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BC NDP blasted for its forest policy

“B.C. is becoming uninvestable,” warns Paul Quinn, B.C.-based paper and forest products analyst for RBC Capital Markets
Experts fear province’s forestry industry will be cut in half | BCMSA

The next few years is going to be a good news, bad news story for B.C.’s forestry sector, market experts speaking today at a Truck Loggers Association conference predicted.

The good news is that the outlook for lumber demand and prices in 2022 and 2023 “looks very good,” according to Russ Taylor, president of Russ Taylor Global forestry consulting firm.

The bad news is that, by the time the John Horgan NDP government is done “modernizing” B.C.’s forestry sector, it will be half the size that it was when the NDP first took power, said Paul Quinn, a B.C.-based paper and forest products analyst for RBC Capital Markets.

Quinn said the Mountain pine beetle infestation will be responsible for reducing the sector – i.e. the number of mills and jobs – by 30 per cent.

“When you add in old growth deferrals that are outlined, and probably the caribou mitigation efforts that the government’s about to introduce, I believe the B.C. industry will be about half what it was at the start of the current NDP (government) when they were elected,” Quinn said.

Those polices include removing up to 2.6 million hectares of old growth from the timber harvest land base, a move back to a more prescriptive forestry practices regime, and a tenure redistribution scheme that Quinn characterized as taking “from the most efficient firms and redistribute it to less efficient players.”

The industry may have a couple of good years ahead of it, thanks to an American housing market that will continue to drive a bull market for lumber.

“The outlook’s very good,” said Taylor, who predicted “incredible prices” in 2022 for lumber.

Taylor said the American new housing market has been “underbuilt” for 13 years.

“Because we’re underbuilding houses (and) right now trying to catch up, things look good for the next few years,” Taylor said.

He said repair and remodelling account for about 40 per cent of the North American market for lumber and other wood construction products, with new housing accounting for 31%.

Last year, lumber hit record highs of $1,600 per thousand board feet. There was a correction, but currently the price of western spruce-pine-fir 2 X 4 lumber is around $1,000 per thousand board feet -- which is about three times higher than average.

“I’m very confident we still have three or four years of strong lumber consumption ahead of us,” Taylor said. “So 2022 should be another good year.”

He said the biggest production growth will be outside of B.C., however, notably the U.S. south, where B.C. forestry majors have been buying up sawmills and building new ones, thanks to the availability of timber there and lower operating costs.

Taylor said 8 billion board feet of new sawmilling capacity has been added in the U.S. since 2018, although those mills are not yet running at full capacity.

“The B.C. story is different,” Taylor said. “The coast is actually a shadow of its former self. It’s come off even since 2000. It’s half the size it was. And, of course, in the Interior…the pine beetle, of course, has really caused production to start dropping since 2017.”

Canada still accounts for 86 per cent of American lumber imports, with Europe (mainly Germany and Sweden) making up 10 per cent.

Because the annual allowable cut is shrinking in B.C. -- due to fires, the Mountain pine beetle infestation and conservation (parks and protected areas) -- the Horgan government has embraced the idea of doing more with less. It has touted higher value-added industries like cross laminated timber (CLT) production.

Taylor said that can be a good strategy, if the government understood the industry, which it doesn’t.

“This is not government’s expertise at all, and that’s my concern,” he said. “What I’ve learned is that value-added is not margin-added. History tells us over and over and over again, you can’t always make money at value-added. In fact, it’s a very dangerous business for those who try it.”

One of the problems for value-added industries is that they rely on a highly integrated primary manufacturing industries, and when sawmills go down, there is a cascade effect on other businesses. That has been happening in B.C. for some time now.

“You see mills closing all over the place,” Taylor said. “Whether it’s sawmills, plywood mills, pulp and paper lines, reman plants, furniture plants, shake and shingle plants – everything. We’ve had closures across the board.

“If you want to invest in the future, shutting down sawmills is not necessarily going to help the value-added sector. It’s going to be proportionately reduced as well.”

Taylor said his analysis has shown that the U.S. has advantages for value-added business, so if new CLT plants are built, they might more likely end up being built in the U.S. than in B.C.

B.C. has gone from one of North America’s lowest cost producing regions for forestry to the highest. And a laundry list of new forestry policy changes coming from the Horgan government is about to make it an even less attractive place to invest in.

“B.C. is becoming uninvestable,” Quinn said bluntly.

The government’s old growth forest moratoria would result in 4,500 job losses, according to B.C.’s forestry minister. The Council of Forest Industries estimates the losses more around 18,000 jobs and 14 to 20 sawmills. Taylor has estimated the job losses at around 10,000.

“I’m more in the latter camp,” Quinn said. “It’s definitely going to be multiples of the minister’s estimate, and I think we should be straight up and frank about that.”

Part of the government’s tenure redistribution plan is intended to give smaller players and First Nations more timber and a more active role in forestry.

But currently, forestry companies with cutting rights on First Nation held tenures can be double-taxed, because they pay both stumpage to the province for Crown cutting rights and access fees to First Nations with timber rights. These fees can be small, Quinn said, but can be as high as $15 per cubic metre.

If the Horgan government is serious about using forestry and timber tenure as part of an economic reconciliation strategy with First Nations, Quinn suggested First Nations should get the full share of stumpage revenue.

“Let’s move quickly to full revenue sharing with First Nations,” Quinn said. “Let’s rip the Band-Aid off. I believe the majority of B.C. companies would welcome this change, it stops the current double taxation, and it enables First Nations to grow into their eventual forest management role.”