Recent Changes in B.C. Forest Policy: Renaissance or Requiem for Competitiveness?

March 1995
by Brian D. Gilfillan
Vice President, Forestry
Council of Forest Industries

ABSTRACT
Substantial change is underway in B.C. forest policy. This paper describes the issues being addressed, some of the initiatives adopted by the government to address these issues and the impact of these initiatives on industry competitiveness. The adequacy, availability and affordability of the commercial timber supply is being adversely affected. The government is begining to take steps to mitigate these adverse impacts.

In the government's view, the changes it has made have been not only necessary, but also a positive influence on the future of B.C. forestry. As the Minister of Forests has recently written, "...we are moving rapidly in the right direction." (Petter 1995a).

The industry supports the principles behind many of these changes, including the need to address aboriginal land claims, to avoid valley by valley conflicts with environmental groups and to ensure sound forest practices requirements. However, it is very concerned about potential adverse impacts caused by the way these changes are being implemented.

Are these changes placing B.C. on the verge of a renaissance, or close to a requiem, for competitive forestry?

This paper describes the issues being addressed in B.C. forest policy, some of the initiatives adopted by the government to address these issues and the impact of these initiatives on industry competitiveness.

• Ownership: who should own the province's forest lands and resources?
• Land Use: how much forest land should be available for commercial forestry?
• Forest Practices: what forest practices should be permitted or required on the commercial forest land base?
• Allowable Annual Cut: taking the above and other factors into account, what should be the rate of timber harvest?
• Tenure: who should hold the rights to that harvest, what should be the nature of these rights and what obligations, including harvesting fees, should be attached to these rights?

Table 1. Forestry Issues and Government Initiatives

The following is a summary of these initiatives.

Ownership

Several aboriginal groups have claimed land in British Columbia. The provincial government has "recognized aboriginal title and the inherent right to self-government" (Province of British Columbia 1993). To settle land claims, the provincial and federal governments, with the agreement of aboriginal people, established the British Columbia Treaty Commission in 1992 to facilitate the negotiation of treaties (Fisher 1995). To date, 42 aboriginal groups have filed statements of intent to negotiate, and several more are expected to do so. Most, if not all, of the province is likely to be claimed. Since the completion of treaties may take considerable time, the provincial government is, in the interim, entering into "government to government arrangements with First Nations" (Province of British Columbia 1993). These arrangements, known as Interim Measures Agreements, appear to give aboriginal people some jurisdiction over resource planning and development. Currently, there are more than 20 agreements affecting forestry.

Land Use

In 1992, the government established a Protected Areas Strategy, promising to double the protected area in the province from 6% to 12% of the provincial land base by the year 2000. Since then, the government has created more than 60 new parks and wilderness areas, bringing the current total of protected area to about 9% of the land base.

Also in 1992, the government established the Commission on Resources and Environment (CORE) with two mandates: first, to recommend a provincial land use strategy and, second, to attempt to resolve specific regional land use conflicts. CORE has just completed its recommended land use strategy, calling for a land use planning statute, the setting of land use goals and the creation of community resource boards. CORE has also made controversial recommendations for land use in three regions of the province: Vancouver Island, Cariboo/Chilcotin and the East and West Kootenays. The government is now finalizing its land use decisions for these regions. In doing so, the government is dividing the commercial forest into three zones:

• integrated resource management, the largest zone;
• enhanced resource development, where intensive forestry can be practiced; and
• special resource management, where only low intensity forestry will be permitted.

Forest Practices

In late 1993, the government announced it would establish a Forest Practices Code.

The Code will bring significant change in a number of areas, including:

• New Regulatory Framework: creation of several new legal instruments, including the Forest Practices Code of British Columbia Act, Regulations, Standards and Guidebooks;

• New Administrative Bodies: creation of a Forest Practices Board, a Forest Appeals Commission and a proposed Forest Practices Advisory Council;

• New Forest Practices Rules: creation of new or altered rules governing forest land use, planning and practices,with increased emphasis on protecting soil, riparian areas, biodiversity and visual quality; and

• New Penalties: creation of new and harsher penalties for contraventions, including fines of up to $1 million or more and three years imprisonment.

The government has been applying the "spirit and intent" of the Code since early 1994 but, apart from the creation of the Forest Practices Board in January 1995, the Code is not yet officially in force.

Allowable Annual Cut

The province's forests are divided into two main types of management units: 36 Timber Supply Areas (TSA) and 34 Tree Farm Licences (TFL). By early 1991, the Forest Service was concerned that determinations of allowable annual cuts (AAC) in the TSA's were too infrequent (Ministry of Forests 1991). In 1992, the government amended the Forest Act to require a new AAC determination for every TSA and TFL by December 31, 1995.

