The Looming Crash Facing Down BC’s Forest Industry

Apr. 14, 2022

Despite record government revenues, the province faces a grim reckoning for years of mismanagement.

As hundreds of protesters trying to stop logging of old-growth forests were arrested at Fairy Creek on Vancouver Island last year, the B.C. government raked in big money from logging companies.

In total, it collected more than $1.8 billion dollars in stumpage fees — a number that would have been higher still but for the protests.

Nothing in the past 15 years comes close to that revenue benchmark, a figure that underscores that it is not just the logging companies who benefit financially from logging old-growth or primary forests, but the provincial government as well.

New research by the B.C. office of the Canadian Centre for Policy Alternatives shows, however, that the whopping stumpage revenues of last year mask trouble ahead.

The high revenues were only made possible by an unprecedented run-up in lumber prices and the extraordinary value of the older trees that are the chief target of companies logging in B.C.

With those trees disappearing as quickly as Newfoundland’s cod once did, the provincial government belatedly announced last year that it would defer logging in a portion of remaining old-growth forests for two years, pending negotiation with affected First Nations.

The fear now is that the government’s deferral announcement will be scapegoated as the cause of a coming crash in logging rates, rather than government forest policies that encouraged the rapid depletion of B.C.’s once bountiful old-growth forests and the production of low-value forest products that provide few jobs.

“The proposed deferrals have become the bogeyman, not the industry’s over-cutting, or its exports of raw logs, or the undisclosed huge number of logs being consumed by wood pellet mills — a forest and job killer if ever there was one,” says Torrance Coste, national campaign director for the Wilderness Committee.

And we all fall down

The long predicted “falldown effect” is here. Logging rates are plummeting as old-growth or primary forests never before subject to industrial logging disappear.

Many rural communities — Indigenous and non-Indigenous alike — have paid the price for that. The forests nearest to them are long gone. Local mills have closed. About 40,000 direct jobs in the forest industry have gone — in just 20 years.

Meanwhile, the prognosis for forest ecosystems is dire, with some globally rare forest types like the Interior rainforest now so depleted that they are on the verge of ecological collapse.

The companies who run the remaining sawmills know the jig is just about up. Consider B.C.’s biggest forest company, and one of the province’s biggest lumber producers, Canfor Corp. Where has it made new investments in recent years? Not in B.C. where it has sold one asset after another, gut-punching communities like Mackenzie and Canal Flats in the process, but in the U.S. states of Alabama, Arkansas, Georgia, Louisiana, Mississippi, North Carolina and South Carolina. Or, next door in Alberta. Or, overseas in Sweden.

Scott Doherty is executive assistant to the national president of Unifor, the largest private-sector union in Canada, and one of three unions representing forest industry workers in B.C.

“Canfor’s obviously seen the writing on the wall,” he said. “If the worst is to be avoided, we need to scale back the number of trees logged and then do everything we can with the wood from those trees. But we see no sign that the government is serious about making that happen.

“Millions of trees continue to be cut down every year, only to be shipped as raw logs to China, Korea and Japan. And millions more are cut down simply to be turned into wood pellets in one of the lowest value, poorest job-generating enterprises of any in the forest industry,” Doherty said.

The monster year that was

To arrive at its numbers, the CCPA used a searchable government database to look at logging rates and stumpage revenues over the last 15 year. The analysis shows that last year’s jump in stumpage revenues happened even as logging rates fell.

Typically, declines in logging should mean declines in revenue. But last year, things were flipped on their head. Why?

In a nutshell, much of it traces to COVID. As the global pandemic spread and people isolated at home, those with means plowed money into renovations or purchased new homes, which sent lumber prices soaring to record highs.

Since stumpage payments — the money companies pay to the government when they log trees on “Crown” or public lands — are pegged to market prices, it was only a matter of time before the government’s stumpage account swelled to its heady height.

The more than $1.8 billion in stumpage fees collected by the province in 2021 ended up being $600 million more than the next closest year, which was 2018, the only other year in the timeframe examined by the CCPA when stumpage revenues exceeded $1 billion.

But the kicker in 2021 was that the $1.8 billion in revenue was generated on the logging of roughly 58.2 million cubic metres of trees. In 2018, by comparison, logging companies cut down 70.7 million cubic metres of trees while paying $1.2 billion in stumpage. In other words, last year the government collected 50 per cent more in revenues than the previous highest year even though Canfor and other companies logged nearly 20 per cent fewer trees.

Something else also drove those revenues up. The government’s own data underscores that in recent years the majority of trees logged were of the highest quality — an indication that the industry, with the government’s blessing, targeted the healthiest older forests for logging, leaving behind not only fewer but more impoverished forests.

And that spells trouble ahead for the industry and the province, because lumber and other wood products made from higher-quality old-growth trees command price premiums.

Those price premiums translate into higher stumpage revenues, which the government in turn channels into various programs and services including health care and education.

Logging rates halved in just 15 years

The monster revenues of 2021 won’t be repeated, and the government knows as much. Its recent budget forecasts that forestry revenues will fall by nearly 40 per cent this fiscal year due to declines in “historically high” lumber prices.

