Coastal forestry revitalization plan awaits reality check

Raw log shipments might be more of a symptom than a cause of the industry’s problem

B.C.’s forest sector has lost 45,000 jobs since 2000, according to Statistics Canada | Photo: James Gabbert/Shutterstock

Nearly 20 years ago, forest-sector unions began warning that eliminating rules that tied cutting rights to sawmills and allowing more logs to be exported would result in a vicious cycle.

Moving to an auction system and allowing increased log exports would raise log prices, they warned. Smaller coastal sawmill operators, unable to compete with bigger operators and foreign buyers, would shut down.

The more mills that closed, the more surplus timber there would be, justifying even more log exports. And because B.C.’s forest sector is highly integrated, with pulp and paper mills relying on sawmills for wood waste, the sawmill closures would also result in pulp mill closures.

On the surface, it appears those warnings have played out as predicted, with losses of sawmill and pulp mill jobs on the B.C. coast that have spurred a BC NDP government plan to reduce raw log exports from coastal forests and force forest companies to clean up the wood waste created by logging.

“Over the last few decades, we’ve seen a declining timber harvest, diminishing lumber and pulp production, reduced employment and significant increases in log exports,” Doug Donaldson, minister of forests, lands and natural resource operations, told the Truck Loggers Association (TLA) in January. “And we need to change that.”

Donaldson was speaking to the TLA about his government’s coastal forest sector revitalization plan. It contains two key goals, both of which are intended to free up fibre for pulp and paper and lumber mills. One is to reduce log exports by making them more expensive to export; the other is to reduce wood waste left in the forests after logging.

Whether the new measures have any real effect on the coastal forest industry remains to be seen, because things like raw log exports may be more of a symptom than a cause of a deeper problem.

B.C.’s forest sector has two  distinct parts: Interior and coastal industries. Both have seen sawmill closures over the last two decades, but for different reasons.

The Interior industry has done well over the last two or three years, thanks to increased demand for lumber in the U.S., with record-high lumber prices resulting in record profits for some companies.

The coastal forest sector has suffered reduced sawmilling and increased log exports.

The two largest private forest landowners on Vancouver Island – TimberWest and Weyerhaueser (NYSE:WY) – used to own eight sawmills on the B.C. coast. Today, TimberWest and Island Timberlands, which bought Weyerhaueser’s land, own no sawmills.

Almost all of the logs exported from B.C. come from coastal forests. According to a Ministry of Forests report last year, exports accounted for 30% of primary log use in the coastal sector and just 1.9% in the Interior. Coastal lumber mills accounted for just 45% of log use, compared with 83% in the Interior.

Of the 64.3 million cubic metres of logs harvested in B.C. in 2017, 9.3% (six million cubic metres) were exported. China, Japan and South Korea were the three main buyers.

In other words, for every 10 trees cut in B.C., one is exported, but for every 10 trees cut from coastal forests, three are exported.

Log export defenders argue that most of the logs exported are low-value hemlock, which has little value for making lumber.

But, according to the B.C. Ministry of Forests, hemlock has made up only 50% of log exports in recent years. Douglas fir accounted for 33% and spruce 9%. Fir and spruce are valuable for lumber producers.

Of the six million cubic metres of logs exported in 2017, about 2.5 million cubic metres would have been valuable Douglas fir and spruce from coastal forests.

The government could have banned raw log exports to make more available to domestic mills.

But the U.S. lumber lobby would likely have characterized that as a subsidy. The Americans are already accusing Canada of subsidizing forestry, so that would strengthen their hand in arguing for duties.

So the B.C. government plans to make it more expensive to export logs.

And logging companies will still be able to leave wood waste on the forest floor, but that too will cost them more under increased “take-or-pay” provisions.

Under current rules, a sawmill owner who wants the logs that another company plans to export can block the sale. The logs must be deemed to be “surplus” – that is, no one wants them locally – before they can be sold to foreign buyers.

Despite those provisions, coastal sawmill operators like Teal-Jones complain that they still can’t get enough raw timber to supply their mills.

The new log export rules will eliminate the ability of companies to block sales of surplus logs. Instead, the ability to export will be based on profitability.

A company with a cutting permit will be able to export logs without penalty as long as the domestic rate of return for those logs is negative. Even if they are making a profit on their cutting permit, they will still be able to export logs, but they will pay a high premium to do so.

As for wood waste, a tremendous amount of it is left on the forest floor after an area has been logged. Some of that waste could be supplying pulp and paper mills, wood pellet plants and bioenergy producers.

But the penalties for leaving wood waste are low enough that some companies are willing to pay them, rather than pay to remove wood waste and truck it to pulp or pellet mills.

The government plans to raise the “take-or-pay” penalty, but it remains to be seen whether the NDP government’s coastal forest sector revitalization plan will have much of an impact.

Some within the industry say log exports are not the problem and that without them, the logging industry will suffer.

The Private Forest Landowners Association says there is no shortage of timber on the B.C. coast. It estimates that 24 million cubic metres of timber is available but that domestic milling capacity is just 16 million cubic metres.

“Domestic sawmills offer prices lower than production costs,” the association insists.

The average cost of cutting a log and getting it to market is about $78 per cubic metre, the association says, whereas a typical offer from a mill owner is $60 per metre. Asian customers are prepared to pay $90.

If some of that surplus timber can’t be exported in the form of logs, it will mean less work for loggers, because the export of low-grade logs like hemlock helps to subsidize harvesting of more valuable timber.

One of the problems facing the coastal industry is that its mills were originally set up to process large, old-growth trees, and there aren’t many of those left.

As large old-growth and even second-growth trees got used up, it required mills to make expensive investments to process smaller logs – something some marginal mills could not afford to do.

What remains of B.C.’s coastal old growth has been increasingly made off limits to logging through conservation efforts, like the Great Bear Rainforest.

Of the 6.4 million hectares that constitutes the Great Bear Rainforest, only 15% (960,000 hectares) is available for logging.

According to Statistics Canada, 45,000 jobs have been lost in the B.C. forest sector since 2000.

But the B.C. forest sector’s dual nature brings with it two sets of products, markets and challenges.

Interior forests primarily produce lodgepole pine, spruce and fir, with the U.S. being the biggest market for lumber products. Coastal forests produce western red cedar, Douglas fir and hemlock, and the biggest markets are Asia.

The biggest challenge for the Interior forest sector has been the loss of roughly half of the annual allowable cut over the past couple of decades to the mountain pine beetle and, more recently, to forest fires.

In recent years, the three big players in the B.C. forest sector have bought up sawmills in the U.S., where there is more available timber.

For the coastal forest sector, the biggest challenge for maintaining a fibre supply isn’t pests or fires, but a loss of old-growth forests, first from a century of harvesting and, more recently, due to conservation.