 |
|
Mountain Pine Beetle: BC Lumber Critic Bob Simpson Interview, Federal MP Dick Harris Interview, US Softwood Control Bill, PwC Annual Pulp & Paper Conference, BC Softwood Lumber Remanufacturing, Wood Chips, Raw Log Sales
“The Federal [Canadian] government keeps throwing millions of dollars at the problem. The $100 million plus that Dick Harris, MP, talks about moving into MPB recovery actually came from the previous Federal Liberal government of Paul Martin and was a backfill for previous cuts that government had made,” remarked Bob Simpson, MLA. “It is troubling that we don’t have a coordinated Federal – Provincial response to the Mountain Pine Beetle problem,” said Bob Simpson, British Columbia member of legislature representing Cariboo North. His constituency encompasses the cities of Prince George and Quesnel, BC. “One problem is that we can’t track what happened to the money from the Federal government.”
In a time when the US housing market has taken a downturn, mills are closing throughout the province of BC due to market conditions, the mountain pine beetle is devouring the forests and those stands are being clear cut, the Canadian government is funding research and development projects that are not being monitored for effectiveness. Bob Simpson asked, “ How much money has gone into R&D pet projects? We don’t know. How many of those products have gone into the market? None. Not one has seen the light of day.”
Simpson asserted that he is all for monitored R&D. Value-added products must be developed to augment the dwindling income from the direct forest resource. However, sourcing the raw materials for these products is hampered by the “tenure” system as it exists in BC. Tenure is an arrangement between the provincial government and private industry to access public lands for economic activity. In the case of the forest industry, only four or five companies have special tenure relationships with the province that directly or indirectly control the log flow in BC.
Currently all wood fibre from crown lands goes into lumber, and is unavailable for new, value-added products. “We need to change the tenure system. If we had a free market for logs, we would have fibre available for other programs. In addition, without the tenure system, the objections of the US lumber lobby would no longer be relevant,” said Simpson. The softwood lumber agreement between the US and Canada is predicated on special relationships like the tenure system between the forest industry and the province.
Rich Coleman, British Columbia Minister responsible for Forests and Range, has recently come under fire for failing to fulfill his promises to coordinate the effort on the Mountain Pine Beetle. “He dropped the ball,” said Simpson. “Years of this [Provincial] Liberal government have not produce the results that were specifically targeted.” “Right now we view our forests as a source for lumber only. We have to shift to see it as a resource for a variety of products including: pharmaceuticals, bio-plastics, bio-fuels, bio-chemicals.
Direct forest products like lumber need to be just part of the mix including value added and engineered wood products, pulp, pellets and power.” Simpson continued, “ The next five years we have a huge impact on allowable cuts. As a province, we need a new business model and market strategy that is value-added.” To ensure that there will be forests in British Columbia in the future, forest health must be a major thrust. For example, trees must be planted at least at the rate that they are being taken out. But is that the case?
“There is a lack of provincial leadership and an actual falling off of all forest health activities,” said Simpson. “In 2007, 270 million seedlings were planted. That is less than were planted in a single year a decade ago. We are also cutting a significantly higher number of trees, in addition to the loss of land base to fire, pests and disease.” What is even more alarming is the drop off in the projected number of seedlings to be planted in the future. “In 2009, the province of BC projects that it will plant 190 million seedlings. That is the lowest number in 30 years,” reported Simpson. Many of the private and publicly initiated projects for MPB mitigation are abandoned before they start. “The stumbling blocks to getting funding are many. Each program, Federal or Provincial, has to be applied for separately.
Some programs require that the applicant show other source money. The catch is that they have differing criteria.” Using the same application for several programs is nearly impossible. “The applicant can’t leverage funding between programs,” noted Simpson. Bob Simpson went on to ask, “ Where is the coordinated, comprehensive plan for the Province and Federal government working together to direct funds to the forest land base? Where are the programs that address socio-economic conditions? We need to transition affected communities through this horrific experience. And where is the strategy for this?”
