BC forest industry needs to do more with its wood

August 1, 2000

In the last two weeks, three news stories on BC's forest industry told a pretty compelling story about the state of the industry and its future.

The first was the release of PricewaterhouseCoopers' (PwC) annual report on the forest industry. The main message was the same one we've heard ad nauseum the last half of the 90s: the industry is over-regulated, making BC a high-cost province to operate in. Another conclusion was that allowing BC forest companies to access more wood would increase profitability and jobs.

As is usually done with these "analyses," economic indicators are filled in with bias-rich conjecture. The report states that logging costs have increased by $12/m3 since 1989. This is likely true. The Forest Practices Code, like many regulations that make our industries more sustainable, has increased operating costs. (Of course, the report omits the Forest Action Plan of 1999, which further streamlines the Code by $5/m3.)

These costs, however, need to be put into context. Profitability in the BC forestry sector is much more dependent on the price of basic commodities--lumber and pulp--than on regulatory costs. For example, the drop in the price of lumber in 1997 alone cost BC's forestry companies $40/m3--over three times more than the costs of adhering to the Code.

It is also useful to consider what the consequences would be if the provincial government eliminated, or at least further rolled back, environmental legislation like the Forest Practices Code. The recent announcement by Lowe's Home Improvement Warehouse gives us some indication.

Lowe's, the world's second biggest lumber retailer, joined the world's #1 retailer Home Depot in deciding it won't buy wood from endangered forests. Since Home Depot's announcement last year, BC forest companies have been scrambling to eco-certify their operations.

This is the direction in which the international marketplace is moving. Companies like Lowe's and Home Depot--and you can throw in many other important wood buyers like Swedish furniture retailer IKEA and U.S. homebuilding giants Centex Homes and Kaufman & Broad--are making these changes because they know that their customers are demanding environmentally friendly products. BC needs to heed the message from its customers.

Another recent announcement, this time from forest companies themselves, is also telling. Many BC forestry operations will be shutting down for part of the summer. The reason: there is an oversupply problem. There is so much lumber flooding the American market that its price has again plummeted.

This announcement highlights one of the real failings of BC's forest companies. They've continued to focus on lumber and pulp and not invested in producing more value-added products. As a result forest companies, their workers, and forest-dependent communities are vulnerable to commodity price swings.

Again, the PwC report gets it all wrong. Instead of advising forest companies to do more with BC wood, PwC advocates that the provincial government allow forest companies to log more trees. This would, of course, push down even further the price forest companies get for their lumber and pulp. Forest companies aren't even cutting the allowable annual cut now. Part of the reason for that is the oversupply problem, another is that much of the high quality, accessible timber has been cut already.

The lessons from these stories become clear when you compare BC's forest industry to Finland's. Finland has a highly profitable forest industry despite the fact that they lost their key market, the Soviet Union, in the early 1990s. Does Finland have lower regulatory costs than BC? No, Finland has strong unions, more stringent environmental regulations, and a greater social safety net.

The difference is that Finland's forest companies have invested in bigger, newer, and more efficient mills than BC's. They have also invested in moving up the value chain, producing more high-quality paper and wood products. They have eco-certified their operations and moved towards totally chlorine-free paper production. And they have done it without increasing their cut, relying entirely on second-growth forests. We can--and should--do the same thing here.