Log Exports

“The economics of raw logs”—A balanced article from Gordon Hamilton

Here at the PFLA blog we often post about log export policy because it’s an issue that directly effects our membership. Like most contentious policy issues, a complex mix of historical, ecological, political and economic factors mingle together to create the present climate.

In our humble opinion, the media hasn’t always done a great job portraying the complexity of log export policy in a balanced way that paints an accurate picture of the coastal logging industry.

That’s why we’d like to point your attention to a recent article by Gordon Hamilton in the Vancouver Sun—The economics of raw logs: The sale of unprocessed timber plays a controversial, but needed role in B.C.’s forestry sector.

Printed in the July 14, 2012 issue of the Vancouver Sun, here’s what we appreciate about the article:

  • It highlights the natural diversity of the coastal forest industry
  • Illustrates the relationships and negotiations necessary to operate successfully within the current policy framework
  • Demonstrates how quickly markets change
  • Emphasizes the need for policies that foster the flexibility necessary to compete
  • Makes it clear that log exports are, and always have been, an integral part of a complex mix of factors that constitute the coastal forest industry

You can read the complete article here. Let us know what you think.

6 Basic Facts Everyone Should Know About BC’s Log Exports

BC log exports was a hot topic last week – in the legislature, in the newspapers and in the spirited conversations of workers, families and communities who depend on the forest industry for their livelihoods.

 Like most hot topics, the log export debate is often riddled with misinformation, rhetoric and assumptions. Here at the PFLA blog, we represent people who directly benefit from private forestry operations. We’d like to take a few moments to clear things up from our perspective.

6 Basic Facts Everyone Should Know About Log Exports in BC

1.  Log exports are essential to private forestry.

Without access to log export markets, none of the 3,000-plus people directly employed in the stewardship of BC’s coastal private managed forest land would be working today.

2.   A surplus of timber is available to sawmills, pulp mills and value-added manufacturers on the BC coast. 

We’ve said it before, but we’ll say it again: there is no log shortage. In fact, there’s a surplus of logs. Here’s the math:

  • Timber available for harvest and processing = 24 million cubic meters
  • Domestic processing capacity = 16 million cubic meters
  • The difference = 8 million cubic meters of surplus logs

3.   Domestic sawmills need to take responsibility for their own  “supply” problems.

There are plenty of logs available on the BC coast. If domestic sawmills want to ensure an adequate supply of logs, there are a number of ways to do it:

  • Offer competitive log prices.
  • Fully harvest public land timber quotas.
  • Buy logs on the open market from First Nations, market loggers, community forests, woodlot licences and BC Timber Sales (BCTS) operators.
  • Bid directly for timber available through BCTS timber sales.

4.   Log prices are the issue, not log shortages.

BC has the world’s lowest log prices. Domestic sawmills offer prices lower than production costs. The result: No incentive to produce and sell logs to domestic sawmills. Here’s some more math:

  • Cost per cubic meter to produce a log from coastal public lands = $78
  • Typical log price offered (Teal Jones) = $60
  • Recent low-ball log price offer = $43
  • Average price of the same logs sold to export customers = $90

5.   Log exports are NOT the cause of mill closures and job losses.

In fact, without log exports domestic mills wouldn’t have any timber at all. There would be no forest stewardship and no log production. The ability to sell some logs at a premium (log exports) is the only reason it’s economically viable to sell other logs, at artificially low prices, to domestic mills. Jobs, economic activity, crown land stumpage and tax revenues all grind to a halt without log exports.

6.   There’s no such thing as a raw log.

Manufactured logs are no different than any other product – lumber, pulp, poles, veneer – they are but one in a mix of many forest products. A product, that at this point in time, plays an essential role in keeping the boat of BC forest stewardship afloat.

Please visit Log Exports: A Symptom Not a Cause for a slightly updated and revised version.

Who Else Wants a Refreshingly Sensible Analysis of Why B.C. Families, Workers and Communities Rely on Log Exports?

We sure do. You’ve probably noticed; PFLA believes (for good reasons) that log export markets play an important role in sustaining BC’s forest economy (PFLA Is Not Alone: Testimonials on B.C. Log Exports; 5 Reasons Why Rallying Against Log Exports is Misguided).

Jim Girvan’s article, Log Exports: The Controversial Economic Driver, appeared on forestindustry.com in early December. Along with a reasoned account of B.C.’s coastal export market, the article includes bar graphs and statistical information that add a depth of analysis to the log export discussion we think you’ll find interesting.

Below are a few highlights, but you can (and we recommend it) read the complete article, here.

A few highlights (paraphrased):  

“We can debate which logs to export and what the process should be to export them, but what we shouldn’t be doing is talking about banning log exports.”

“Over 4,000 coastal BC jobs are supported by log exports alone (assuming an economic multiple of 0.81 jobs per 1000 cubic metres harvested, direct and indirect).”

“If every coastal mill got every log they need to operate fully, there would still be eight million cubic metres of potential harvest left over, some of which is exported today.”