Forestry concerns more than Pine Beetle
The city of Mackenzie in northern British Columbia is in the news with the shutdown of its single largest employer, forest products mills. In a wave, other small, forest industry dependent towns throughout BC are losing their means of survival. The reason for the closures? Market conditions; the downturn of the US housing market. The shift in value of the Canadian dollar to equal or greater than its US counterpart.
With a high dollar, Canadian lumber is neither as profitable to its makers nor is it as attractive to US buyers. But when mills close for market conditions, there is still a chance that they may reopen if the market changes in the near future. However, according to Bob Simpson, member of the provincial legislature for BC’s Cariboo- North, the media isn’t talking about the towns like Quesnel, Williams Lake, Prince George and Princeton where the mills are still running in the heart of mountain pine beetle country.
“Mountain Pine Beetle areas are not in the news while they are chewing through the affected forests. The clock is ticking,” says Simpson. In these areas, a whole landscape, miles and miles of standing beetle killed timber must be removed and milled before it is no longer merchantable. And that means clear cutting on a scale that most have never dreamed of.
But this is no dream, it is a nightmare. “There will be no come back for those communities,” said to Simpson, “Within only the next few years, some say as soon as 2010 or 2012, those forest dependent towns in beetle country will not have enough standing forest to keep operating.” The mills in those cities will close and those closures will stick, not because of market conditions but because a mill can’t run without material. “The Ministry of Forests response to the economic problems is to increase the annual allowable cut which speeds up mowing [the forests] down.” Why can’t we simply replant all the trees? Seedling counts are referenced by the province and the Canadian federal government as the great hope of the future. New trees would be the answer if they will grow fast enough and if they can survive. But global warming and soil depletion are two factors that will inhibit the recovery of the naked land. “We are not just dealing with the mountain pine beetle,” advised Simpson. “MPB is just the canary in the coal mine.”
The lack of the natural cleansing and soil nourishing from periodic forest fires adds to the lack of cold winters as the planet gradually heats up. “These conditions set the table for pests that we’ve never seen in these areas before such as the spruce bud worm, pine blight, root collar weevils, rusts and mites. These used to be controlled by cold winters and periodic forest fires.” Some or all of these pests will become the nemesis of the newly planted forests. Bob Simpson noted,“The funds needed to deal with the beetle killed forests would be around $800 Million to $1 Billion over the next ten years. But so far the province has allocated only $160 Million over three years and the federal government has matched that with nothing.
Not only is the province under-funding the effort, but its estimates on the number of affected hectares of forests only take into account mature trees affected by the beetle. It actually has affected all age classes. The forests are not healthy. 14 Million hectares [province estimates of affected forest] is only the tip of the ice berg.” In single resource communities that will be affected by the loss of their forests, the province has proposed job retraining for 55- plus year old workers and make-work projects. “But that plan flies in the face of reason. It assumes that this industry will rebound after the forests are cut down. Many mills are afraid to take down time now because they will lose their work force.”
The workers will be at the mills until the day when there are no materials to run. Then there will be no jobs and no plan for individuals to transition. Simpson says, “Contributing to the loss of the forests to pests is the softwood lumber agreement that was signed in 2006.” In Simpson’s opinion, Dick Harris was mistaken in his recent interview with Madison’s that the decline of the US housing market was an unfortunate coincidence with the signing of the Softwood Lumber Agreement. “It’s on the public record that in the fall of 2005 our industry was poorly positioned for the housing bubble to burst. I knew it and said it at the time. The feds knew early in that summer that the dump was coming.” “The softwood lumber agreement was [Prime Minister] Stephen Harper’s quick political win. Industry was brow beaten into signing it. The Prime Minister knew they were saddling us with a 15 per cent tax,” stated Simpson. “In the middle of the signing process, we had rulings that we would surely have won.” “The [Harper government] said we gained certainty from this agreement. But where is that certainty now with the new US farm bill tacking on conditions to lumber imports from Canada? That puts lumber into the [internal US] political arena. The trade deal is supposedly under NAFTA. The irony is that the US lumber lobby won this battle with the $1Billion in duties that wasn’t returned to Canada as a result of softwood negotiations,” Simpson added.
Conservative member of the Canadian Federal Parliament (MP) for the Cariboo Chilcotin Region, Mr. Dick Harris’ riding encompasses the cities of Prince George, Quesnel, Wells / Barkerville, Williams Lake and Vanderhoof, BC.
