Timber crunch to hit B.C.’s forest industry sooner than later

Province’s value-added sawmills, coveted in value-over-volume transition, fear they will be hit hardest by shrinking timber harvests

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Second-generation entrepreneur Jake Power believes in the province’s vision for a value-added future for British Columbia’s forestry industry, but needs to get past the problem of where the timber for his specialty mill in Agassiz is going to come from.

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Timber for the operation, which he and his partners invested $26 million in relocating from Surrey in 2019, has become increasingly scarce and expensive due to a confluence of events including government’s announcement last fall on logging deferrals in 2,600 square kilometres of critical old-growth forests.

“A lot of hesitation happened going into the winter, and then we had major weather events, so there’s literally nothing for us to buy (now),” said Power, co-owner and general manager.

So PowerWood Corp. made the decision to spend money it would have devoted to a planned expansion on securing an inventory of raw material to operate with.

“At the moment, we’re OK because of that, but we’re probably, in April, expecting to buy about 10 per cent of what is a normal month for us,” Power said.

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He’s had hints May might be better, but “if June, July and August are all 10 per cent, that’s pretty dire,” Power said. “We’ve got 40-plus families to feed and 10 per cent of normal supply won’t feed those families.”

Darryl Logan arranges pieces of wood on the “green line” at the PowerWood mill in Agassiz.
Darryl Logan arranges pieces of wood on the “green line” at the PowerWood mill in Agassiz. Photo by RICHARD LAM /PNG

And looming timber shortages are coming at a time when PowerWood has been incredibly busy, said 37-year-old Darryl Logan, one of PowerWood’s key equipment operators and lumber graders.

“Western red cedar is a hot commodity,” said Logan, a seven-year PowerWood employee looking forward to getting married in September.

“I just like to come to work, so I mean, all of a sudden it just stops, you know, it’s kind of scary to me,” Logan said.

Customers of log broker Glenn Fox of J&G Logworks are already feeling the pinch.

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“There’s not a lot of (harvesting) permits being granted, and I can’t speak to the actual reasons, but I do know it is directly impacting my business,” Fox said.

And two to three mills that he sends logs to for processing have had to reduce shifts as a result.

Ashley Clements counts the pieces of lumber while preparing the bundle of wood for shipping at the PowerWood mill in Agassiz.
Ashley Clements counts the pieces of lumber while preparing the bundle of wood for shipping at the PowerWood mill in Agassiz. Photo by RICHARD LAM /PNG

B.C.’s forest industry has endured successive rounds of downsizing, most recently due to shrinking Interior timber supplies, but still employed some 50,000 people directly as of 2019, and contributed $13 billion in annual gross domestic product to the province, according to a Council of Forest Industries economic-impact study.

PowerWood isn’t alone. Everyone in the industry is coming to grips with expectations that B.C.’s timber harvest will shrink by 12 per cent this year, to 40 million cubic metres from 45 cubic metres, which might seem small but is material to the industry.

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“It was pretty harsh, pretty devastating,” said industry consultant Russ Taylor about seeing those numbers, which were published in the provincial budget in February.

“I knew it had to be something like that, because we’d already predicted there would be a three- to four-million-cubic-metre (harvest) reduction in the short term, and then more in the long term.”

That is not all because of old-growth logging deferrals, said Taylor, president of his own firm, Russ Taylor Global. Consecutive years of near record wildfires and needed habitat protection for Caribou also contribute to reductions of timber available for harvest.

But the reduction appears to be happening sooner than the analyst expected and the result is that logs that were already becoming scarce in B.C.’s forests have become harder and more expensive for companies to secure.

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“That’s why there’s going to be another handful of mills yet to close,” Taylor said.

“Our forecast, I do with a bunch of other guys, we figure five small mills on the coast probably will close,” over the next five to eight years, Taylor said. “In the interior, another five mills as well.”

A mill worker moved a piece of wood after being fed through a cutting machine at the PowerWood mill in Agassiz.
A mill worker moved a piece of wood after being fed through a cutting machine at the PowerWood mill in Agassiz. Photo by RICHARD LAM /PNG

To the province, the reduction in harvest will also mean a reduction in resource revenues from forestry, which added up last year to $1.8 billion in stumpage and other payments, according to B.C.’s most recent budget.

The estimate is that will shrink to $1.1 billion this year and further to $887 million by 2023/24 before recovering.

The vision of Premier John Horgan’s government is to transition forestry “from high-volume to high-value production” that prioritizes reconciliation with First Nations in ways that provide secure and sustainable timber harvests, according to a report published last year setting out the province’s intentions to modernize the industry.

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Changes government has made to date, however, including amendments to forestry legislation that prioritize Indigenous stewardship in decision-making and aim to reallocate longer-term tenures for harvesting rights, haven’t left the industry with a lot of confidence, Taylor said.

“It’s a huge fundamental shift, so the whole investment climate has just deteriorated dramatically,” Taylor said.

