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article imageStumpage system driving the crisis in BC's forestry industry

By Karen Graham     Sep 16, 2019 in Business
Vancouver - High log prices and dwindling timber supply are driving the crisis in British Columbia's forestry industry that has devastated communities and kneecapped the provincial economy, observers say. However, there is more to this story.
With close to 4,000 forestry industry workers laid off in British Columbia already, advocates are calling for urgent government action to stem the bleeding. There have been shutdowns or curtailments at over 200 mills in the province to date, according to CBC Canada.
Western Canada's forestry sector is mired by a variety of problems that have impacted on the economic growth and future reliability of the lumber industry to sustain itself.
Besides the increase in the number of wildfires, low harvest levels because of mountain pine beetles, an increase in protected areas for caribou, and high log prices, it seems the provincial government is not interested in “wholesale” changes to the stumpage system.
Polus-Tec Pre-cut plant  on the outskirts of Tokyo imports wood from all over the world and is fully...
Polus-Tec Pre-cut plant, on the outskirts of Tokyo imports wood from all over the world and is fully automated in delivering "pre-cut" beams in Japan's post and beam housing sector. It represents a potential growth opportunity to use hemlock from B.C.'s coast. The plant was visited by delegates on the 2018 Forestry Asia Trade Mission. Japan is B.C.'s third largest market for B.C. wood products.
BC Council of Forest Industries
"Something needs to change immediately or these small communities that don't have other employers are going to wither and die," said Marty Gibbons, president of United Steelworkers Local 1-417, based in Kamloops, B.C. The local represents hundreds of forestry workers who have lost jobs in Interior communities including Merritt, Clearwater, Vavenby and Clinton.
Citing the province's complex stumpage system, Gibbons said, "These are private businesses. If they can't turn a profit, there's no reason for them to run. Right now, it's not the markets that are the issue. It's the cost of the logs,"
What is the stumpage system?
In its broadest sense, stumpage is the price a private firm pays for the right to harvest timber from a given land base. It is paid to the current owner of the land. Historically, the price was determined on a basis of the number of trees harvested, or “per stump."
Softwood lumber prices in British Columbia have seen a jump because of the wildfires.
Softwood lumber prices in British Columbia have seen a jump because of the wildfires.
Art Anderson (CC BY-SA 3.0)
Canadian forests exist mainly on what is considered to be crown land, under the provincial governments' control. On Canadian crown land, stumpage is known as the market value of standing trees that must be paid by firms for the right to harvest timber, with each province having its own calculation method based on market-based benchmark prices.
In the United States, much of the land used for harvesting timber is privately-owned, “stumpage prices are determined by the market." The difference between the cost of acquisition of harvested timber between the United States and Canada is the cause of the ongoing Canada-United States softwood lumber dispute, with the U.S. claiming the Canadian system of determining stumpage fees amounts to a subsidy.
Many homes in the U.S. are built using Canadian softwood lumber  like this home under construction i...
Many homes in the U.S. are built using Canadian softwood lumber, like this home under construction in Katy, Texas.
Jaksmata (CC BY-SA 3.0)
What does this mean for the BC forestry industry?
In a nutshell, the BC Forest Ministry says the current stumpage fees are based on the scarcity of the timber supply caused by the mountain pine beetle outbreak and has been "exacerbated by several severe fire seasons."
"Intervention in the stumpage system would weaken the legal case in the appeals of the duties imposed by the United States on softwood lumber from Canada," the ministry said in a statement. "It is well-known that any interference in B.C.'s market-based timber pricing system would lead to an increase in softwood lumber duties levied by the U.S.," it said.
Ken Peacock, chief economist of the Business Council of B.C. said that besides the mountain pine beetle problem and wildfires, the policies of Premier John Horgan's government are also breeding uncertainty in the industry. The province's caribou habitat protection plan and its promise to implement the United Nations Declaration on the Rights of Indigenous Peoples have left most forestry industry people in the dark.
More about British columbia, foresty industry, stumpage system, price of logs, dwindling timber supply
 
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