Madison’s: What is the status of the Canadian government’s program to stop the mountain pine beetle?
Mr. Harris: We are into a number of phases of the mitigation program. Out of the $300 Million allocated for this, $100 Million has gone to the province of BC as of December 2005. In the 2006-07 federal budget, another $200 Million was allocated for the following three fiscal years. $102 Million was allocated to projects such as: - economic diversity - to control the spread of the mountain pine beetle in pockets - wildfire protection - research into bio fuels - value added products from the beetle killed wood and finding markets for these new products The money was released directly into the affected communities for job training. Another $102 Million was given and $198 Million as allocated for disbursement through March 2009.
Madison’s: What products have developed as a result of the mountain pine beetle infestation?
Mr. Harris: We are providing funding to Universities for research to find new products. The concrete – wood fiber combination being worked on at the University of Northern British Columbia is one I haven’t checked on this since last fall. But there are several products that look good in the laboratory. Finding market uses for them is the next challenge.
Madison’s: How does the government anticipate controlling the spread of the mountain pine beetle?
Mr. Harris: There is a major pocket in northeastern BC that has moved through a pass into Whitecourt, Alberta. To control this, we are pursuing a cut and burn exercise. The key is to first identify affected trees. This project is in cooperation with the Provinces of BC and Alberta. Financial allocations on this one project are $52.2 Million from the province of Alberta and $29 Million from the province of BC.
Madison’s: How does the current situation look on the MPB?
Mr. Harris: We were helped out by a major freeze this winter. It’s possible that we had a 90 per cent kill as a result.
Madison’s: On another topic, what is the status of the Softwood Lumber Agreement?
Mr. Harris: It was what we needed at the time. We didn’t need to continue the litigation [with the US]. The costs and uncertainty had to end. We have a saying “you don’t get what you deserve, you get what you negotiate.” In this case we got about $5 Billion back to Canada from the duties that had been collected. It was just an awful coincidence that, after signing, we saw the US housing market go into the sewer and that drove lumber prices down. The mechanism to start the 15 per cent happened pretty quickly. It’s still a much better situation than without [the softwood lumber agreement]. The Americans would have put a duty on it any time they wanted. At least now the duty is staying in Canada. The softwood lumber agreement: - stopped lawyers from getting rich - gave us certain so that mills can plan for what they need to do - when the market comes back, folks will think it’s a good thing.
Madison’s Canadian Lumber Reporter thanks Dick Harris, Member of Parliament, for taking the time to talk with us on these important issues. Dick Harris’ riding includes Tweedsmuir Provincial Park where the mountain pine beetle (first detected in the 1980s) made news in 1994 with a major infection. The bloom in the 2.4 million- acre park, the largest in the province was assessed by BC Parks and Ministry of Forests.
MPB management actions at that time included the use of prescribed fire and fall and burn treatments. Other outbreaks outside of protected areas were also discovered around Quesnel, Williams Lake and Princeton, BC. Despite these management tactics, beetle populations have expanded by three or four times each year, now in the 14th year of expansion. As of 2006, the mountain pine beetle had devoured 9.2 million hectares of BC forest, making it one of the largest insect infestations in recorded history. In Prince George alone, more than 50,000 dead pine trees have been removed from city-owned land and school grounds – not including the trees removed from private property.
Forestry experts and entomologists agree that you can’t “stop” a beetle expansion such as we now see across British Columbia. Only nature can do this through two consecutive very cold winters. With global warming, cold winters have been too few and far between to kill the beetle. Large scale government funding has been allocated at the provincial and federal levels to study how to deal with the beetle. Meanwhile, the epidemic has spread throughout the central interior of BC, to neighboring Alberta and into the state of Montana.
In his capacity of MP for five consecutive terms (the past 15 years), Dick Harris has served in several Parliamentary positions, currently serving on the Standing Committee on Natural Resources. While a member of the Official Opposition, Dick was the leading spokesperson for the Official Opposition on the pine beetle issue. He continues that role as a member of the Conservative Government of Canada. His experience, influence and determination allowed him to secure a $1 billion commitment to mitigate the pine beetle infestation.