The work to determine new AAC's is known as the Timber Supply Review. For TSA's, the Review is a four stage process, beginning with a timber supply analysis, followed by a socio-economic analysis, then a public discussion paper and finally an AAC determination by the province's chief forester. The process is similar for TFL's, but much of the work is done by licensees instead of the Ministry, and there is less emphasis on socio-economic analysis.

As of mid-March 1995, only six TSA's and 12 TFL's had new AAC's, leaving the chief forester the unenviable, if not impossible, task of determining a new AAC for each of the remaining 52 management units on average every five days for the remainder of 1995.

By 1993, the industry and others were concerned that the government's agenda for sustainability was focused on only environmental issues. In response, the government established the Forest Sector Strategy Committee (FSSC), comprised of representatives of government, industry, labour, contractors, aboriginal people and environmental groups. The mandate of the FSSC is to develop a strategy for enhancing the economic and social benefits provided by the province's commercial forests.

To date, the most conspicuous product of the FSSC is the Forest Renewal Plan, established in mid-1994. The purpose of the Plan is to enhance timber growth and quality, restore and protect the forest environment, encourage value-added operations, train forest workers and strengthen forestry communities. To fund the Plan, the government increased harvesting fees for Crown timber. The government projects that these increases will yield, on average, more than $500 million per year in additional government revenue. After income tax deductions, the average net increase in this revenue is projected to be $450 million, of which $50 million will go to the government to offset increased administrative costs related to the Code, leaving $400 million per year to be spent under the Plan. A Crown corporation, called Forest Renewal B.C., has been established to spend the money under five "envelopes": land and resources; environment; workforce; value-added; and communities. About one-half of the expenditures are expected to be aimed at increasing the quality and quantity of the commercial timber supply.

Tenure

The government has taken a number of steps related to tenure or log supply:

• Log Marketing: under what is known as the Log Market Experiment, the government is the harvester and seller of logs, rather than simply a harvesting licensor;

• Woodlot Expansion: the government has announced that it will double the province's woodlot program over three years to 1,000 licences with an AAC of 1 million m3 ; and

• Credit System: to encourage independent value-added manufacturing, the government has announced that it will introduce in the Spring of 1995 a system that will require major licensees to supply a specified amount of their primary product to remanufacturers.

These initiatives are merely precursors to major tenure reform that could follow. Although the government had intended tenure reform to be part of this term's agenda, the other forest policy changes it is implementing have so overwhelmed the civil service that the government has apparently concluded that full reform is not possible in the immediate future.

Instead, the government has indicated it will release a Discussion Paper sometime in 1995, with decisions not expected until after the election.

As many of these initiatives are incomplete, and still subject to change, their impact on industry competitiveness cannot yet be conclusively determined. Nevertheless, preliminary indications are available. On the positive side, anecdotal evidence suggests that the confidence of the public and the marketplace in the environmental aspects of B.C. forestry is somewhat improved. However, if other measures of competitiveness are considered, the outlook is negative.

Three such measures are:

• adequacy of the timber supply, as measured by the size of the AAC;
• availability of the timber supply, as judged by the suitability of arrangements for acquiring timber; and
• affordability of the timber supply, as measured by delivered wood costs.

Adequacy of Timber Supply

The provincial AAC, currently set at 71.3 million m3, is declining. For the TSA's and TFL's where new AAC's have been determined under the Timber Supply Review, the average decline for all timber types has been about 6% and for normal coniferous types alone about double that. The Ministry of Forests projects that, with current management programs, the long-term harvest level will fall 15 to 20% below the current AAC (Miller 1994 and Pedersen 1995).

Obviously, these reductions are not fully attributable to recent policy changes. However, because the Timber Supply Review is not taking into account all of the pending government decisions on land use and forest practices, AAC reductions beyond these levels are anticipated.

For example, CORE estimated that its regional recommendations would reduce the AAC for Vancouver Island, the Cariboo/Chilcotin and the East and West Kootenays an additional 4 to 6%.

The AAC will be further reduced by the Forest Practices Code. When the government first analyzed the costs of the Code, a 10 to 20% reduction in AAC was assumed (Saunders 1993). However, if recent analyses of specific forest practices restrictions are any indication, the potential decline is larger. For example, based on an analysis of the impact of broadening riparian management areas (Wild Stone 1994), the government's proposals for this rule alone could reduce the provincial AAC by about 5%. Analyses of other proposed constraints suggest additional AAC reductions in the management units studied of 3 to 21% for biodiversity and up to 49% when biodiversity and visual quality are combined (Nelson et al. 1994).

When all of the potential impacts are considered, analyses are showing AAC reductions for specific management areas ranging from 25 to as much as 80% (Council of Forest Industries 1995). At this time, an overall reduction in the provincial AAC of 25% may be within the correct order of magnitude. It is anticipated that investments under the Forest Renewal Plan will offset some of this reduction, but these benefits may be years away.

