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August 28, 2019 | Seeking a Way to Compete: British Columbia Forestry at a Crossroads

Stewart Muir is founder and executive director of the Resource Works Society, a Vancouver-based group open to participation by British Columbians from all walks of life who are concerned about their future economic opportunities. He is an author, journalist and historian with experience on three continents including a financial editor of The Vancouver Sun responsible for mining and markets coverage. Since Resource Works was established in 2014, the group has gained international recognition for its practical approach to the public challenges of responsible natural resource development and use.

Longtime forestry journalist Gordon Hamilton went in search of solutions to the crisis in the woods.

A SPECIAL REPORT FROM RESOURCE WORKS

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Communities throughout the British Columbia Interior are facing an economic crisis as the combined effects of beetle epidemics, forest fires and external market forces take their toll on what was once North America’s most robust forest industry.

“We are in a crisis. We know things are broken,” says Joan Atkinson, mayor of the northern B.C. town of Mackenzie, where 600 sawmill workers, loggers, truck drivers and others have been sent home as a result of sawmill closures. Canfor has closed its mill indefinitely and Conifex has extended a temporary curtailment at its mill. By the end of July, the first down-stream impact hit when Parallel 55, a value-added finger joint mill, shut down as it could no longer source trim end materials from the town’s sawmills.

In a town of 3,700, more than 15 per cent of the population are either temporarily or indefinitely out of work. The unemployment rate could jump to 25 per cent if the pulp mill goes down as well. Workers there have been told the mill has only a three-week supply of wood chips.

The story unfolding in Mackenzie is not unique. Since the beginning of May, 38 Interior forest products operations have laid off workers through either permanent plant closures, reductions in shifts, indefinite curtailments or temporary curtailments. Most of the closures are in communities in the North and in the Central Interior, regions where 32,500 people work in forestry. From 100 Mile House to the Yukon border one job in five is tied to the forest industry. Thousands in these forestry-dependent communities have been affected by the closures.

In the central Interior, when West Fraser announced June 17 that it was eliminating a shift at its 100 Mile House sawmill and shutting down its Chasm sawmill near Cache Creek, the mayor of nearby Clinton called the shutdown a “kick to the stomach” for the region.

Those two closures put 210 people out of work. Long-time Chasm worker Tom Moe told the 100 Mile Free Press that young employees took the news the hardest.

“Between fires and beetle kill, we’re running out of wood. I don’t think we’ll be the last mill to go,” Moe told the newspaper.

Other towns hit by permanent closures include:

  • Fort St. James, which declared a state of financial crisis in the wake of a Conifex mill closure there that put 170 people out of work.
  • Quesnel, where the shutdown of a Tolko sawmill, affected 149 people. Tolko also permanently cut a shift from its Kelowna operation, impacting another 90 people there.
  • Vavenby, where 172 people are affected by the closure of Canfor’s mill.
  • 100 Mile House, hit again with the closure of Norbord’s oriented strand board mill, laying off 160 people.

At Quesnel, people are already feeling the impact of Tolko’s departure. Kathy Somerville, manager of the Quesnel & District Chamber of Commerce, says it’s uncertain how many jobs in total will be lost when the last log goes though at the end of August, she says, as jobs in contract logging, trucking and other supply services will be lost as well.

“This is huge,” Somerville says. “And there is definitely more to come. We need help.”

People are asking what the communities of the central Interior will look like after the sawmill closures, she says. In what direction does the regional economy go?

The permanent closures are a direct impact of the mountain pine beetle epidemic. The beetle destroyed an estimate 58 per cent of the merchantable pine. However, the damage to the Interior’s long-term sustainable harvest has been masked for the last 10 years by the fact that the harvest was actually increasing as sawmills scrambled to utilize the dead pine before it dried out. Now that those dead trees are beyond being made into lumber, harvest levels are dropping as the province’s chief forester brings the Allowable Annual Cut down to the new norm.

This fall-down in the timber supply has been expected for some time. From 2010 to 2018, 15 mills closed as the pine harvest gradually declined. Now, says Jim Girvan, a professional forester and industry consultant, the next phase of closures has begun. In the last three months, another six permanent shutdowns (either entire mills or shifts equal to the loss of a mill) have been announced. Girvan, whose company MDT Ltd., released a study July 31 on future timber supply and sawmill capacity, says that an additional seven or eight mills will have to close before the Interior’s capacity to make lumber reaches equilibrium with the available supply of timber.