A surprise move in the US House of Congress Wednesday attached a piece of restrictive legislation on softwood lumber to an unrelated agricultural bill. US President George W. Bush had initially indicated he would impose a veto. However, on Thursday the bill passed through the Senate with well over the 65 per cent majority needed to effectively remove the possiblility of an executive veto. Experts now predict that there is little to no chance of Presidential involvement.
Softwood Lumber Imports
The controversial addendum to the farm bill was strongly supported by Montana Senator Max Baucus, a long time proponent of restricting Canadian lumber imports into the United States. Meanwhile US trade representative Susan Schwab, one of the signators of the 2006 Softwood Lumber Agreement, expressed opposition to the amendment of the farm bill. The terms of the bill will require Canadian importers to prove the current 15 per cent tax on lumber has been paid, and goes so far as to allow intrusive and detailed examinations of related paperwork. Canadian exporters estimate the extra work and delays could cost them up to $20 per load of lumber crossing the border, adding yet another burden during these times of instability in the marketplace. The timing of this surprise addendum to a completely unrelated bill raises the concern of heightened US protectionist policies, particularly given the likelihood of a Democratic succesor to the White House in the upcoming Presidential election.
Every year at this time Pricewaterhouse Coopers holds a conference in Vancouver about paper and forest products. Particularly of late, it has been a joyous event, with analysts throwing out figures of record production amounts and commodity prices. This year told a different story. Recent statistics and predictions alike showed a difficult future indeed - at least in the short term - for the North American wood products industry, especially in British Columbia.
Paper & Forest Products
Craig Campbell, of PwC, explained that the value of the Canadian dollar has risen 57 per cent against the US greenback since 2002. The five cent increase since 2006 alone has cost the Canadian forest industry over $2 billion, $600 million of which comes from BC. British Columbia alone must take a certain amount of blame for the current lack of lumber demand, since that province did not decrease production in 2007. Campbell maintains that company strategies of cranking out product in an effort to remain the “last man standing” only served to exacerbate the problem of oversupply.
The large number of mill closures announcement for 2008 still don’t appear to be enough to bring about a supply balance in the marketplace. Patricia Croft, chief economist at Phillips, Hagar and North also spoke at the conference, explaining that traditionally the US economic cycle downturn is two-thirds of up-cycles. This latest up-cycle was 10 years, so the US economy can be estimated to be only half-way through this down-turn. In fact, Croft predicted more hard times in the US, with the next phase of collapse to be in defaults of credit card, auto and student loans.
Meanwhile, Avrim Lazar of the Forest Products Association of Canada explained that while the nation is currently facing hard times in the forest products sector, land scarcity is going to lead to future growth. Several BC lumber companies are already embarking on real estate ventures, most notably Western Forest Products and TimberWest. Lazar maintained that the cost of food, fibre and oil will be equally influenced by soaring demand.
More information on the conference and its speakers is available at the PwC website at www.pwc.com/ca/fpp. In a few weeks, Pwc and the FPAC will be coming out with a study regarding wood and paper-based products and sustainability.
When the current Softwood Lumber Agreement was signed in 2006, remanufacturers in British Columbia noticed a marked discrepancy to the previous agreement; they were suddenly required to pay tax on commodities that had been exempt. All attempts, by agencies serving the industry, individual lumber companies, and local politicians, to have the terms of the Agreement in this regard adjusted failed. At the end of 2007 the British Columbia Ministry of Forests and Range, with the help of Pricewaterhouse Coopers, came out with a study of the effects of this new tax, particularly on producers in the Interior.
Post Softwood Agreement Effects in BC
After heavy consultation with the industry and relevant agencies, the study determined that not only was there a desire to rework the terms of the Agreement regarding remanufacturing, but also there was a call for changes to BC forest policy. The Ministry because it expects changes of ownership and operating structures as a result of the new taxes. The study concluded that the new Softwood Agreement affects lumber remanufacturers differently, depending on market strategy and product types.
