The first post of our “Fair Trade for Private Logs” series asked the question: How is it domestic log prices flat line while forest product markets rise? Because this is an important question for BC’s forest owners we went back to the drawing board, crunched some more numbers, and arrived at an up-to-date graph to help illustrate the point further.
What does the graph show?
The above graph depicts price changes (in percentage) from February 2012 to January 2014.
The lines at the bottom of the graph represent the prices log producers receive from local mills for Hemlock gang logs. ‘Gang’-sized logs are small (8 to 11 inch) second-growth Douglas-fir, Hemlock and Cedar saw logs that typically account for about 60% of coastal private land harvest production.
The lines at the top of the graph represent the international prices domestic mills receive for the forest products they produce from the Hemlock gang logs. If you’re not familiar with the language, 2×4 # 2&Btr refers to common construction grade 2x4s.
The linear series represents general trends, while the dynamic series charts actual data points.
This brings us to our original question: why is the trend for logs only slightly up, while the trend for lumber is significantly up?
The surplus test artificially suppresses domestic log prices.
The disconnect between lumber and log prices, illustrated above, is a symptom of a policy framework that suppresses BC domestic log prices and provides a direct subsidy to domestic log processing industries. By imposing government intervention in place of supply and demand market forces, the policy results in a direct transfer of value from BC tree growers to BC mill operators.
The surplus test is outdated and unnecessary.
The rationale for the most recent (1998) iteration of the federal log export restrictions (Notice to Exporters 102) was fear of a shortage of available logs for processing in BC. The data below shows the coastal log harvest in 2013 significantly exceeded processing capacity. In other words, there was a significant log surplus.
Total coastal log harvest: 18.6 million cubic meters
Coastal mill consumption: 12.0 million cubic meters
Harvested timber volume exceeds coastal mill consumption by 6.6 million cubic meters and confirms there is more than enough timber available to meet coastal mill needs.
Under log surplus conditions, to maintain a surplus test for logs from private land, using domestic not international log prices, serves only to:
- suppress log prices
- transfer value from growers to mills
- provide a direct subsidy to lumber and veneer producers
Private growers are happy to sell logs into the domestic market at competitive international prices, but selling our products at a loss, and subsidising other sectors, is not sustainable.
The surplus test subsidizes lumber producers at the expense of log producers.
By cooperating to maintain a federal surplus test program that allows domestic buyers to use artificially suppressed domestic log prices to block export permit applications, both the federal and provincial governments are complicit in a massive price suppression program.
If BC mills were competitive, and BC domestic log prices were internationally comparable, we would have a thriving, healthy log processing industry. Instead, we have a situation where private forest operations are forced, by outdated policy, to directly subsidize BC lumber producers.
The surplus test contradicts the federal government’s position on free trade.
This short-sighted policy not only suppresses the value of private land, the trees we grow and the logs we harvest, but it also aggravates the ongoing softwood lumber dispute between Canada and the U.S.
“We’re in an era where we are not going to win by trying to protect sectors. We have got to get out there, we’ve got to compete with the best and we’ve got to win.”
Prime Minister Harper, Vancouver, March 13th, 2014.
Encouraged by the recent steps government has taken towards free trade, we look forward to joining grain farmers, and other sectors, who enjoy the opportunity to compete with the best. BC’s private forest owners aren’t asking for a subsidy from other sectors, or a government handout, or any taxpayer support. We just want fair trade for logs and the chance to compete.