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Recipe for Gridlock

Updated: 5 days ago

Potentially 45,000 jobs lost and 50% reduction in BC’s timber harvest if the NDP government does not alter its course!


An Editorial Opinion – Right From The Stump, December 14, 2021


Through the recent whirlwind of major forest policy announcements, including forest planning changes, tenure redistribution and old growth timber harvesting deferrals, the NDP government has cast a dark spell of uncertainty onto the province of British Columbia.


When the discussion of potential impacts has been raised in the legislature or media interviews, Minister of Forests Katrine Conroy and fellow NDP MLAs provide only the much-repeated retort that affected workers will be provided transitional support from job losses caused by old growth timber harvesting deferrals……


Surprisingly, there has been no acknowledgement or commitment of support following any other potential impacts from policy changes such as forest tenure redistribution, forest planning changes and wildlife habitat protections (and so on). Rather, Premier John Horgan hopes that investors will overlook the turmoil foisted onto the forest industry and wants them to continue investing in province.[1]


It is my opinion that the NDP government’s do-it-all at once approach ignores the cumulative potential impacts and shows little regard for the complexities of the BC forest industry. Simply put, the NDP have created a recipe for sector gridlock.


A list of government’s recent changes was described in the View From The Stump - November 2021 edition including an in-depth analysis of Bill 28, the Forest Amendment Act. Additional changes have since been quietly implemented, including a recent Ministerial Order for the Recovery of Marble Murrelet (effective December 2, 2021), which targets 184,299 hectares for coastal timber retention. There is still more to come, including wildlife habitat protections for caribou in the interior, as well as further policy on the Old Growth Forest Management Strategy (yes those announced deferrals were just the start) and other initiatives from the NDP’s Modernizing BC Forest Policy, all of which will mean even more reductions of area to harvest timber.


Taken individually, the motivation behind some of these changes have potential merit and are arguably necessary. The problem is how it’s being done. For example, Bill 28 legislative reforms to the Forest Act supposedly provide the government the “tools” to achieve the objectives, but there are no controls or constraints on how those tools will be used, and that’s scary.


The unleashing of these changes all within such a close period means that uncertainty from each change will snowball into a big problem, a very big problem. The on-the-ground symptom of this uncertainty will be an immediate reduction of timber harvesting.


TIMBER HARVEST REDUCTIONS

At this time, it just cannot be stated with confidence what the true impacts of all that the NDP government have done or is still contemplating. Impacts will be local, often be conflated with other issues and occur over time. The following chart demonstrates a plausible range of reductions in the timber harvest that could take place by the next provincial election due to the accumulated changes introduced or anticipated to come.





For reference the total amount of timber harvested in 2021 will be close to 55.5 million cubic metres (from both public and private lands). It is possible reductions by election time will range between 10% and 40%, resulting in the provincial harvest declining by between 5.6 million cubic metres to upwards of 22.2 million cubic metres (and that does not include worst case scenarios).


What is unknown is the probability of which of these scenarios will become reality. Early indications suggest that harvest reductions will be closer to the 40% mark.


A 40% reduction from the 2021 total harvest level represents a future total harvest of 33.3 million cubic metres. Should such a reduction materialize, that will mean the NDP have presided over a 50% decrease in the provincial harvest since they took power in 2017- that’s quite the legacy.

While the entire amount of harvest reductions will not all occur immediately, the accumulated impacts to timber harvesting will become very apparent by the time the next provincial election takes place in 2024. It is a certainty that by 2024, the forest industry will be smaller, much smaller.


JOBS

It is a disservice to affected communities to only concentrate on direct job losses in the media as the NDP has done. Both direct and indirect job losses are important as they represent a better image of the impact to communities. Indirect jobs are all those service providers not directly associated with timber harvesting but who support the process. On a broad scale there are two jobs per thousand cubic metres of harvest (direct and indirect).




It is possible that between 11,100 and upwards of 44,400 job losses could occur based on the range of harvest reduction of 5.6 million cubic metres to 22.2 million cubic metres.


