Private wood supply 101- Fairness explained

One of the issues garnering interest heading into the fall sitting of the legislature is the repeated call to modernize the crown land and forests act (CLFA). Especially vocal in this call is the New Brunswick Federation of Woodlot Owner’s (NBFWO) President, Rick Doucet. In a recent NBFWO blog authored by Mr. Doucet there is a repeated cry for fairness for private woodlot owners to access markets where they can offer their wood for sale.   It asserts that government, in particular the current and previous ministers of ERD, have not upheld a provision of the CLFA relating to proportional wood supply from private wood sources. It also proposes that this failure to uphold proportional wood supply led to New Brunswick not receiving exclusion from softwood lumber tariffs imposed by the U.S. Department of Commerce.

The assertion is compelling but requires a closer look to understand why this apparent discretionary action by government in not applying the provision, in effect, saved the industry in New Brunswick from an irrecoverable demise and in the process salvaged the very market that is being fully accessed by private woodlot owners today. Troubling as it is, the Federation’s very public assertions plays directly into the U.S. Lumber Coalition’s argument alleging subsidy of the New Brunswick softwood lumber industry. It is this constant undermining of the forest sector, based on a narrow and outdated view of forest product marketing, that does a disservice to Federation members, the forest sector and New Brunswickers as a whole.

Private wood supply has returned to its 2005, pre-recession level of approximately 2million m3 annual harvest. That’s about 20% of the wood supply not 15% as reported by Mr Doucet. In total about 48% of wood supply is derived from crown with a slight majority (52%) from a combination of small private (20%) and private industrial freehold (32%). The U.S. department of commerce allegations remain un-founded and the Federation seems oblivious to how damaging their support of those allegations are to the entire sector including themselves.

To understand why private wood supply decreased in the last decade you need to go back to the period between 2003-2012.  In those first three years lumber markets were raging as subprime loans in the overheated U.S. housing market sent lumber demand and prices skyrocketing. Mills ran full out, and while crown and freehold stayed within their allowable cut, private wood supply was exceeding sustainable harvest levels by 20% to meet the demand, according to DNR wood utilization figures at that time. Interestingly enough, this data directly contradicts Mr Doucet’s assertion of “excessive use of public forests by private industry.” It would seem quite the opposite.

What was not bargained for was the great recession that reared its head in 2006 and would impact the sector until 2012.  In its wake, lumber markets crashed, sawmill production fell off resulting in increased chip costs for pulp mills as chip production fell and contributed to the closure of four pulp mills and over half of the sawmilling capacity.  That market prices for wood fiber came off should not come as a surprise to anyone, nor should the significant exit of private woodlot owners willing to offer their wood at reduced market values. That’s how the market is expected to work.

This was a full-blown crisis and required intervention by government of the day to avert complete collapse of the sector. The solution was to rationalize the industry by buying out mills on the brink of closure and redistributing their crown wood allocation. This was not additional wood. As private wood left the market in reaction to low prices this inflated the proportion of total wood represented by crown and freehold. Crown wood supply actually decreased in total volume by 16% from 2005-2009, private wood substantially more but it was a willing withdraw due to low prices at that time. This is not a criticism of that decision as it is a fair reaction to a free market situation by private woodlot owners.  Prices paid for Crown wood remained based on the fair market value for private wood, a cost that was nearly 200% that of the Canadian weighted average.

Returning to references in his blog regarding government acknowledgment of public desire for more conservation, less herbicide and clear cutting, Mr Doucet panders to public sympathy by a thinly veiled innuendo that these latter practices are shunned by private woodlot owners and are strictly in the domain of big bad industrial forest managers when the fact is many excellent private woodlot managers use these tools to optimize outcomes on their land including timber production. This is the value add we speak of and that could improve profitability and more importantly sustainability for many private woodlot owners. We would encourage the Federation to promote more management and we support their efforts to move this forward.

There are opportunities to help each other realize better returns but it needs to start with the understanding that fairness includes being able to deliver wood supply sustainably and predictably and not position yourselves as only interested in supplying wood at the marginal prices. Equally important is understanding that private wood supply requires a willing buyer and seller and that the freedom remains for either party to walk away when the value offered or received is not present.  Legislated proportional wood supply is simply a form of supply management and that inevitably always favors the seller at the buyer’s expense.

That’s not fair.

Mike Legere, Executive Director of Forest NB