rights of way (although that can be significant) but rather government decisions, often made by government staff, to place constraints on practicing forestry, often through decisions under the Government Actions Regulation and the Land Use Objectives Regulation.  There are many changes to government policy that could enhance forestry opportunities.  Whatever its other decisions may be regarding a commercial forest reserve, by reviewing these government staff decisions to date to assess their impacts on future timber supply, revising them as necessary to fit within government’s targets for limiting adverse impacts on timber supply and costs and by more carefully regulating such decisions in the future to stay within those targets, government can contribute significantly to ensuring an adequate timber supply today and in the future.

Second, the government may extend this protection only to new competitively bid licenses or areas.  However, the vast majority of harvesting rights are currently allocated.  A policy that does not enable existing tenures or areas to become part of the commercial forest reserve precludes the majority of forest operations in the Province.

THE CHAMBER RECOMMENDS

That the Provincial Government:

  1. include as  key components of its commercial forest reserve initiative:

    • Improved regulation of government staff decisions under the Government Actions Regulation and the Land Use Objectives Regulation to bring those decisions within government’s impact targets;

    • Implementation of the reserve to enhance the protection of the commercial forest landbase generally, not for the purpose of favouring certain new licenses over others, including those portions of the landbase subject to existing forest tenures; and

  1. bring the 9 year policy development period to an end by implementing this new policy as soon as practicable.

Other
The Provincial Government can also enhance industry competitiveness through policies that extend beyond the timber resource, including policies that affect the availability of skilled workers, the development of new products and forest industries, the viability of existing manufacturing facilities and the demand for BC forest products, domestically and internationally.

In many communities in the province, a significant source of local government revenue is derived from forest products facilities. As local government costs increase, the tax burden on these facilities can make them non-competitive. This serves neither the needs of the community, nor the facility.  In a separate policy, the Chamber is recommending Provincial Government action on this issue. In market development, the two senior levels of Government and the forest industry have significant programs, but they are not as well coordinated as they could be.  Domestically, all three levels of government, together with industry, have promoted the use of wood in important projects, ranging from Richmond City Hall, to the University of Northern British Columbia, to the 2010 Olympic Games venues.  It is important that new projects be continually added to this list.  The Provincial Government has formalized this initiative as its Wood First program for public buildings in BC and is seeking to extend this to other Canadian jurisdictions.

The SLD is one of the more obvious examples of trade barriers against BC forest products, but these barriers come in many forms, including unfavourable building and fire codes.  As these barriers are erected by governments, the Provincial and Federal Governments have significant roles to play in fighting them.  Although the new SLA has resolved the lumber dispute, the issue now becomes one of ensuring it does not have unjustified adverse implications on BC’s forest industry.

THE CHAMBER RECOMMENDS

That the Provincial Government:

  1. encourage innovative secondary forest products industries such as bioenergy and engineered wood products through commercially based arrangements with primary producers and timber harvesters;

  1. where it opts to provide direct tenure opportunities to secondary producers that overlap existing tenures, ensure forest management obligations are fairly and reasonably apportioned between the new and the existing tenures;

  1. enhance the competitiveness of all forest products manufacturing facilities through improved taxation and revenue sharing arrangements at all levels of government;

  1. promote labour force and skills training applicable to the forest industry;

  1. enhance the competitiveness of secondary industries through training targeted at the value-added industries in business and financial planning and similar skills for entrepreneurs;

  1. continue market development and market access policies in co-operation with the Federal Government and the forest industry, and improve co-ordination of market development programs among these three key players to maximize the value of investment in these programs and encourage the use of BC forest products in the province, in Canada and in international markets, including ongoing promotion and expansion of the Wood First program; and

  1. continue to work co-operatively with industry and the Federal Government to address tariff and non-tariff trade barriers against BC forest products and, in particular, monitor the effects of the SLA and act expeditiously where problems arise in its application.