“Everybody’s kind of going, and I tell investors, there’s a lot of other places in the world you can do a lot better,” Taylor said. “You can look at (B.C.), but the returns are probably not going to be nearly as high as somewhere else.”

Last December, Surrey-headquartered Teal Jones Group declared very publicly that “it is not practical under current conditions” to invest in B.C. when it announced its decision to spend US$110 million to build a new sawmill in Louisiana, its fifth U.S. facility.

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B.C., under the NDP government, “has become a high-cost and uncertain place to do business,” the company said in its statement.

Jake Power, co owner and general manager of PowerWood Corp.
Jake Power, co owner and general manager of PowerWood Corp. Photo by RICHARD LAM /PNG

In Aggasiz, however, Power said his company is betting big money on the government’s intention to transform the industry to higher-value products out of smaller harvests.

On the ground, though, Power feels like government’s priorities on the environmental side are racing ahead of the industry’s attempts to innovate.

“I do worry that the political will on the (timber) supply side outweighs the political will on the industry-growth side,” Power said. “I think the values are there, I don’t fault anyone in government for not having those values, but I think maybe that fear of loss on the resource side kind of outweighs that belief in the opportunity.”

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PowerWood belongs to an industry group that is lobbying Forest Minister Katrine Conroy to give secondary manufacturers some priority to timber.

“If you’re asking me where the first shoe is going to fall in about six to eight weeks, I think it’s the value-added sector that is going to be hit very hard by these old-growth deferrals,” said Andy Riley, chair of the Independent Wood Processors Association of B.C.

Looking at the Lower Mainland’s existing value-added sector, Riley said it is 75-per-cent reliant on old-growth timber from Vancouver Island and the coast, and “everybody just shifting to second-growth hemlock is not a viable option.”

Riley, who runs a small mill in Chilliwack that usually makes cedar fencing materials, is arguing that their 55 members can help build the “value over volume (industry), which everyone’s been saying for 35 years,” but they need access to wood.

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“So, the pie is shrinking and if you just did the math on it, you’re going to lose mills, you’re going to lose remanufacturing companies, remanufacturing jobs,” Riley said.

Stacks of lumber sit outside at the PowerWood mill in Agassiz.
Stacks of lumber sit outside at the PowerWood mill in Agassiz. Photo by RICHARD LAM /PNG

Independent logger and timber trader John Mohammed said industry would appreciate government considering “a release valve” within the old-growth deferrals “to go in and get some of the timber that we planned for the next two years.”

“Where we have capital invested, allow us to go in and get our capital out from the road development and engineering (work).”

Mohammed is a second-generation operator in forestry with the company A&A Trading, which buys and develops timber tenures on B.C.’s coast to supply mills throughout the Lower Mainland.

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Between A&A and a logging company in which he is a partner, Mohammed usually employs 110 to 150 people directly, and about 200 other loggers on contract.

About 160 of those, mostly contractors, are out of work right now, Mohammed said, while “the markets are the best they have been in the last 30 years.”

“I get it that there’s concerns about old growth, and if there is, let’s work collectively on how to address that with First Nations, who are also part of the forest industry,” Mohammed said.

“I want to keep investing in B.C., but it’s pretty darn hard right now.”

Huu-ay-aht First Nations Chief Councillor Robert Dennis noted that old-growth deferrals are coming along just as First Nations are getting more control over the resource.

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To Dennis, B.C.’s plan resembles the federal DFO’s program to buy back commercial fishing licences, which managed to push a lot of Indigenous fishers out of the industry.

“Removing the Indian from the forest industry is disguised in other ways, you know, ‘we’re consulting, we’re doing UNDRIP (the U.N. Declaration on the Rights of Indigenous Peoples), we’re going to give (forest) licences to First Nations,’” Dennis said. “Well, where are they?”

The Huu-ay-aht have made a bid to participate in the forest industry on their own terms by buying a stake in a joint venture to manage Tree Farm License 44, a long-term forest tenure on Vancouver Island, with partner Western Forest Products under the name Tsawak-qin LP.

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“Forestry sustainability isn’t new (to the Huu-ay-aht), it’s something we treasure very dearly,” Dennis said.

The Huu-ay-aht commissioned their own timber-supply analysis 20 years ago, which is built on values of sustainability that contemplates managing forests that provides old-growth timber for the use of future generations.

“I am going to do everything within my power to ensure that my children and my grandchildren have that ability in the future to harvest wood that they need for their purposes,” Dennis said.

And he hopes the province will “recognize that we are doing this and (won’t) be influenced by outside groups that don’t even know that we are managing our forests in a very sustainable way.

“I’m trying to get the message out there, look you guys, we’ve been concerned about stewardship and sustainability since we’ve been on the face of this earth,” Dennis said.

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Timber crunch to hit B.C.’s forest industry sooner than later Source link Timber crunch to hit B.C.’s forest industry sooner than later

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