“The cost to deliver coastal logs to mills is too high when we try to use those logs to make lumber. The raw material (log) cost alone for producing lumber is $296. Today, China consumers pay $255 for lumber.”

“Log exports are just another market for one of many products produced by the coastal BC forest industry. Manufactured logs are no different than lumber, pulp, poles or veneer and they provide a significant contribution to the coastal and BC economy.”

“Without mills, prepared and able to pay what it costs to harvest our low value forests, there are no jobs to be created.”

Thanks to Jim Girvan for his thoughtful, reasoned perspective.

 

PFLA Is Not Alone: Testimonials on B.C. Log Exports

You may have noticed, the issue of log exports in British Columbia is contentious. Here at the PFLA blog, we’re committed to providing straightforward, factual information from the perspective of private forest landowners.

Given the current situation, we believe log exports are an integral component of BC’s forest industry. We’re not alone. Below you’ll find enlightening examples and testimonials from key industry stakeholders who think so too.

 

“To put things very bluntly, from a Terrace area perspective, if log exports were banned today, we might as well close the doors and throw away the keys. Every contractor would immediately be shut down and all their employees laid off.  Simple answer to a simple question.”     — Bill Sauer, North West Loggers Association

 

“The Heiltsuk economic Development Corporation, have scheduled 1,100,000 m3 in total under government licenses and agreements to be harvested in the next 10 years. Present market conditions only allow us to operate some of the time because of higher operating costs—even higher than in the North Coast area. The Vancouver log market will not pay enough domestically to allow us to operate. It is only the export sales that even give us a chance to operate in these times. Take this away from us and we are down completely. Coastal communities in isolated areas need the certainty and access to Global markets, (presently provided by the ability to export logs,) remove this from their options and I feel forestry will be virtually shut down and no longer a part of the local economy.”     — John McLaughlin, Mgr, Heiltsuk Coastal Forest Products Ltd.

 

“If log exports were banned our company would likely receive about 30% less work and would not find it profitable to bid on the BCTS system.”     — Graham Lasure, W.D. Moore Logging Co. Ltd.

 

“CTR conducts logging and silviculture activities in the Kalum and Skeena TSA for domestic and export sales. During a single export cycle, CTR injects in excess of $1.0 million into the Prince Rupert economy and approximately $2.2 million into the Terrace economy.  This is approx. $3.2 million spent within BC every five weeks or over $33.0 million per year. This direct local expenditure goes to fallers, truckers, sort yard employees, stevedore crews and local professional services. A ban on log exports would eliminate CTR’s export sales function and would eliminate approximately 260 direct jobs.”     — Dave Jackson, Consulting Services Ltd.

 

The question is not whether log exports help these operations make a profit, or make a better profit, but whether log exports help these operations survive, or go out of business. In other words, log exports are presently an integral part of BC’s forest industry.

 

*Courtesy of the Truck Loggers Association (TLA) September 2011 newsletter.

 

5 Reasons Why Rallying Against Log Exports is Misguided

faller cutting a tree in the forestThe article Rally against log exports is planned for Nanaimo appeared in the September 22, 2011 online edition of the Nanaimo Daily News. The rally is scheduled for September 28, 2011.

According to the Nanaimo Daily News, hundreds of loggers, and other concerned citizens, opposed to log exports will gather at the Pulp, Paper and Woodworkers of Canada (PPWC), Local 8, union hall before marching through the streets of downtown Nanaimo, B.C.

While the PFLA commends the spirit of Mr. Bercov, and his associates, we’re quite frankly a bit baffled by their opposition to log exports.

Here’s why:

1. B.C. has a surplus of timber.

That’s right, a surplus of timber. Each year, millions of cubic metres of trees go unharvested. These are trees planted, grown and approved for harvest as part of the annual allowable cut (AAC). We’ve said it before, but we’ll say it again: there is no shortage of timber in B.C.

2. B.C.’s domestic market for logs has collapsed.

Sawmills on the B.C. coast don’t have the capacity to process the available timber. Present processing capacity is 15.5 million cubic metres; available timber is 24 million cubic metres (that’s a difference of 8.5 million cubic metres per year, or approximately double the log export volume).

3. B.C. mills buy logs at prices lower than log production costs. 

What it costs to plant, tend and harvest trees exceeds the log prices offered by struggling B.C. sawmills. Uncompetitive mills use the government’s surplus test policy to obtain logs at reduced domestic prices, often significantly less than their international competitors.

4. The log export business is keeping the coastal forest industry alive.

Isn’t this ironic? Without access to a better price for a portion of the harvested timber (the portion exported in the round to international markets) nobody could afford to harvest trees. If nobody goes to work in the woods there are no logs for domestic mills.

5. B.C.’s forest workers, families and communities count on getting the best price for timber. 

Relying on the domestic log market is not a viable option. The woods support thousands of rural jobs, but only when log prices are high enough to cover the costs associated with planting, tending, managing, and harvesting timber.

