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Getting Ottawa’s Ear

In less time than most thought, the House of Commons Standing Committee on Natural Resources has issued its report on the forest industry, our challenges, and suggestions for the way forward. The challenge is made clear up front. The report notes that nationwide, Canada has lost a whopping 33,000 mill and wood processing jobs since late 2003. I assume we saw similar losses on the logging and hauling side. There is no shortage of such stats in this document.


November 16, 2011
By Scott Jamieson


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In less time than most thought

Still, the highlight of the report involves the list of recommendations for industry and government moving forward. This, after all, is where we can expect government action, if at all. Some of the recommendations make sense. More modern R&D and capital tax regulations; an aggressive push into bioenergy and bio-refining and their associated technologies; the need to allow industry consolidation and modernization; a closer look at Canada’s near-monopoly in railway services and its effects on forest industry competitiveness – these are just a few examples that show the committee didn’t completely miss the mark.

Some suggestions leave me cold, like the one proposing a national summit on the forest sector. More talk before action is exactly what we don’t need, but I guess there were a lot of academics and politicians appearing as witnesses before the committee. There are also some familiar platitudes. What would a study of the forest industry be without a call for more value-added products? What products, or how we add value without adding crippling costs when loaded labour costs are in the $18 to $25/hr range is not discussed.

Still, the government has taken an interest in our industry, we have some momentum for once, so I suggest you take an hour, a pot of coffee, and have a read (follow canadianforestindustries.ca/app/newsletter/view_article/92,1,2,,2.html to get a copy). Print the report out to make notes, and use more paper while you’re at it. There are no startling or new ideas, but overall it’s a good working document to approach various levels of government to start enacting change.

Why not private?
Still, it’s not perfect, and so it has been criticized in both public and private. The most common criticism is that the option of privatizing Canada’s forests was never mentioned. Perhaps federal-provincial boundaries figured into this omission. Perhaps the change was too sweeping and politically charged to include. Or more likely, none of the witnesses mentioned it. Either way, it’s no big loss.

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There are some, especially political commentators, who feel that everything is better off in private hands, and so naturally feel that privatizing tenure would be a cure for all the industry’s ills. A recent column in the Globe and Mail lambasting the report was typical in suggesting that forest land privatization would be both an incentive to greater investment and modernization, and a solution to the longstanding dispute with the US lumber lobby.

It’s attractive as a theory, but does it hold up to the harsh light of reality? I’d say the jury’s still out. Some point to Finland as a shining example of the benefits of private forest ownership. Certainly the country has seen a massive investment in sawmilling technology of late. But such things go in cycles, and investment was long overdue in that country’s sawmill sector. Moreover, the link between private forestlands, tenure security, log supply, and investment is far from clear. Certainly based on conversations with Finnish sawmillers, I don’t get the sense that long-term fibre security is behind any of this investment. If anything, the situation in Russia and the changing of the guard from country landowners to urban absentee landlords is making Finnish sawmillers very uneasy regarding their future fibre supply. They invest in spite of uncertain log supplies.

But why look so far when we have public and private land contrasts so close at hand? The BC Interior is the king of Crown land. Yet there you’ll find among the largest, most competitive, modern sawmills anywhere in the world. According to folks who know, they have among the lowest unit costs anywhere. Why? Lots of factors, including forced efficiency from decades of US protectionism, a climate of innovation and competitive use of technology, expensive timber from the days of the Forest Practices Act (remember that?), and more. But one factor is undoubtedly access to large pockets of Crown timber managed over decades, the kind of timber supply you can base a business plan on, and support large investment s in high-speed, high-recovery sawmills. There may be variables and uncertainties in BC’s public timber supply, but compared to sawmills in the US or eastern Canada buying on private land, it’s volume you can bank on.  

What about eastern Canada and the US, bastions of private forestland? It’s always dangerous generalizing, and Nova Scotia and New Brunswick have some nice mills. Still, on average they have nowhere near the scale, technology, or cost efficiency seen in the BC Interior. As for the US industry, it has made big leaps on average over the past decade, but mill efficiency and scale are still very uneven from state to state, or mill to mill. In any event, other than currency fluctuations, proximity to market, and no import duties to bear, I don’t see the kind of clear competitive edge south of the border that would force me to embrace a rush to private tenure.

I also don’t believe such a move would mollify our US competitors for more than a few months. This suggestion can only be made by someone who has not been watching the softwood debate for decades. The issue is about market share, protectionism, and the power of the US lobby system. Take away Crown land, and there will be a slew of new issues to beat the drum over, from power rates and the way we privatized our land, to roadbuilding cost-sharing and subsidized health care.
So perhaps it’s a blessing Parliament did not raise the issue of land ownership to cloud the many other issues at hand. In the meantime, Ottawa has opened the door to discussing vast changes in everything from capital and R&D taxation to railway costs and bioenergy infrastructure. As an industry, we’d be foolish not to jump at the chance to further our agenda.

 

Scott Jamieson, Editor
sjamieson@forestcommunications.com


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