The latter estimate of job losses will likely result in accusations of fearmongering. Yet, I wonder if many of the NDP MLAs have fully considered this potential impact? Of course, they could not have because to my knowledge, their vision of forestry has not included any meaningful consultation, debate or social-economic analysis to understand all these changes delivered in aggregate.


Understanding the complexity of the BC forest industry is more than knowing the potential harvest reductions, but also which type of businesses that will be affected.


BUBBLES BURSTING

The first businesses to close will be those already sitting on the proverbial bubble with a tenuous future.


Case-in-point, the recent indefinite closure announcement by Paper Excellence tiskwat (Powell River) thermomechanical pulp and paper mill. Paper Excellence’s news release cites market conditions as the reason for the decision to close and does not specially identify the recent policy changes by government.

Some 200 mill workers will lose their jobs for which Minister Conroy was quick to respond that there will be some transitional support provided. Unfortunately, there is no indication that other workers and businesses also impacted by this closure will be offered any government support. Will the tugboat crew, the chip truck drivers, the tire store workers, the grocery store employees and so on also be included?


And it is worth noting that with the closure of the tiskwat mill’s power boiler, that the coastal hog fuel supply and demand balance has been thrown out of whack. With no place to burn hog fuel, many sawmills which rely on direct to barge loading, may very soon be forced to curtail. Will there be support for those workers too?


Industry analysts have regarded the tiskwat mill for being at risk of closing for many years. It is fair to speculate the decision to end production now rather than sometime later was heavily influenced by this new level of uncertainty added by the NDP government, despite what Minister Conroy believes (or was told). With this new rise in uncertainty impacting fibre supply, more bubbles will be burst sooner than later – undoubtedly.


SUPPLY CHAIN REACTIONS

Prudent reactions in the short term to uncertainties of this magnitude have already meant a swift pull back on capital at immediate risk. Woodland operations have started to rein in investment for timber development plans. Timber harvesting contractors’ pending equipment purchases without guarantees from their customers are likely being put on hold. On the manufacturing side there has likely been an abrupt end to any non-critical expenditures and cancelation of manufacturing upgrades.


This is where the complexities of this industry become most apparent. The industry is a tangled web of primary, secondary and tertiary manufacturers, with an intricate distribution system of brokers and service providers. Pulp mills need sawmills and vice-versa. Remanufacturers need sawmills to make raw materials for their production. Even mass timber producers need sawmills and plywood mills to make their product. The entire supply chain is now at risk.


An NDP-induced trend to underinvestment throughout the supply chain will lead to lower productivity, and therefore a reduced supply of logs and forest products. Secondary or value-added manufacturers could have reduced availability of supply which means more expensive input prices, assuming their input material is still physically available (like fine, clear grain wood, typical of old growth). All of this will occur while the Premier is hoping for new secondary manufacturing investment in the province. Quick lesson in investment – it does not occur if there is no assurance of a reliable supply.


An example of a disruption due to the old growth harvesting deferrals is that the government will immediately cease advertising and selling BC Timber Sales in old growth deferral affected areas. Many mills including independent mills rely on BCTS timber volume to sustain their operations. I suspect that government’s announcement has created chaos for BCTS managers who were left jumping to figure out which of their areas were in or out of their auction programs. I am speculating that the result could be delays of six to twelve months in getting replacement BCTS volume to market. Instead of promoting increased diversification of the manufacturing base, the NDP government’s decisions just put it at higher risk of decreasing diversification.


If harvesting is reduced, it is just not those that make 2x4s that are impacted, but all those businesses along the value chain relying on primary products to process further into higher value products. The Modernizing BC Forest Policy’s intentions paper conveys a vision for increased higher value forest products manufacturing, but the implied solution in Bill 28 to take away from the primary manufacturing base will backfire – the industry just does not work that way.



IT IS A CIRCULAR RELATIONSHIP

One might think there would be no impact to harvest levels by just reshuffling harvesting rights to reduce the concentration away from large forest products companies to First Nations and communities. Indeed, primary sawmills have already been increasing their reliance on First Nations and community forest tenures to help supply their log needs.