But it’s what the government says next that is more crucial. While lumber prices will decline dramatically, what’s really heading south is logging rates, which have already dropped off significantly from their levels of just a few years ago.

According to the provincial budget, logging rates will fall to 39 million cubic metres annually within three years. That, according to the data, would be half the levels of 15 years ago.

What the budget document doesn’t do, however, is level with the public about the kind of logging that has taken place in recent years, where the biggest revenues were generated, and what that says about what remains of our forests.

A hollowed out coast and a hollowing out Interior

Because of B.C.’s size and spectacular diversity, its forests are best considered in three broad zones — the coast, which includes everything from the coastal mountain ranges west to the ocean and all of Vancouver Island and Haida Gwaii, and the northern and southern interior regions, which are divided by a line that bisects the province east to west roughly near the community of Quesnel.

For more than a century, the coast with its treasure chest of massive and ancient cedar, spruce, Douglas fir, hemlock and other trees was the economic driver of B.C.’s forest industry. But that chest has been looted. Most of what remains is either smaller old-growth trees in higher, more remote terrain or, increasingly, second-growth and third-growth trees. As a result, the coast is no longer the driver of industry profits and stumpage revenues it once was.

Complicating matters, the coast has large tracts of privately owned forestland. Trees logged on private lands as opposed to public lands are exempt from stumpage charges. As a result, the biggest private forestland owners like TimberWest and Island Timberlands tend to take advantage of the lower costs by loading millions of cubic metres of raw, unprocessed logs into the holds of ocean freighters and shipping them offshore — a practice that comes at the cost of thousands of foregone local manufacturing jobs.

The vast northern and southern interior regions are different from the coast in many ways. A big difference is that industrial logging in the interior regions only really gathered steam 50 years ago and everything logged since has effectively been in old-growth or “primary” forests where industrial developments had not previously occurred. Privately owned forestland in the Interior is also negligible, which means far fewer log exports.

The southern interior region is also home to the globally rare inland temperate rainforest, where wet coast-like conditions make for ideal growing conditions resulting in long-lived trees of a size and quality that approaches what was once the norm on the coast.

The logging of these rarest of rare forests has accelerated dramatically in the past decade — particularly as unsustainable “salvage logging” in other pine beetle-ravaged areas declined because the industry had either effectively logged out such forests or the trees had lost too much economic value following the beetle attack.

As economically accessible old-growth forests have been logged out of existence on the coast, more and more industry profits and government revenues have come from logging the Interior’s primary forests.

Consequently, nearly twice as many trees were cut down in the interior regions last year than was the case on the coast. And the Interior as a whole generated five times more in stumpage revenues than its now impoverished coastal cousin.

Feasting on the best wood

The much higher revenues in the Interior, where some of the biggest sawmills in the world operate, are almost entirely the result of the logs that go into the sawmills. The best of those are assigned grades 1 or 2.

Such logs generally come from older trees that are healthy and alive before they are cut down. Such trees also have typically fewer defects such as cracks or knots, and have sustained minimal or no damage from tree diseases or insect attacks. These logs generate higher stumpage charges than lower quality logs.

In the last five years, the Grade 1 and Grade 2 logs coming out of the Interior’s primary forests constituted 57 per cent of everything logged, while generating 82 per cent of all the stumpage fees paid, a clear sign of their value to the region’s big lumber producers, like Canfor, which last year posted a record $1.5 billion in net earnings.

As anyone paying attention knows, the forests in B.C.’s interior regions have been hammered by mountain pine beetles and other insects as well as tree-destroying blights, droughts and wildfires, leaving behind lands depleted of most of their commercially attractive trees.

Yet in the face of growing scarcity, Canfor and others somehow managed to find the best possible stands of remaining trees to log. And the government helped make that happen, through an obscure subsidy program known as “crediting,” a program that its critics call a Ponzi scheme.

‘Perverse subsidies’

The 17-year-old crediting scheme works like this.

Companies that deliver “lower quality” logs from forests to wood pellet mills or pulp mills can apply to the government for credits that allow them to go back into the forest and log an equivalent volume of trees again.

This is a big incentive because the companies that obtain the credits for delivering lower quality logs can then go back into the forest a second time to get even more of what they really want, which is the higher quality Grade 1 and Grade 2 logs from primary forests.

The government itself warned last year that its crediting scheme may be accelerating depletion of the province’s forests.

Yet the government claims that most of the credit transactions exist on paper only. Because of this, the government says it will not or cannot provide a figure on the overall number of additional trees logged under the subsidy scheme without receiving a formal freedom of information request — a process that often takes years.

Herb Hammond is a professional forester and advocate of ecosystem and conservation-based forestry, which allows for some low-impact selective logging while leaving behind forests that continue to function much as they would had no logging taken place.

Hammond says the credit scheme has propped up a house of cards and that there will be an inevitable crash, as he and others predicted decades ago.

“Government and timber companies, aided and abetted by forest professionals in their employ, have overestimated a sustainable rate of cut and focused on progressive high-grading of remaining old-growth and other primary forests. Perverse subsidies like the “log credit” program only postpone the inevitable. The only winners in this Ponzi scheme are corporate timber companies, who are collecting the last of the gold from B.C.’s forests on their way out the door to fast-growing tree plantations elsewhere,” Hammond wrote last year.

