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B.C. forest industry faces investor exodus amidst uncertainties

Industry players gathered at the 2024 BC Council of Forest Industries (COFI) Convention in Vancouver last week, delivering a stark message: the province’s forestry sector is in the midst of a crisis. With dwindling wood fibre supply and regulatory uncertainty looming large, private equity experts and industry heads warned of an alarming trend – investment in British Columbia’s forests is plummeting.

COFI president and CEO Linda Coady highlighted a significant decline in wood harvest at 32 million cubic metres annually, which is only about half the volume compared to five years ago.

“This is too low to sustain the workforce in our industry,” Coady stressed.

“There’s been too much change happening at the same time,” she added, emphasizing the urgent need for certainty in the industry.

“Nowhere to go but up”

During a panel discussion featuring Minister of Forests Bruce Ralston, Minister of State for Sustainable Forestry Innovation Andrew Mercier, and B.C. First Nations Forestry Council CEO Lennard Joe, Coady raised concerns about BC Timber Sales’ inability to meet its annual allowable cut in recent years.

Coady expressed her skepticism, stating, “A lot here in the room would argue that it’s broken … It’s just a model that is not working anymore … don’t we need to start thinking about what a new system would look like?”

In response, Ralston acknowledged the challenges faced by BC Timber Sales but expressed optimism about the future, anticipating an increase in wood sales in the next fiscal year.

Addressing the room, Coady emphasized, “You’ve heard it directly from the minister. It’s bottomed out. Nowhere to go but up.”

The forestry sector, which has historically been a cornerstone of British Columbia’s economy, has received an estimated $15.8 billion in investments over the past decade, supporting approximately 100,000 jobs across the province. However, recent shifts in government policies have left investors wary.

Amidst the discussion, Mercier shared insights from his recent engagements across the province. Having assumed his role just three months ago, Mercier said he has been actively touring to grasp the challenges confronting the forestry sector firsthand.

He recounted his visits to fire-ravaged forests, where companies grapple with bureaucratic hurdles to salvage remaining wood and bolster the province’s fibre supply.

“I was surprised by the whole bunch of barriers and the amount of red tape … there’s a short-term crunch here,” Mercier said, acknowledging the urgency of the situation.

Breakthrough agreements

Coady highlighted positive developments in First Nations involvement, noting an increase in revenue sharing, more equity agreements, and emerging collaborations in technology. She emphasized the significance of breakthrough agreements, citing the recent landmark deal between the ‘Namgis First Nation, Western Forest Products, and the provincial government.

“We need more of these breakthrough agreements – that would be such a powerful signal to send to the investors,” Coady asserted.

Lennard Joe echoed Coady’s sentiment, expressing First Nations’ readiness to actively participate in such agreements. He pointed to the recent formation of Iskum Investments, a consortium of 20 B.C. First Nations, as a notable achievement.

“We need 200 First Nations to work together,” Joe said.

“Yes, 205!” Coady emphasized, underscoring the diversity and potential collective impact of the 205 distinct First Nations in the province.

(L-R) Kimberly Burns, Daryl Swetlishoff and Kurt Niquidet. Photo: Annex Business Media.

New narrative

In a separate panel discussion focusing on the economic and investment outlook, industry experts shed light on the challenges facing British Columbia’s forest industry.

Daryl Swetlishoff, the head of research at the global financial services firm Raymond James, warned of a troubling trend, describing B.C.’s forest industry as facing a “death by a thousand cuts” in recent years. He emphasized the critical importance of addressing issues such as low fibre supply and the rapid changes in forestry policies to prevent further closures of sawmills. “Capital investors hate uncertainty, but love return on investment,” Swetlishoff added. “Companies will invest when there’s both certainty and returns.”

Kimberly Burns, partner at Dentons Canada, echoed Swetlishoff’s concerns, expressing the overwhelming nature of the multitude of policies in the forest sector.

“There’s a lot of policies in the forest sector. It’s overwhelming even for a geek like me,” Burns joked.

She emphasized the importance of political certainty and clarified land ownership in attracting private equity. Burns highlighted sustainability as a key opportunity for the industry, stressing the role of government in providing a clear narrative to support investment.

“When the political climate has no certainty, and when land ownership is uncertain, it deters private equity … Sustainability – it’s where the opportunity is. A good narrative goes a long way and government can help with that – by providing a good narrative.”

COFI chief economist Kurt Niquidet emphasized the foundational role of the primary sector in the forest industry’s value-added products. He underscored the significance of continued investment in highly efficient facilities, which not only boost productivity but also contribute to improving living standards.

Swetlishoff echoed Niquidet’s sentiments, highlighting the substantial costs associated with building and maintaining mills. He emphasized that investment leads to cost reduction, ultimately translating into increased profitability.