Brian Frank, President and CEO of TimberWest, talks about log export restrictions in the July/August 2014 edition of Canadian Forest Industries magazine. We’ve excerpted the article below for your interest, but you can find it online at the Canadian Forest Industries official website.

 

The topic of “Log Export Restrictions” (LERs) has long engendered strong opinion and emotion in B.C. As a recent recruit to the B.C. forest sector, I’ve been focused on trying to understand this complex issue. My company is the largest owner of private forestlands in Western Canada and relies on log exports for survival.

The reality is that LERs are wrapped around a complex set of issues in Coastal B.C. that most people don’t want to talk about – let’s call them inconvenient truths. Those inconvenient truths include government price controls, subsidized saw and veneer mills, and subsidized harvesting on public lands.

Both the B.C. provincial and Canadian federal governments have a log export restriction policy designed to support a “domestic first” approach to log supply – which, on the surface, sounds like a fair and reasonable approach. The policy uses a “surplus test” to provide domestic buyers the first right to purchase or “block” logs proposed for export.

But dive a little deeper and you’ll find that, under this policy, proposed exports and domestic log prices are reviewed by a non-transparent, government-appointed committee. There is no negotiation on price with the seller, the domestic buyer simply makes an offer on a proposed export and the committee considers whether that offer is “fair” without regard to international log or lumber prices.

In some cases the domestic log price deemed “fair” by this committee is less than half of what the international market would pay for the same log in the same location.

Perhaps even more troubling for my company, and others, is that the price for a log in the domestic market, in most cases, is below our cost to produce.

So why would we harvest trees that take sixty years to grow, and sell them at a loss into the artificially depressed domestic market? Because, only after we satisfy domestic demand are we able to obtain an export permit and sell to international customers at a substantially higher price and profit. Only export sales generate a profit margin that supports investment and jobs.

Domestic sales from public lands are also transacted at this artificially depressed domestic price. This contributes to an artificially low stumpage rate, which deprives the B.C. government and citizens of much needed tax revenue. The citizens of B.C. and private landowners are subsidizing log processors in Coastal B.C. Furthermore, we are all subsidizing the harvesting of logs on B.C. public lands through artificially low stumpage rates.

So what have log export restrictions done to support the domestic sawmill industry? Over the past twenty-five years, almost sixty per cent of the sawmill capacity on the coast of B.C. has been permanently closed. Moreover, B.C. companies are buying sawmills throughout the U.S. Canadian companies that have abandoned or avoided investing in Coastal B.C, now control almost 20 per cent of the sawmilling capacity in the U.S. south. It’s not a pretty picture.

At TimberWest, we sell over 50 per cent of our production into the domestic market at a loss, so without log exports we would have no cash flow, no operating profits, no business, no economic activity and no jobs. We sell over three million cubic meters of logs per year and support almost 3,000 direct and indirect jobs.  We are prepared to serve the domestic market on a preferential basis at true market prices. But our business model is imploding under the existing government policy.

As our export sales decline, we will soon face the prospect of curtailing our operations to protect the value of our trees. One of the unique features of private forest land management is that you can do nothing and still generate a return on investment while watching your trees grow and waiting for better times.

Please visit the Canadian Forest Industries website for the original version of this article.