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B.C. should consider ending stumpage timber fees, MLA says

Rustad says forestry uncertainty scaring away investors, proposes tax system to reward value-added producers
John Rustad
Nechako Lakes MLA John Rustad says changes are needed in B.C.'s forestry policies to attract investment and one of the changes he proposes is to scrap the stumpage harvesting fee system and replace it with a tax system that rewards value-added producers.

More and more workers in the local lumber industry have been told to stay home now that Canfor has extended sawmill and pulp mill curtailments into late January.

Citing weak market conditions and the lack of economically viable fibre, last week the lumber giant announced two-week extensions of its curtailments at  Prince George Sawmill and Plateau Sawmill in Vanderhoof, which will keep both mills closed until Jan. 30.

That’s in addition to a three-week curtailment at the Canfor Polar sawmill near Bear Lake and a four-week temporary shutdown at Intercontinental Pulp Mill in Prince George, which took effect on Dec. 19.

Last May, Canfor’s 94-employee Isle Pierre sawmill west of Prince George closed permanently.

The latest round of closures is only the start of challenges local mills are likely to encounter in the coming months while they grapple with reduced supplies of beetle-killed timber. Canfor’s December-January curtailments will reduce the lumber market by 171 million board feet.

Nechako Lakes MLA John Rustad says mills in the north central B.C. region are going to require nine-figure investments to modernize and reconfigure their operations to make them more profitable in a province that’s recognized as the highest-cost producer in North America.

“For example, the mill in Smithers, the mill in Houston, the mill in Vanderhoof, Dunkley’s mill (near Hixon) and so many others all need to be rebuilt because they were all built for the diet of pine beetle wood,” said Rustad. “They all need to be retooled and rebuilt for the fibre that’s coming in to be able to be as efficient as possible.

“No board in their right mind is going to say, ‘We’re going to spend $100 million or $150 million rebuilding a mill when they don’t know what their fibre is going to look like and they don’t know what the cost structure will look like. There’s so much change coming from government, how do you invest.”

Rustad says the answer to create more certainty in the market might be for B.C. to scrap its stumpage fee system while it looks for ways reduce the cost of harvesting to timber companies. Under the current system, forestry companies bid for contracts based on the market value for a stand of trees and pay for the right to harvest those trees on Crown land. Stumpage partially funds the province’s health care and education programs and in some cases is shared with First Nations communities under forest consultation and revenue agreements.

“We should actually get rid of our stumpage system, it is useless,” said Rustad.

“The market price that was put in place back when we were in government made sense at the time, but it no longer makes sense. We should actually go to a tax on the end products , where the more you can do with a log, the less tax you pay. So it becomes an incentive for creating more value-added and creating more higher-value products.”

Rustad, a five-term MLA who now sit as an independent, worked for 20 years in the forest industry before he was first elected in 2005. As part of the Liberal government he served as Minister of Aboriginal Relations and Reconciliation and was B.C’s Minster of Forestry, Lands and Natural Resource Operations.

In April, the province boosted its stumpage fees and timber profits revenue sharing agreements with First Nations to $131 million, more than double from what the $59 million they received in 2021.

“Today, with the changes the government has put in, they’re putting 20 per cent of the volume into First Nations’ hands and that’s fine, you’ve got address rights and title and find some way to do that,” said Rustad.

“The problem is now the companies are paying two landlords because the First Nations still have to submit stumpage to the province, but they aren’t going to want to do that for free, so they’ll sell for a profit for them as well. So now the companies are having to pay the province and the First Nations for the same volume and that doesn’t make any sense.”

As of Dec. 16,  Madison’s Softwood Lumber Market benchmark price for 1,000 board feet of Western-produced spruce-pine-fir as $390. Industry analysts estimate the current break-even point for producers is $500.

Because production costs are high at local mills, Rustad says whenever the market is weak enough to necessitate temporary closures, local mills will be among the first targeted for closure or curtailments.

“We’re seeing that play out now with Canfor,” said Rustad. “It’s a real problem in British Columbia and people don’t realize just how challenging our forest sector is right now to operate. I’m a firm believer that there’s a good future for our forest sector but there’s big changes that are needed in order to get it back to a competitive edge and driving new investments.

“If you want healthy forest sector in British Columbia – it’s the backbone of so many communities and has been the backbone of the province for so many decades – you need to recognize the need to put in some real change that is going to drive investment and not the approach that’s currently being taken.”

Rustad plans to be in Vancouver next week for the annual general meeting of the Truck Loggers Association and will be unable to attend the B.C. Natural Resources Forum next week in Prince George. He said for the past year the trucking industry has been grappling with a realization that the value of logging truck assets has plummeted due to uncertainty in the forestry sector and dim prospects for a quick turnaround in that industry.

“Their perspective, when they were meeting with the companies, was they were trying to figure out if they could put any assets on the books, because they had already written down all of B.C.’s assets at zero,” said Rustad. “They were unsaleable and worthless. Obviously there’s hundred of millions of dollars worth of equipment but if you can’t sell something, what’s it worth?

“They were trying to figure out how to bring it back on the books in terms of value and how they recommend people investing in forest companies.”

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