Guest Column

With Nothing More to Lose, Is It Time to Try Change in BC?

By Clark Binkley

Markets for most of British Columbia's forest products are moving from bad to worse. SPF lumber prices have already fallen to levels not seen in a decade. The green hemlock products that have been the Coastal mainstay have fallen out of favour in their main market, Japan, and the quotas under the Softwood Lumber Agreement (as well as the Coastal cost structure) keep this volume out of the United States. Expiry of the Softwood Lumber Agreement early next year, in the face of what is shaping up to be an extremely soft lumber market, will put further downward pressure on product prices. Even the one bright spot market pulp seems to be darkening as companies fail to match production with consumption and inventories build.

BC's forest industry has just completed an extremely disappointing decade, with an average return on capital well below that available for Canada Savings Bonds (and the risk far higher). The anticipated market downturn over the next couple of years will put a great deal of pressure on financially weakened firms, and the many forest dependent communities including Vancouver and Victoria will, in turn, feel the pain. As someone once said, change will be considered after all other options have failed. Maybe now it is evident that "all other options have failed" in laying the groundwork for an economically strong, internationally competitive and environmentally sustainable forest industry in BC. Maybe now is the time to think the unthinkable and do the formerly undoable privatize the land base that will support the industry in the future. After all, the decision to stop privatizing forestland in BC was made almost a century ago, in 1906.

Hasn't the world changed enough in the last century to reverse a policy that was crafted when steam donkeys dominated the industry, the BC Interior was untapped and the Internet was unknown, unconceived and unconceivable? What are the arguments for positive action now? The world is rapidly moving to a plantation based timber economy. At the moment, about one third of the total industrial harvest comes from plantation sources and if current rates of planting and technological change continue, that share will increase to about 80 per cent over the next 25 years. To some degree, environmental factors have driven this transition from natural forests to plantations, but economic factors are far more important.

For example, a recent global study of plantations by New Zealand forestry consultant Dennis Neilson found that, worldwide, the average cost of growing softwoods was US$20/cubic metre, with hardwoods US$8. Since these plantations are often established on flat ground where logging is cheap, you can imagine that mills relying on this source of supply would face all in log costs of $20$30 per cubic metre. To be sure, BC's old growth forests have some quality characteristics that are hard to replicate in plantations, but technology and the steady decline in the quality of BC's available old growth are eroding these advantages. I cannot imagine a mill in BC that would not drool over log costs this low for straight, uniform, defect free logs.

If BC is to have a forest sector in the future (and without positive action taken today there is no guarantee it will), it must move to low-cost plantation supplies as rapidly as possible. A plantation area of 17 million hectares three million on the Coast and 14 million in the Interior could sustainably supply 100 million cubic metres of timber, far more than the current harvest of about 60 million cubic metres. This would allow BC to have an area of parks and preserves of about 70 million hectares an area larger than France. Even Greenpeace could not complain about that! The key problem is that leading edge plantations require directed capital, and lots of it.

Experience has clearly demonstrated two facts: one, that governments will not provide either the necessary direction or the necessary capital over the long period of time required, and two, the private sector will supply this direction and capital. As a consequence, the only course of action that will secure the future of BC's forest sector is to privatize whatever area will comprise the land base for future timber supply. A relatively modest program of privatization two million hectares on the Coast and five million hectares in the Interior would go a long way towards laying the foundation for future prosperity in the forest sector. There are lots of ways to handle such a privatization, and Canada's Commonwealth brethren Australia and New Zealand (as well as Sweden) offer some useful examples. If ensuring the prosperity of BC's number one industry is not reason enough alone for adopting this sensible policy, there are others.

For example, the privatization discussed above would probably also improve BC's fiscal balance by about $300 million to $350 million a year if all the proceeds were devoted to paying down debt. A substantial privatization of Crown land in BC would also pave the way for open markets for logs, a structural change that would help lead to normalized trade relations with the US (that's economist speak for "eliminating the Softwood Lumber Agreement"). I have been involved in BC's forest industry for about 10 years. Over that period of time, the industry has declined rather dramatically (I surely hope I was just an observer and not the cause!).

Dramatic new policies have been tried the Protected Areas Strategy, the Forest Practices Code, Forest Renewal BC, to name a few. Yet the industry continues to decline, the economy continues to stall and people continue to suffer. Maybe now is the time to try real change and privatize some of BC's Crown timberland.

Clark Binkley is former dean of the faculty of forestry at the University of BC and is presently Chief Investment Officer of the Hancock Timber Resource Group in Boston, Massachusetts.

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