OPINION: Why isn't the province doing more to help forestry sector?

November 12, 2019
Jock Finlayson

By any measure, forestry remains a vital economic engine for B.C., even as parts of the industry struggle with weak markets and high costs. Accounting for one-third of B.C.’s merchandise exports in a typical year, forestry is foundational to the province’s industrial base, supporting well over 100,000 direct and indirect jobs and serving as the economic backbone for dozens of communities. Forestry’s economic reach is unusually broad, with lumber manufacturers, pulp and paper producers, and logging companies purchasing billions of dollars of goods and services from other B.C. industries every year.

Today, B.C.’s most important industry is struggling. Some two dozen lumber mills have shut, temporarily or permanently. Thousands of jobs have been lost and more are at risk. The industry and the communities that depend on it have long weathered economic cycles, but this time is different. The vast tracts of forests killed by the pine beetle mean the industry in the Interior is staring at significant declines in the volume of trees available to harvest. Extreme forest fire seasons, increasingly complex First Nations rights and title claims, and new habitat protection measures further exacerbate the supply challenges. One result is that the cost of logs used to manufacture lumber and other wood products has shot up, even as the prices fetched for B.C.’s lumber in North American and global markets languish. Rising log costs have led to higher government-imposed stumpage levies, at a time when the industry is ill-equipped to absorb the extra financial burden.

Apart from paying more for fibre, the uncertainty and added costs created by frequent government-dictated legislative and regulatory changes and B.C.’s heavy tax burden on business are also undermining the forest sector’s competitiveness.

The question is why the province isn’t doing more to tend to the economic health of the forest industry. In most other jurisdictions, government would be moving heaven and earth to improve the operating environment for their number one source of export earnings. In B.C., not so much.

Policy-makers in Victoria would be wise to look at the forest industry through the lens of investors and capital market participants. These economic actors care about generating decent returns. They also pay close attention to the quality and predictability of the business environment. B.C. today scores poorly on both counts.

Companies that utilize B.C. fibre to make wood products need to pay a reasonable price for timber, one that’s linked to market forces. Given declining harvests, the B.C. industry needs to rationalize and shrink in a way that rebalances milling capacity relative to the timber supply. Government should permit this to occur in timely manner, allowing the transfer and rationalization of timber tenures to ensure the survival of a critical mass of efficient production facilities and related jobs. The province also must do more to protect the commercial forest land base to support the presence of a global-scale industry in B.C.

Other policy issues also require attention. B.C. lumber and pulp and paper producers pay tens of millions of dollars in carbon tax every year but compete with suppliers from jurisdictions that face no carbon costs. The province’s sales tax system is another home-grown impediment to competitiveness. And the burden of government regulation is greater in B.C. than in other Canadian provinces and U.S. states that host sizable forest industries.

Even as the supply of timber diminishes, B.C. will continue to have an enviable fibre basket. Wood is a renewable resource that stores carbon, giving it an advantage in the emerging carbon-constrained world. In making policy choices for an industry in transition, the province should be looking at the factors that would induce CEOs, company boards and investors to dedicate capital to the business here in B.C. If this perspective continues to be ignored, the investment dollars and management focus necessary to sustain a world-class forest industry in British Columbia will disappear.

Jock Finlayson, executive vice-president, and Ken Peacock, chief economist, are with the Business Council of B.C.

As published in the Vancouver Sun.

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