Softwood border skirmish raises issue for B.C. taxpayers

The latest skirmish in the perpetual softwood lumber battle with the U.S. is worth your attention.
American lumber producers are complaining, again, that B.C. is subsidizing forest companies based in the province. That’s giving the companies an unfair advantage and costing profits and jobs in the U.S., they argue.
If the complaints are legitimate, it also means B.C. taxpayers are losing out on payments we should be getting for the trees.
The American grumbling is to be expected. The industry maintains a pretty much permanent effort to fight imported lumber from Canada, using lobbyists, political allies and the softwood lumber agreement appeals process.
But their criticisms are being supported by forest researchers here and at least one Canadian industry executive.
The issue is stumpage. We own most of the trees in the province. Companies have to pay for them when they cut them down. The price is set by government, partly based on market forces.
The American producers argue the stumpage system is rigged to give the companies the wood at a big discount. Their companies, which pay market prices for trees on private land, can’t compete.
The pine beetle is at the centre of the latest offensive.
The government sets a dirt-cheap stumpage rate for low-value wood - traditionally trees too small or low quality to be used for lumber, which ended up being shredded and made into pulp. The rate, at 25 cents per cubic metre, pretty much gives the trees away. The stumpage rate for trees destined for lumber has been about 50 times greater.
But since the latest softwood agreement was signed in 2006, more and more wood has graded at the lowest rate. About 10 per cent of logs used for timber used to qualify for the 25-cent rate, the U.S. industry says. That’s climbed to 50 per cent. (All this courtesy of a report in The Oregonian, Portland’s newspaper. The issue has been getting media attention south of the border.)
Forest Minister Pat Bell says the stumpage being charged is appropriate. Vast tracts of dead forest, killed by the pine beetle, are deteriorating in quality. The trees are worth less and tougher to use for lumber.
But Rick Doman, tracked down by the Oregonian, disagrees. He fought unsuccessfully to save Doman Industries, his families’ Island-based forest company and now runs Eacom Timber Group of Montreal.
Doman says the U.S. producers are right. Good quality wood is being graded falsely to give the companies a great deal. The pine beetle-killed lumber was good enough to use in the Richmond Olympic Oval, he notes.
The Canadian companies are getting a gift from government, the U.S. industry faces unfair competition and B.C. taxpayers are the “losers,” he told the Oregonian.
It’s tough to know who is right. Government forest revenues have plummeted from $1.2 billion in 2005-6 to about $345 million last year. But the recession and collapse of the U.S. housing market were the major factors.
Still, forestry revenues were equal to 19 per cent of the value of exports in 2005; that’s fallen to 12 per cent in 2009. If trees had been selling to the companies for the same average stumpage levels today as they were four years ago, taxpayers could expect an extra $200 million in revenue this year.
The consultation process under the softwood lumber agreement didn’t produce any settlement. The next step, while political pressure continues, is arbitration.
British Columbians should be watching that with as much interest as the American industry.
The whole issue would be a useful topic for review by the province’s auditor general. As well as concerns about stumpage rates, earlier reviews have highlighted risks in letting companies set their own grades for public wood, an inadequate number of spot checks and puny fines for violations.
Footnote: The low stumpage rates have protected jobs. The cheap timber has encouraged companies to invest in more efficient mills in the interior to deal with the pine beetle-killed wood and opened opportunities in using the fibre to produce electricity.