As the business of secondary processing differs for various regions of the province, there is no one way to determine the resulting impact. Fibre shortages were found to be a problem throughout the industry, with Coastal mill having trouble sourcing raw logs and Interior mills needing more trim blocks and low grade lumber. Companies surveyed agreed that “Option B” (Export Charge + Volume Constraint) was having a negative impact on their business. It was felt that exclusion of non-dimensional remanufactured products from the Agreement, and improvements in BC stumpage determination for low grade logs would go far in solving some of these new problems.
The study itself can be found on the Ministry of Forests and Range website, at http//www.for.gov.bc.ca/HET/Sofwood/ index.htm, then scroll down to the link *NEW* Softwood Lumber Remanufacturing.
In probably the most bitter irony currently facing the North American lumber industry, at a time when Northern Bleached Softwood Kraft pulp prices are very high, wood chips have become dangerously difficult to source. Ongoing and recent mill closures in Canada and the United States have brought such a reduction in chip and sawdust production that some pulp mills are curtailing production as well. Its an unpleasant pill to swallow when in 2007 a strong pulp market was the only thing providing help to the profit margins of lumber companies.
Sawdust demand from other industries, for anything from fuel, building, agricultural or chemical uses, has only served to restrict supply of chips to the market further while at the same time causing prices to rise by 50 per cent from one year ago. A sweet twist to the irony indeed, giving lumber producers an unexpected income boost. Once demand for lumber increases, the price of chips will fall back down.
Lack of Supply
Early figures estimate that in 2007, North American sawmill closures brought a 15 per cent reduction in wood chip production. Pulp mills are being forced to buy more expensive roundwood chips, driving up demand for small sawlog chipping. In a reality repeated across the continent, the threat of supply has become so severe it was cited as the sole cause in Catalyst Paper’s April 30th announcement of 235 layoffs. Their Elk Falls mill in Campbell River and Crofton mill in North Cowichan will be permanently idled in an effort to make production more cost effective. The recent closure of the nearby TimberWest sawmill in particular has hurt Catalysts’ fibre supply.
On a brighter note, Catalyst kept its Port Alberni paper mill running by signing a rather unusual labour agreement with union members in February. The company was able to reduce its production costs by C$45 per metric tonne, and expressed hope in being able to draft similar deals at other plants. Both the Communications, Energy and Paperworkers Union and the Pulp, Paper and Woodworkers Union of Canada objected to the deal, and stated emphatically that such terms (such as rotating shifts giving workers few weekend days or Christmases off, and less vacation time) would not be entertained when negotiations take place for a major contract set to expire April 30.
As chip shortages continue, NBSK pulp prices are sure to be affected. For the moment the regular price cycle has been stable, with sufficient market pulp in the system to keep paper manufacturers - particularly in Europe - running as usual. As the shortage of each commodity in its turn makes its way up the pipeline, however, eventually paper mills are likely to be hit with a price increase of their own. Some customers have turned to shipping chips in from great distances, but are paying a premium so don’t expect to continue this practice for now. Everyone agrees that the only solution is for lumber demand to rise, bringing an eventual increase in the availability of this wood residue.
The recent practice of forest products companies of exporting raw logs rather than milling lumber themselves has driven up log costs at a time when companies can ill afford to pay. In addition, British Columbia’s stumpage fees are expected to be adjusted upward accordingly. In October of 2007 Rich Coleman, British Columbia Minister of Forests and Range, announced the provincial government was going to increase taxes on raw log exports on February 1 2008. In a two-tiered fee program, companies in northern British Columbia are allowed to export up to 35 per cent of logs harvested with no penalty. After that they must pay a 5 per cent tax, while in the south of the province companies pay a 20 per cent tax on Douglas Fir (15 per cent on all other species) provided the tax on softwood lumber exports remains at the 15 per cent level. Export of raw cedar log is, as always, prohibited.
Since then the proposal has been delayed as the Ministry of Forests and Range embarks on further study. The suggestion of a tax penalty, however, did not seem to have stemmed the tide of raw log shipments south, particularly by Canadian companies owning sawmills in the United States. If anything, there appeared to have been an increase in raw log exports over the past year as lumber prices remain depressed and, more recently, the Canadian dollar has gained strength against the American greenback. Reports of log shipments by water or over land were both frequent and widespread.