Other factors besides the pine beetle are responsible for the increased toll in mill closures. They include:

  • Mountain caribou conservation strategies, which will likely be applied across much of the Interior.
  • A massive spruce beetle infestation that is killing timber in the north-central Interior.
  • The loss of timber to forest fires.

Most of the impact will be felt over the next six years, Girvan forecasts.

Also, when a sawmill goes down, co-products from wood chips to trim ends, sawdust and hog fuel also dry up. Girvan sees a real risk of one or two pulp mills closing along with at least one pellet plant and one power plant.

“There’s a downstream effect on other big employment-based industries. You take a pulp mill out and you are taking 500 or 600 jobs out with it.”

Girvan is not the only one sounding alarms about the threat to pulp mills.

“Clearly, there’s going to be ramifications for some – probably one or two – of the higher cost pulp mills,” Canfor CEO Don Kayne told analysts in a conference call July 26.

The permanent closures are all a consequence of the dwindling fibre supply. Why it all seems to be hitting companies, workers and communities so hard this summer is due to a confluence of forces that are now at play in the B.C. forest industry.

The end of the pine harvest is kicking in when North American lumber prices have taken a precipitous drop. At the same time, the cost of logs has spiked because of a set-in-stone increase in provincial stumpage rates implemented on July 1. In contrast to the beetle-induced permanent closures, the indefinite and temporary curtailments are the industry’s response to the present supply-demand dynamics within lumber and log markets. Lumber can be milled profitably in Alberta, where for a variety of reasons log costs are lower, but mills in B.C. are losing money on every 2×4 they make.

Understanding the incongruity of log prices going up when lumber prices are spiralling down, requires a brief lesson in the convoluted world of the British Columbia stumpage system. Stumpage is the fee that the government charges for harvesting timber on Crown land. In the Interior, this stumpage protocol, called the Market Pricing System, was implemented as part of the 2006 Softwood Lumber Agreement with the United States. The B.C. government clawed back 20 per cent of the tenure held by major forest companies and used much of that timber to create a new Crown-owned agency, BC Timber Sales, which auctions off that timber to logging contractors. Those auction prices set the stumpage rate for the rest of the Interior. It’s a market-based system designed to satisfy the Americans. It also kept stumpage rates low during the period when companies were harvesting low-valued beetlewood.

Now that the supply of timber is falling and uncertainty is growing over how much wood is actually available for harvesting, contractors are bidding up prices beyond the point that sawmills can profitably convert the logs to lumber. A bidding frenzy took hold in the period leading up to the most recent stumpage increase on July 1. West Fraser president Ray Ferris told analysts in a July 19 conference call that bidding has since moderated somewhat as a result of sawmill curtailments reducing log demand. But he thinks a return to more rational log prices is still “down the road a ways.”

Both government and industry agree that as painful as it now is, the timber pricing system must remain in effect, as any changes here would trigger calls for more trade sanctions against Canada from the U.S.

There’s little either NDP of Liberal provincial governments could have done to prevent today’s crisis, says Girvan.

“It’s fine reading all this Liberal-NDP banter back and forth blaming each other. But I really have to question: What could they have done to protect the industry? Not much. Mother Nature killed the forest in various ways.”

However, policies that are either in place or in the works are causing unease within the industry over the forest sector’s ability to access the remaining timber and compete in world markets. The B.C. Council of Forest Industries (COFI) has identified 20 changes in the policy environment that are impacting the sector. The common thread heard throughout the industry is that companies need time to adjust to reduced timber availability. The message is: deal with the fall-out of the beetle, forest fires and mill closures before bringing more uncertainty through new policies to a sector that is already in crisis.

Most attention now is focused on Bill 22, which revokes the right for forest companies to swap timber tenures without government approval, a change that was implemented by the previous Liberal government in 2004 as partial compensation for the 20 per cent tenure clawback.

Under Bill 22, the forests minister is to take into account the public interest in any timber tenure sale. The government has yet to spell out how it intends to define public interest. However, statements in a discussion paper on the government’s Interior Forest Sector Renewal initiative could provide clues.

“Concentration of forest tenures in the hands of a few large operators can be detrimental to supporting community resiliency and diversity within the Interior forest sector,” the discussion paper states. “Bill 22, the Forest Amendment Act . . . was developed to ensure the interests of Indigenous Nations, communities, labour and forest resource sustainability can all be considered by government through what is called a public interest test.”

Girvan says Bill 22 could have dire consequences at this particular time when the industry needs to rationalize. The first transfer under Bill 22 – Canfor’s decision to sell tenure that supplied its Vanvenby sawmill to Interfor for use at its Adams Lake mill – is a case in point. The Vavenby tenure supplies the mill with 350,000 cubic metres of wood, only a third of the logs it needs. The Adams Lake mill has enough logs to supply half of its needs. Fully utilizing the wood supply by allowing one mill to operate at capacity makes a lot of sense, Girvan says.