An often-overlooked key point, however, is what if primary manufacturers shutdown in the bedlam. To whom will First Nations and community forests, as timber harvesters, sell their logs, at least on a large scale? Increased uncertainty created by the package of recent and pending changes just raised the probability of some primary manufacturers exiting the business given the forecast for sawlog availability. It seems to be that the Premier expects there will be investment in higher value manufacturing to compensate of these potential gaps. This may be the case on a limited basis, but it will take time.


Furthermore, smaller scale tenures already have many challenges that larger and more well capitalized tenure holders don’t have. There are examples where some smaller scale tenure holders cannot make proposed harvesting projects work given their size, available timber profile and stumpage forecasts which can make harvesting unaffordable.



THIS IS ALL YOU (AS IN THE NDP)

I hope you get the picture from reading this; the BC forest sector is complicated. I believe increased diversification can occur, but it takes an understanding of the complexities to make it happen successfully. The way the industry currently works in this province, you still need 2x4s to be made for the rest of the value chain to even exist. Increased uncertainty and actions to unnecessarily reduce the amount of area available for timber harvesting will reduce harvesting and hasten the close of manufacturing capacity. The result could be upwards of 44,400 jobs lost.


The BC government has recently embarked on a media campaign to sell their vision. Ironically if only the government had stood up for the industry a couple of years ago by correcting misinformation on old growth forests (which it knew was not true). With such an investment as being made today in educating the public, none of this imbroglio would be as severe as it is.


Offering transitional support for old growth harvesting deferral recommendations based on a sham of a process is completely disrespectful to everyone in this province. It is disingenuous for Premier Horgan or Minister Conroy to continue blaming the past. Upwards of 50% reduction in harvesting, mill closures and loss in employment will now be entirely the NDP’s own doing and no others. I suppose this mess is what you get when you let the Sierra Club dictate forest policy.


PLAN B

If you are an NDP MLA awakening to the reality of supporting a misguided plan, please consider the following to save your political future:


  • Demand a pause to the old growth deferral process. BC’s old growth forest battle has been ripe with a mountain of misinformation, not the least of which saw the same authors report 3% of old growth left was large trees, and then a year and half later report big treed old growth was actually 56% under the banner of a government report. The province is not running out of old growth. A recent COFI funded report by Forsite Consultants Ltd. and the BC government’s own Old Growth Technical Advisory Panel’s report both clearly showed this. The BC government should be ensuring transparency and credibility to the old growth deferral process. Ask that the inventory of at-risk old growth be redone, but this time using the best data and science available with real forest inventory experts.


  • Boot the Sierra Club from government and their influence on the NDP’s inner circle. The Sierra Club campaigners have no idea how the industry works and will never end their efforts until all harvesting in BC is stopped (and they may be well on their way to that already).


  • The BC government must retake control of the narrative from anti-timber harvesting campaigns. To do so, it needs to re-position itself as the primary source of credible data. I would recommend the creation of an arm’s length council or an institute for the collection, verification, and dissemination of sector data.


  • Once better information on old growth forests has been established, set up consultation teams to meet with each of the 200 plus First Nations, to consult with and learn of their vision for resource management. The deferral process should have started with First Nations input as the first step not as it has been done.


  • Express explicit targets for what the end goals are for tenure redistribution done through Bill 28.


  • Conduct social-economic analyses of the various changes. And be transparent about the process and results.


  • Take a regional approach to bolstering higher value manufacturing. What works in one area, might not work in another. Allow for a transition, giving time for all to adjust. The data and proven models are available to reasonably predict where the future hot spots will be with respect to log supply shortages – target those areas and communities with a proactive plan to transition.


  • If reductions in harvesting or mill closures lead to unavoidable job losses (not just due to old growth deferrals, but Bill 28 changes as well), ensure support available for all that are affected including workers, contractors and supporting businesses.


This pending disaster is unnecessary and can be prevented. It is not the way to achieving a “vision to prioritize innovation and made-in-B.C. manufacturing.”


With that all said, happy holidays Right From The Stump!


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Written By David Elstone, RPF

Publisher, View From The Stump newsletter

Managing Director, Spar Tree Group Inc.

david@spartreegroup.com

[1] https://vancouversun.com/opinion/columnists/vaughn-palmer-forestry-firms-continue-to-send-their-investment-dollars-elsewhere