Trouble in the forest

Battered and bleeding, the B.C. lumber industry has seen better days. Today, it is grappling with tough market conditions, a diminished domestic timber supply (along with rising fibre costs), U.S. softwood import tariffs and a lack of provincial government interest in doing much to improve the competitive environment.

That is worrisome. Forestry – of which lumber production is the largest component – is a high-wage industry that remains the mainstay of regional economies across the province, particularly outside of the Lower Mainland and Greater Victoria.

The activities across all segments of forestry combined account for billions of dollars of B.C.’s economic output (GDP), provide direct employment for more than 50,000 British Columbians, and pay $4 billion a year in taxes, royalties and fees to various levels of government. Tens of thousands of additional B.C. jobs also depend on forestry because of the industry’s extensive linkages with other sectors of the economy.

Then there is forestry’s outsized role in B.C.’s exports.

British Columbia is a small jurisdiction that must trade to ensure its economic well-being. Exports of goods and services amount to about one-third of the province’s GDP.

These exports furnish the economic

means that enable households and businesses to pay for imports of a wide array of goods and services – everything from vehicles, medical devices, pharmaceutical products and IT equipment to consumer electronics, clothing and many foodstuffs.

As a small economy, B.C. needs to pay close attention to the health of its “traded industry clusters,” the industries that produce goods and services for sale outside of the province.

Today, despite its manifold challenges, forestry ranks as B.C.’s biggest traded industry, and by a significant margin.

While B.C. boasts an increasingly diversified economy, forestry continues to generate 30 per cent to 35 per cent of the earnings that B.C. garners from selling goods abroad.

The softwood lumber business alone cranks out exports of $6 billion every year – at least 10 times the value of exports from the “clean tech” industry that fascinates so many of our politicians.

Forestry’s contribution to B.C.’s exports hasn’t fallen, even though other industries – e.g., energy, agriculture and high technology – have gained a higher profile over time. Indeed, if anything, forestry’s place in B.C.’s merchandise export mix expanded slightly over the 2009-17 period.

How is public policy influencing the competitive landscape for forestry? As the owner of most of the land in the province, the government must juggle many balls. And it has little control over global or North American lumber demand, trade policy, the exchange rate or other key exogenous variables. But in recent years, B.C. policymakers have done precious little to make this province an attractive place to deploy capital in forest-related businesses.

Beginning with tax policy, the return of the provincial sales tax in 2013, the new employer health tax and B.C.’s escalating carbon tax together have added hundreds of millions of dollars of extra, profit-insensitive tax costs for forest companies. And the move to a higher corporate tax rate has made B.C. even less competitive for firms that earn profits.

Turning to other areas of legislation and regulation, the new “professional reliance” regime for natural resource industries has created a greater compliance burden for forest companies. B.C.’s still-under-development caribou habitat protection plans, once in place, will further restrict access to timber in some northern regions.

New provincial environmental assessment legislation, along with ongoing work to develop a provincial “species at risk” law, could have far-reaching effects on all landbased industries. Forthcoming changes to WorkSafeBC policies are likely to boost payroll costs for most B.C. businesses, including in the forest industry.

Under Bill 22, the B.C. NDP government intends to control transfers of tenure within the forest sector to protect the “public interest,” a term not defined in the legislation.

As the industry adjusts to a declining fibre supply caused in part by the pine beetle infestation, this legislation may be used to impede necessary rationalization and undermine the value and security of the Crown-issued tenures to harvest timber that forest companies have long relied on.

Government restrictions on log exports from private land also mean timber resources are undervalued, creating complications with key trading partners and adding to the coastal industry’s pain.

Finally, B.C.’s adoption of the United Nations Declaration on the Rights of Indigenous Peoples, absent any clear idea of how its implementation will affect government laws and regulatory processes that pertain to the land base, promises to make it even harder for forestry and other resource industries to do business in the province.

Add it all up, and it is no mystery why so many B.C. forest companies are curtailing production and investing in other provinces and U.S. states, rather than at home.

— Jock Finlayson is the Business Council

of British Columbia’s executive vice-president and chief policy officer; Ken

Peacock is the council’s chief economist.