Getting the Most from Every Tree Cut

In exchange for the right to log portions of B.C.’s public forest lands, the Forest Act requires licensees to abide by various existing regulations. Historically, these included an obligation to log a certain minimum level of timber each year; requirements to process that timber at certain mills (known as appurtenancy) or, more generally, in mills owned by the licensee (known as timber processing requirements); and penalties for transferring any part of a tenure, in addition to restrictions on subdividing tenure licences.

These requirements prevent companies from operating efficiently, weakening individual operators and the industry as a whole. They also make it more difficult for new operators with innovative ideas to enter the industry, and prevent logs from flowing to their highest and best use in B.C.

Minimum cut controls

Each licensee is currently required to work within cut control rules that prescribe the minimum and maximum amounts of timber to be logged each year and over a five-year period. Licensees that do not comply with cut requirements may be penalized through the loss of a portion of their allowable annual cut.

The policy of minimum cut control was introduced as part of an effort to dictate a minimal level of ongoing employment for loggers and mill workers, and steady revenue for government through payment of stumpage.

To avoid losing part of their allowable annual cut, licensees must log even when demand and price are low due to depressed markets or oversupply. Introducing more wood into a sluggish market forces prices even lower, driving down the value of B.C. products. In short, licensees can be forced to operate at a loss, and are thereby less stable and more vulnerable to market shocks. A regulation that undermines the industry’s strength and ability to operate economically cannot, over the longer term, support the goal of a healthy economy and a prosperous British Columbia.

Action: Cut control rules will be adjusted, allowing licensees to decide when prices and market conditions are suitable for logging. There will be no penalties for failing to cut timber, but licensees may be required to return the uncut portions to the Crown. There will continue to be maximum cut controls to prevent excessive cutting and ensure sustainable forests for future generations.

Benefit: These changes will increase licensees’ competitiveness and so, over the longer term, will benefit the forest sector and those who rely on it. As well, licensees will be better able to respond to market conditions, cutting timber only when it makes economic sense and making the most of an important public resource.

What is the AAC?

The allowable annual cut is the amount of timber from public forest lands that can be logged legally each year, expressed in cubic metres.

The allowable annual cut is determined by the province’s chief forester after thorough scientific analysis. It fully reflects the province’s high forest management standards for both timber and non-timber resources, and also reflects land-use decisions like the amount of area reserved for parks.

The province’s total allowable annual cut is currently 74 million cubic metres, which contains more than 5.5 million cubic metres of recent, temporary increases to help battle the mountain pine beetle epidemic.

Processing and mill closure policies

For decades, government required licensees to abide by rules on where logged timber is processed. Typically, licensees are required to process wood at their own mills, or at specific mills. In cases where licensees seek permission to close a mill – even one that is losing money – they may be penalized by the loss of part of their timber allocation.

Timber processing rules were introduced in an attempt to create local or regional economic benefits from the timber that was logged. But these regulations led to a series of unintended consequences that hinder the forest sector’s ability to make sound, business-based decisions.

Overall, mandatory links between logging and processing impair the ability of licensees to make decisions based on economics or market demand. They are forced to be both loggers and processors, regardless of their interest or ability to be in both distinct businesses.

Forcing licensees to process wood at mills with equipment that is outdated, or at mills that make products that are not in demand, prevents valuable public timber from flowing to other, better uses. As well, it can restrict employment created from the resource.

Some British Columbians view these policies as part of the social contract that forest companies should meet in exchange for the right to log public land. But while these policies may have made sense in a different time with different market conditions, they have not shielded today’s communities from job loss and economic difficulties. In fact, they serve as a disincentive and impediment for the forest industry, and they undermine the viability and strength that industry needs to continue contributing to British Columbia’s economy and standard of living.

Action: Government will eliminate regulations that require licensees to both log and process timber at their own mills. Licensees will be free to sell timber within British Columbia instead of processing it, increasing the flow of timber to other users and the likelihood that timber is processed into higher-value products. Log export restrictions will be maintained on Crown land, ensuring the vast majority of public timber is milled in B.C.

Benefits: Allowing licensees to specialize in areas of business strength will enhance their long-term viability. Some companies may concentrate on harvesting, some may choose to focus on processing timber, and some may remain involved in both aspects of the industry, based on their strengths, efficiencies and analysis of market conditions. While this may lead to some rationalization by companies, the freer flow of timber to higher value uses in B.C. will create business opportunities and jobs with other processors.

The freer flow of timber will set the stage for a stronger, more efficient industry that can weather the ups and downs of the global marketplace. It will also create opportunities for entrepreneurs interested in either logging or processing activities without requiring them to engage in both.

Tenure transferability and subdivision

When government issues tenure, it prohibits the licensee from transferring or subdividing it without permission of the Minister of Forests. When permission is granted for transferring tenure, the licensee must give up five per cent of its logging rights without compensation.

Licensees are thus discouraged from transferring or selling their logging rights, even if that timber is surplus or unsuited to their needs, because of a burdensome process and the loss of timber rights in addition to those transferred or sold. These restrictions also keep out new, potentially better or more innovative forest managers, preventing the industry from strengthening itself by diversifying.

At the same time, processors that could make better use of the timber often cannot get access to it and therefore are unable to expand their businesses or create more jobs.

Action: Government will allow forest companies to transfer, subdivide, or sell all or a portion of their licences without suffering a penalty. The Ministry of Forests will continue to review transfers to ensure that control over the timber supply does not become overly concentrated.

Benefits: The public forests will continue to be owned by the Crown, but licensees will be able to transfer their cutting rights to other companies in B.C. more easily. This will open up opportunities for new participants in the industry and also increase the likelihood of timber flowing to facilities that can offer employment by producing higher-value forest products.

Cutting this red tape will also open up the industry to others who may be better or more effective forest managers, ensuring that B.C.’s public forests are managed sustainably. And it will allow licensees to leave the industry or to diversify their holdings if they wish, increasing industry’s long-term viability and ability to provide stable jobs and revenue.

Building a healthier log market

A vibrant log market gives manufacturers – including the growing value-added sector – a reliable supply of the logs they need at competitive market prices, with no need to have tenure. Tenure holders also benefit by being able to focus on forest management and sell the logs they produce, rather than having to own processing facilities.

In B.C., government policies have limited the operation of log markets. Changes to processing policies will play a key role in fostering the growth of the log market, as will reallocating a portion of existing tenures to new players that do not own manufacturing facilities.

To make the log market work even better, the government is also planning to develop mechanisms for collecting and reporting data on log market transactions so that all market participants can be better informed of market conditions. In addition, the government intends to work with a variety of market participants to foster the development and adoption of new private-sector log trading mechanisms.


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