Tree Frog Forestry News

The Stumpage problem for the layperson

By Russ Cameron, Independent Wood Processors Association of BC
Tree Frog Submitted Editorial
June 20, 2019
Category: Business & Politics
Region: Canada, Canada West

There seems to be a misconception that the BC Government is currently imposing crushing stumpage rates. In reality, they are being imposed by the Market Pricing System (MPS) that was introduced in the Forest Renewal Act of 2003. That’s the same Act that took away the now restored ability for our Government to have a say in who gets the rights to harvest our timber.

Way back, the BC Government granted the rights to the public’s timber (Tenure) to certain companies in exchange for local social obligations. To charge these companies for the timber they took, they just counted the stumps and charged so much per stump. Hence, stumpage. That formula changed a few times over the years, and we wound up with a formula called Comparative Value Pricing (CVP). It was based on lumber prices and production costs, and it was adjusted quarterly to keep up with the lumber market.

In 2003, the BC Government created BC Timber Sales (BCTS) and switched to the MPS. The justification was that it would help us avoid softwood lumber disputes with the USA. It didn’t, and it has turned out to be problematic for BC.

Problem 1. The MPS requires that 20% of the public’s timber be auctioned to obtain pricing data to put into the MPS stumpage formula. Instead of having the tenured companies auction 20% of their Tenures to price the rest, the BC Gov of the day commandeered the timber that had been set aside in 1978 for non-tenured wood processors to competitively bid on.

Problem 2. MPS requires that everyone be able to bid. That meant that the Tenured companies could now bid for the timber that was previously restricted to bids from non-tenured companies. Non-tenured wood processors quickly found out that they could not successfully bid against the Tenured companies that own the roads, sort yards, log dumps, etc., and can average down their wood costs by blending it with their log exports.

Problem 3. BCTS has difficulty finding 20% to auction, so in 2016 they also took away 2/3rds of the last remaining timber category that was set aside for value-added wood producers to bid on. There is now less than 2% reserved for bids from the 100’s of non-tenured wood processors in the Province. Very few of these companies want to actually log it, and very few of them own sawmills. Almost all just want to buy the rights and use it as currency to trade to the Tenured companies for the lumber needed to supply their value-added plants.

Problem 4. The MPS lags the market by 6 months or more because it takes time to advertise, bid, buy, road, log, transport, and scale the logs for stumpage value. That’s why the Tenured companies currently face stumpage rates that are out of step with the lumber market. It’s lots of fun for the Tenured companies when the market takes off like it did last year and they are still paying stumpage based upon the low market of the year before. But it’s no fun at all when the stumpage rates catch up and the hot market no longer exists.

The BC Government can’t just lower stumpage. The Americans already claim that the Tenured company’s stumpage is subsidized by about 14% and have imposed a Countervailing Duty of 14%. If we lower the stumpage, the Americans will just jack up that 14%.

Solution. Get rid of the Market Pricing System and go back to some version of the more responsive Comparative Value Pricing. Restore a share of the public’s resource for non-tenured companies to bid on. Use the newly restored ability of the Minister to take-back Tenure on transfers and add it to that share. Use it to help BC’s value-added wood processors get the fibre they need.  Use it to boost 1stNations holdings. Use it to offer Non-renewable Forest Licenses (NRFL’s) to the few remaining non, or lightly tenured, BC family owned specialty sawmills that have no intention of moving to the USA because they live here in BC.

And if we are going to make these changes, we have to make them now while we are in between Softwood Lumber Agreements with the USA. The Agreement we made in 2006 effectively removed the BC Government’s ability to make any useful changes in BC Forest Policy for the following 9 years and no doubt the next Agreement will do the same.

By Russ Cameron

Independent Wood Processors Association of BC

Russ Cameron