Wednesday, September 25, 2013

Forest Policy Reform – British Columbia

Letter to the Forestry Minister:

Some reform has taken place since this letter was sent, more is needed. 

Over the course of my life time I have worked in the forest industry, interfaced with it while involved in the tourism industry and gained some insight into its administrative side via participation at the Kamloops LRMP. This exposure has formed a perspective I think is worthwhile, and may be of use to you is some way.

As Minister of Forests you’ve inherited a policy framework that has been forged over fifty years, by what I refer to as the Unholy Trilogy – big business, big labour and big government. Political pragmatism in relating to the two primary special interest groups has created an industry that has perhaps underserved British Columbia, or left potential un-accessed. The weak US market and resulting waning of the forest industry presently, may offer a juncture where many of the interests that may have inhibited reform in the past, are now muted – companies gone or contracting and labour expectations reduced due to the stark realities presently facing the industry. The areas wanting of attention from my perspective are tenure reform, bug kill utilization and non United States’ market development.

When one examines the forest industry, a glaring aspect that comes to view is the present domination by Volume tenure allotted to companies and then loosely tied to production facilities. The present policy has; failed to facilitate “the support of communities expected” in any real way, failed to facilitate the most effective use of timber assets, siloed lumbering functionalities in a manner I believe to be undesirable, and perhaps, most importantly, generated a log market that offends our best customer. A transition to an area based, long term tenure format may address these issues.

I envisage area based tenure taking a form similar in nature to our present Woodlot tenure or Tree Farm tenure, existing completely separate and distinct from milling facilities (the actions of individuals may include milling activities but policy considerations would have milling separate and distinct). Tenure size would be moderate, perhaps in the order of an average annual timber volume accretion, in the context of long run sustainable yield, sufficient to generate net revenues in the order of $500,000 annually for proprietorship (based on historical data). The term of tenure (tree farming rights) would be ad infinitum, facilitating the future trade of tenure or perhaps intergenerational transfer. The industry would then be supported by an open log market that would immerge in much the same fashion as the cattle industry or other markets have. Government revenues would be garnered from the initial sale of these long term harvesting rights and then a royalty structure at the point of log sale. There are many issues that arise in designing tenure to meet the best interests of British Columbia, such as the nature of ownership of these tenure units, while these issues are extensive they are outside the scope of this communication. This brief outline of the created tenure type will, hopefully, serve to provide context and support to the points made with respect to tenure reform.       

Forest companies in the past have been able to secure the rights to harvest a given volume of timber; where, when and how has been at the discretion of Ministry of Forest (MOF), and this right seems to be let often on the bases of a milling facility requiring timber. By observation, often the milling facility is closed, as production is concentrated to a more productive facility somewhere else or as the result of some other dynamic. Again by observation, the Forest company retains the volume, often at the expense of local industry. This rationalization of action may be necessary to garner maximum efficiency under present industry conditions; however, the premise for the company’s garnering the tenure is no longer valid. This reality is un-conducive to healthy public perception of government action and is breeding resentment, as evidenced by press coverage often referencing this occurrence in local media. An area based tenure format would extend to proprietors long term tenure based solely on harvesting and sale of timber to a free market. While area based tenure may fail to guarantee the logs will be milled locally, area based tenure and the related open log market will guarantee the opportunity for them to be milled locally. Additionally, the premise for tenure will always hold policy integrity as policy is executed, allaying the valid public perception that local trees are unduly being milled in other regions. The pure physicality of the circumstance will extend advantage to local purchasers due to transportation advantage and local association.

The development of area based tenure, with tenure being focused to harvesting and growing trees, serves to fracture the tree farming tenure ownership from the milling function. This is desirable, as it extends greater influence to the tree farming process in the logging industry as a hole, by bringing “business” focus to tree farming process. Presently, the logging function is performed under contract to an entity absent long term interest for a specific area of operation and then the silviculture function is performed by another contractor who is overseen by the government; the government of course being largely isolated from incentives associated with long term ownership and most certainly absent any real attachment to a profit motive. The management of resources by “macro” entities, as is now the case, results in the siloing of activities in a manner that is both unnatural and unproductive. The present circumstance is analogous to government owning all the farmland and functioning as the monolithic manager of agricultural lands; the person milking the cows with no attachment to the cow’s long term health or wellbeing. The present circumstance then is absent the incentives that drive success generally in other sectors of economy; the ownership and interest in the profitable utilization of an asset. By designing the tenure in a manner that integrates the management perspective, resources will ultimately become better utilized. The tenure structure that provides incentive to proprietorship by integrating the profit motive with the full spectrum of tree farming activity, silviculture to logging in the context of long term ownership and appropriate logging practices, will surely result in better outcomes over time.                           

A by-product of broad based “proprietorship focused” tenure will be an emergence of an open log market and a Royalty system for government revenues. This means of government interface with resources and revenues is common place and widely accepted by governments the world over. Our present mode of governance over the province’s timber resources is both an anomaly and irritant to the United States. While I am uninformed as to the exact cost or benefits of our present stumpage system relative an open market system, our industry’s reluctance to embrace new and more agreeable operational modalities indicates to me the industry may be deriving benefit that is structurally related to the stumpage system. If this is the case, this is distorting industry participant conduct and very likely resulting in timber trading at prices that are different than if the prices were determined by market forces alone.     

The utilization of bug kill is critical and time sensitive as dead standing timber falls in value. The solutions of chipping and burning wood, and similar strategies seems to concede a lot of value to the present market circumstance, as cutting and milling the wood (the highest and best use) is presently hampered by a temporary market conditions. There is an apparent roll for government here to intercede by becoming the “purchaser of last resort”. The government could simply purchase lumber milled from bug killed stands at a per thousand price that offers companies an adequate return to provide incentive to harvest, and mill at a fast enough rate to ensure timber is utilized before it reaches a point of decay that will only allow burning or just leaving it to rot. The government would then acquire a large inventory of milled lumber to hold and to sell later as market conditions improve. While, this is “capital” intensive, over time it offers net positive revenue opportunity for the government. This action is justified in the context of managing a disaster. Potentially, lumber that has found existence under this type of policy could be used to seed new markets. While I process some ideological encumbrance to measures of this nature, given this circumstance it seems prudent. Additionally, the British Columbia government could promote this policy to the public and federal government as a stimulus measure. In all, while quite a strong intervention, it seems to warrant consideration.             

One last point, regarding the forest industry, with respect to our efforts to diversify markets for our lumber products. While I realize that it is in the interest and is the responsibility of the industry to find markets, the US market has been so dominate for so long, apathy amongst industry participants has precluded the aggressive pursuit of other markets. Our present situation, with the industry effectively in a state of collapse, is a product of the absence of strong leadership in this regard. British Columbia is grossly under performing in non US markets as regions like Scandinavia take market share, as has been reported they have in Japan. This criticism is toward the generalised culture, as opposed to the present government – which I view favourably and support. Substantive investment in market diversification is justified.

I hoped to offer a less “industrialised” perspective than you’re apt to be exposed to as Minister of Forests, a perspective I can proudly state has found its origins in being farmer’s son and the desire to produce a societal circumstance well populated with independent people – well designed forestry tenure reform offers opportunity to create such a circumstance. Thank you for your consideration of the contents of this letter and I hope the election outcome gives you some extended tenure!

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