Availability of Timber Supply

The industry is experiencing increasing difficulty obtaining timely approval of harvesting authority from the government. Defining and accommodating aboriginal interests, working around areas under study as possible protected areas and grappling with applying the spirit and intent of the Code have all contributed to gridlock in the woods. Some mills have come close to shutting down because there were no logs in the yard, others have as little as one month of log needs under approval for harvesting and many are unable to harvest their full allowable annual cut.

Affordability of Timber Supply

As Figure 1 shows, average provincial delivered wood costs are rising. Between 1991 and 1994, these costs increased about 60% to an estimated $75/m3. Again, not all of this increase is attributable to changing government policy. Between 1987 and 1993, about one-third of the cost increases were due to increased harvesting fees and another one-third to increased government regulation (Price Waterhouse 1994).

Beginning in 1994, the government's Forest Renewal Plan alone is directly responsible for an average increase of about $10/m3. Delivered wood costs will also increase as a result of the Forest Practices Code. For a number of reasons, it is difficult to precisely determine this increase. Based on a study done for the government (Saunders 1993), the increase may be $3 to $5/m3. However, other studies indicate larger increases, perhaps in the range of $6 to $9/m3 (Council of Forest Industries 1994).

CONCLUSION

Substantial change is underway in B.C. forest policy. Initial indications are that the adequacy, availability and affordability of the commercial timber supply is being adversely affected. To date, the impact on the industry's overall competitiveness has been masked by relatively good market conditions that have helped the industry bear higher wood costs and access non-traditional sources of logs and fibre. However, where forest policies are the root cause of these adverse impacts on timber supply, further reform of these policies must be considered.

The government appears to be taking some steps in this direction. The Minister of Forests has now endorsed the setting of AAC targets (Petter 1995b). As well, he appears to have made a committment that the Forest Practices Code will not reduce the provincial AAC by more than 4 to 6% over and above the Timber Supply Review (Palmer 1995a). Some efforts are also being made to reduce gridlock (Palmer 1995b).

Whether the forest policy changes that the government has embarked upon will ultimately result in a renaissance or a requiem for competitiveness may depend largely on the success of these, and additional, mitigative measures.

Council of Forest Industries. 1994 Re-Estimating the Costs of Implementing the Proposed B.C. Forest Practices Code. Vancouver, British Columbia. 13 pp.

Council of Forest Industries. 1995. The Forest Practices Code: Truth and Consequences. Presentation to the Communities and Resources Conference, Union of B.C. Municipalities. Vancouver, British Columbia. 8 pp.

Fisher, B. 1995. The Mandate of the British Columbia Treaty Commission. The Advocate, Vol. 53, Part 1, pp.75 to 79. Vancouver Bar Association. Vancouver, British Columbia.

H & W Saunders Associates Ltd. 1993. The Cost of Implementing "A Proposed Forest Practices Code for British Columbia". Prepared for B.C. Ministry of Forests. Vancouver, British Columbia. 58 pp.

Miller, I. 1994. British Columbia Status Report in Timber Supply in Canada: Challenges and Choices. Natural Resources Canada. Ottawa, Ontario. pp. A126-A164.

Ministry of Forests. 1991. Review of the Timber Supply Analysis Process for B.C. Timber Supply Areas: Final Report (Volume 1). Province of British Columbia. Victoria, British Columbia. 43 pp.

Nelson, J.D. and T. Shannon. 1994. Cost and Timber Supply Assessment of the Coastal Biodiversity Guidelines. Dept. of Forest Resources Management, Faculty of Forestry, University of British Columbia. Vancouver, British Columbia. 40 pp.

Palmer, V. 1995a. Harcourt and Co.'s action unlikely to inspire trust. The Vancouver Sun, Wednesday, February 8, 1995.

Palmer, V. 1995b. NDP cuts red tape to make sure enough wood is cut. The Vancouver Sun, Monday, February 6, 1995.

Pedersen, L. 1995. Provincial Fibre Supply in Proceedings of the Eighth Annual British Columbia Forest Industry Conference: Fibre Supply - Constraint or Opportunity? Price Waterhouse. Vancouver, British Columbia. 16 pp.

Petter, The Hon. A. 1995a. Changing the Way we Manage Our Forests in Our Forest Future: Working in Partnership. Forest Renewal BC. Victoria, British Columbia. 24 pp.

Petter, The Hon. A. 1995b. A 2020 Vision for the Forest Sector. Address to the Price Waterhouse Eighth Annual British Columbia Forest Industry Conference. 21 pp.

Price Waterhouse. 1994. The Forest Industry in British Columbia: 1993. Vancouver, British Columbia. 35 pp.

Province of British Columbia. 1993. Letter to First Nations in British Columbia. Victoria, British Columbia. 3 pp.

Wild Stone Resources. 1994. Riparian Impact Assessment. Unpublished report prepared for the Province of British Columbia.

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