In light of what we consider to be pretty compelling information, we encourage Mr. Bercov, and his associates, to re-evaluate rallying against log exports. Forestry in B.C. is in a state of flux, now more than ever, it’s important to consider the facts, as they are.

What do you think? We look forward to your comments and suggestions.

Why Myths About BC Forests Won’t Create Jobs (of any Colour)

Ben Parfitt’s article How to Create Green Jobs in BC’s Forests appeared in the August 15, 2011 online edition of the Tyee (link to full article).

In a nutshell, Mr. Parfitt criticizes the BC forest industry for exporting raw logs to China. He argues that diversifying markets and value-added products are the vehicles we need to move this province, its forests and its communities forward to a better place.

We’re just as interested in improving the situation for BC forests and communities. In fact, we strive for the same worthy objectives as Mr. Parfitt: a sustainable forest industry and healthy sustainable forests.

To that end, we’ve taken the time to address some flawed logic, bad comparisons and misinformation Mr. Parfitt stumbled over on the way to a better place.

“We’re Shipping Primarily Non-processed Commodities to China” and Here’s Why

Economic realities dictate how markets work. The products Chinese markets want are logs and lumber. That’s why BC (and our competitors like the US, New Zealand and Australia) sell logs and lumber to China.

Fibre costs and fibre availability are not the limiting factors for value-adding in BC. Conversion costs are. Western Canada has some of the lowest log prices on planet earth. It also has the highest sawmill wages and the highest conversion costs on planet earth.

This is the same reason BC doesn’t export mobile phones and children’s toys to China. A high-cost jurisdiction cannot compete on value-added forest products into the Chinese market, or any market where the costs to manufacture goods are considerably cheaper.

Moving up the Value Chain: Why Comparing BC to Ontario and Quebec Doesn’t Work

Comparing Ontario and Quebec to BC is a bit like comparing an ocean to a lake. Sure, they’re both water, but they’re fundamentally different and exist in distinct environments.

BC’s eastern counterpartes operate with a different species mix (a greater proportion of whitewoods and temperate hardwoods) and a different product mix (newsprint, fine papers, value-added hardwood products).

Interestingly, eastern Canadian provinces are often net importers of logs from the U.S. In Quebec and Ontario there are no log export restrictions on private forest lands. This means, logs flow to the mills on either side of the border that add the most value, and can therefore offer the highest log prices.

This is the opposite of what’s going on in BC. Here, log export restrictions create artificially low log prices – the lowest on the planet. When domestic log prices are competitive there is no incentive to export logs.

Open competition for fibre compels innovation, efficiency, investment, improved utilisation, and ultimatley, increases the economic return to the forest.

“You can’t make forest products if you don’t have healthy numbers of healthy trees.”

BC has loads of healthy trees. Let us say it one more time for emphasis. There is no shortage of healthy trees in BC.

Yes, the harvest of lodgepole pine was accelerated to capture residual value in millions of trees killed by the mountain pine beetle epidemic. However, 100 million cubic meters of timber still went uncut.

That’s right, of the province’s annual allowable cut 100 million cubic metres of timber didn’t get harvested. That’s a lot of trees.

Currently, BC’s coastal timber harvest exceeds its annual coastal timber processing capacity by 8 million cubic metres.

We repeat: there are plently of healthy trees in BC. Trees that were planted and grown for the purpose of harvesting.

Some Raw Facts of Our Own:

• The current market price for lumber destined to China is $248 per thousand board feet. The price for logs (TO THE SAME MARKET) is $630 per thousand board feet.

• The cost of log production on the BC coast is between $400 and $630 per thousand board feet. You do the math.

• Banning log exports and limiting competition for fibre is the opposite of diversification.

• If a forest product is used in a manner that substitutes a high-carbon product like coal, oil, gas, steel, concrete, plastic or aluminum, the outcome is carbon-friendly.

• People don’t burn money. They don’t burn usable logs either. People burn logs to manage forests because current market conditions don’t make it economically viable to use them other ways.

What do you think? We look forward to your comments and suggestions.

BC’s Log Export Policy: Under Review

BC’s Ministry of Forests, Lands and Natural Resource Operations is in the process of reviewing log export policy.

The PFLA is engaged in this process and welcomes your questions and suggestions.

Here’s some information we thought you might find useful.

At the Log Export Policy Meeting, held July 20th in Richmond BC, Tom Niemann gave a presentation summarizing the log export situation in BC.

The presentation included:

  • a brief history of log export legislation.
  • a synopsis of the review of BC log export policy in 2006.
  • an assessment of what’s changed in BC’s forest sector since 2006

You can click on the arrows below to view the complete presentation:

Some links to additional information about BC log exports, provided by Tom Niemann after the meeting:
  • A report on log exports that BC Stats published just before the July 20th meeting is found here.

As mentioned at the meeting, the Ministry of Forests, Lands and Natural Resource Operations is happy to receive written submissions, suggestions, and input.

Please send your comments, by Aug. 8th, 2011, to: Forests.CompetitivenessBranch@gov.bc.ca

If you have any other questions, or want more information, leave us a comment below—we’ll get back to you.