The Science Alliance for Forestry Transformation, a group of forest ecologists who joined forces in 2021 to “debunk myths” and provide information on alternative, more ecologically sound approaches to forestry in the province, recently released a video that dissects the credit program and how, in particular, it has fuelled a troubling growth in the wood pellet industry, which has increased its output fourfold since the credit scheme began.

In another related video, Michelle Connolly, director of Prince George-based organization Conservation North, warned that the surge in wood pellet production in B.C. has had grave consequences for interior forests because, contrary to the industry’s claims that sawmill waste is used to make wood pellets, whole tracts of forest are now being directly logged to make a product that is then burned.

“The pellet industry in B.C. is set to expand in a big way,” Connolly warns in the video. “And the only way they can do it is if the B.C. government continues to allow the logging of primary forests for this purpose. And this has to stop.”

The old-growth blame game

To understand the coming crash it helps to go back to events in the interior regions in the early 2000s when an epic infestation of mountain pine beetles killed millions of lodgepole pine trees, becoming front-page news in the province.

The government encouraged the logging industry to cut down as many of the attacked trees as possible so that the companies and government alike could reap a short-lived economic windfall by “salvaging” them before they lost their value.

At its height, the inflated logging rates approved by the government allowed the companies to cut down an additional 11 million cubic metres of trees per year. The result was that as many as 63 million cubic metres of additional trees were logged: enough wood to fill a line of logging trucks lined bumper-to-bumper from Vancouver to Halifax five times over.

Complicating matters greatly now is the provincial government’s belated decision in November to defer the logging of 2.6 million hectares of at-risk old-growth and primary forests. The government said the decision could eventually lead to outright protection of those forests, but that will depend on consultation with affected First Nations.

Dave Daust, one of a number of scientists appointed to the old-growth advisory panel whose report guided the government in its deferral announcement, says that if every one of the areas proposed for deferral is eventually protected permanently — a far from certain outcome — it would result in a six-per-cent decline in the overall land base currently considered available to log.

The deferral decision pleased no one.

The Council of Forest Industries immediately warned of economic carnage, claiming that 18,000 jobs were at immediate risk — a claim it did not support with any backing documentation of how much logging rates would fall or where the biggest declines might be.

Katrine Conroy, minister of forests, presented a much lower but still significant projection of 4,500 jobs lost. She, too, did not elaborate on how she arrived at her number.

On the environmental side, organizations that had long campaigned to protect remaining old-growth and primary forests pointed out that deferrals are just that. Outright protection may or may not occur down the road.

Meanwhile, many at-risk older forests will continue to be logged, with the industry claiming that any limitation will have grave economic consequences.

Consent by coercion

Placed squarely in the hotseat in all of this are the First Nations on whose traditional lands all of the logging to date has taken place — sometimes with the active involvement of First Nation members and businesses and sometimes not.

After the deferral announcement on Nov. 2, the government gave First Nations just 30 days to respond to specific deferrals proposed on their traditional lands. When that month came to an end, the Union of BC Indian Chiefs decried the untenable position the government had placed First Nations in.

“The provincial government made its announcement to much fanfare on Nov. 2, but a month later First Nations are still lacking supports, and threatened old-growth forests continue to be destroyed,” UBCIC president and Grand Chief Stewart Phillip said.

“The Horgan government is abdicating its responsibility to protect old growth, is pressuring First Nations into making critical decisions regarding the territories and forests they have stewarded over since time immemorial and is continuing to deny the fact that they must immediately provide substantial resources to support First Nations towards this goal — this is consent by coercion.”

Predictably, the doomsday numbers advanced by COFI and the general lack of enthusiasm with which the government’s old-growth deferral decision was received were grist for the mill for media pundits following the release of the provincial budget document.

Black Press’s Tom Fletcher wrote:

“Projections in Tuesday’s B.C. budget show a decline in provincial revenue from timber cutting, from $1.8 billion in the current year to $1.1 billion in 2024-2025. The drop is mainly as a result of provincewide deferrals of harvesting in areas identified as rare and threatened old-growth forests, Finance Minister Selina Robinson said Feb. 22.”

But a read of the budget document reveals that the primary reasons for the staggering revenue declines are an entirely predictable cooling off of over-heated lumber markets and a relentless decline in logging rates that “includes” projected declines related to the proposed deferrals, which may or may not happen.

To suggest that responsibility for the downfall ahead lies solely with the government’s decision to defer logging of some old-growth forests pending negotiation with First Nations is a gross mischaracterization.

In 15 years, logging rates have fallen 25 per cent. In three more years, they will be barely half of what they were in 2007, and only some of that coming decline will involve the impacts associated with old-growth deferrals.

We have stripped our forests of much of their green gold. Government subsidies have encouraged that tragic outcome. And the long-predicted decline has begun.

[Top photo: A recent old-growth clearcut adjacent to the Fairy Creek Valley in Vancouver Island’s coastal forests. Photo by TJ Watt.]