“The logging jobs will always be there, but the manufacturing jobs will go. That means no sawmilling jobs in Vavenby and all the sawmilling jobs in Adams Lake. But if the minister were to step in and say ‘No, we are not going to allow that,’ who’s going to use that 300,000 cubic metres of wood in Vavenby? Nobody is going to invest in that as it is too small an entity.”

The rush to make Bill 22 law stands in contrast to the much slower process of issuing permits to harvest timber burned or damaged in the forest fires of 2017 and 2018.

“We still don’t have permits to move some of the salvage out from over a year ago. And that’s a problem,” says COFI president Susan Yurkovich.

Issues over the environmental impact of logging in fire-damaged terrain have been cited as a reason for caution. Guidelines published by B.C.’s Chief Forester in 2018 lay out how salvage harvesting can take place. Recovering value from the burnt timber is the last priority in a list that emphasizes recovery of the landscape. In Douglas fir zones in particular, foresters are urged to wait until the site has been replanted before harvesting takes place. Planting first, however, may be a difficult policy to put into action as it could put tree planters working beneath standing dead timber at significant risk of death or injury from falling limbs.

In the meantime, concerns are circulating that bark beetles are attacking those fire-weakened trees. The damaged forests could become the incubator for yet another beetle epidemic.

Reconciliation with First Nations also remains an unresolved issue. Forest companies have all engaged in negotiations with First Nations in whose territory they operate to reach accommodations over harvesting. The agreements are as diverse as the nations themselves but one common theme is that the nations want more direct control and involvement in the forest sector.

Companies are responding to that demand and also making payments to First Nations for the right to harvest. As they already pay stumpage to the province, they are in effect paying twice for the same log. It’s another reason why log costs are higher in B.C. than in Alberta. It’s not a complaint aimed at First Nations. The industry is a leader in involving Indigenous people in its operations and willingly enters negotiations.

But instead of taking more tenure from companies and redirecting it to First Nations, one solution being talked about around the industry is to turn over the entire operation of provincially-run BC Timber Sales – the province’s largest tenure holder – to First Nations.

Government owns it, why not put it in the hands of First Nations. Let the First Nations run it and give them a revenue source.

That’s where politics comes into play. Enacting such a proposal would require a government elected largely by urban voters to give up a revenue source from the hinterland.

COFI president Yurkovich would not comment on specific policy issues raised by members, as COFI is currently gathering ideas and preparing a submission to the government’s Interior Forest Sector Renewal initiative. Regardless of who owns the resource, the industry needs access to timber at a competitive cost, Yurkovich says.

“The bottom line is, if we want to continue to be a driver of the economy across the province, we have to be able to compete,” she says. If people want to have reinvestment, we have to be able to compete, and part of that is having timely access to competitively-priced fibre.

“British Columbia is now a high-cost jurisdiction. If you are the high-cost producer, you go down first, and that’s not what we want.”

 

An industry evolves

For the last 60 years, the Interior forest sector has been built around a timber supply that at one time seemed inexhaustible – endless forests of spruce, fir and lodgepole pine.

The timber harvested from those forests consists mostly small diameter logs that were considered of no worth by loggers until the 1960s when new sawmilling technology and forest policies that encouraged the utilization of small-diameter timber unlocked their economic value as 2x4s for the U.S. housing market. To stimulate use of the small diameter timber, Ray Williston, the minister of lands, forests and water resources at that time, told mills that if they installed debarkers and chippers, they could apply for access to this abundant new supply of wood. Mills responded and lumber began going south of the border to the growing U.S. market, while the residual wood – a by-product of turning a round log into a piece of lumber – was ground into chips. The ready availability of those chips stimulated a massive investment in pulp mills. Over the years new innovations like plants to manufacture finger-jointed lumber from trim ends, bio-energy facilities utilizing bark to reduce dependence on fossil fuels, and pellet plants to make a product from sawmill shavings completed an economic transformation that created value from the entire log. Forests that were once deemed of little economic value produced wealth for companies, jobs for people, taxes for municipalities and revenues for the province.

It’s a value-added industry built around 2x4s made from small trees. The model created 60 years ago still works. What has happened now is that the size of it is being reduced.

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Top photo by Nalidsa/Adobe Stock; bottom by Lennart Heim/Unsplash.

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August 28th, 2019

Posted In: Resource Works

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