Critique of Business Council of BC “Discussion Paper” on Forestry
By Peter Ewart
Wednesday, October 21, 2009 03:45 AM
Part 1 – By Peter Ewart
The Business Council of BC, which has many of the largest companies (forest and non-forest) in the province in its ranks, has had a consulting firm (Woodbridge Associates) prepare a discussion paper on the troubled BC forest industry for the Council’s “Outlook 2020” Summit taking place this Fall. The title of the paper is “Opportunity BC 2020 - BC’s Forest Industry: Moving from a Volume Focus to a Value Perspective.”
In this discussion paper, three options for the forest industry are presented: (1) A “Renewed Growth Scenario” which foresees a “profitable future for … surviving mills and firms” by 2020 if the “right conditions” are in place. (2) An “Opportunistic Survival Scenario” which would see the industry “muddle through”, but with “further loss of sawmilling capacity along with pulp mills and paper machine closures.” (3) A “Decline Scenario” which would mean a “worst case” situation whereby the industry goes into an absolute decline.
The authors of the discussion paper clearly support the first option, the “Renewed Growth Scenario.” But, like the old story of “Doctor Faustus” where the character has to sell his soul to the devil, there is a catch. Under this scenario, the “return on capital” for Wall Street and other “investors” must come first before any other consideration or stakeholder; and, proceeding from that principle, the government must scrap the existing forest tenure system and grant the big forest companies 90 year long term leases on the timber resources.
To arrive at these conclusions, the authors of the report are forced to stretch logic and paper over inconsistencies and contradictions that render its arguments fundamentally invalid. However, because the changes in forest policy the authors propose are so drastic, and because the Business Council of BC has huge influence with the provincial government, the discussion paper, with all its inconsistencies and illogic, does need to be addressed.
One of the most glaring examples of inconsistent logic in the discussion paper is found when it addresses the issue of “monopoly.” Back in 2003 - 2004, when the provincial government was in the process of selling BC Rail to CN Rail, there was substantial opposition across the province to this privatization. Nonetheless, the Business Council of BC and the big forest companies saw fit to support this sale, despite the fact that the “Committee to Save BC Rail,” labour unions, commentators like Ben Meisner and Ron East, and others, repeatedly warned that a giant rail monopoly was being created that would cause problems for industries like forestry and mining, as well as for communities in the Interior.
So, if we fast forward to 2009, what is the Business Council of BC discussion paper saying now about the rail service? It is now making the confession that “BC’s rail monopoly … is a long-term strategic and competitive weakness for the industry” (p. 73).
This rail monopoly, which includes CN and CP, is a “particularly serious” problem resulting in “rising” costs and “declining” services. It constitutes “a formidable hurdle not only for the forest industry but also mining, other extractive industries and a wide variety of manufacturing activities.”
According to the discussion paper, “Some forest industry CEOs have said that, for current investors in BC’s existing industry, and potential investors in new innovative future products which BC could manufacture, BC’s rail monopoly is even more debilitating to the industry’s global competitiveness than the province’s labour unions were historically” (p. 73).
Indeed, the situation for the big forest companies has been so dire that they have been pushing the federal government to allow them to operate a “third party rail service” and pay a fee to CN or CP.
It is unfortunate that the big forest companies are only now realizing that the sale of BC Rail was a huge blow to economic development in this province. If they, along with the Business Council of BC, had opposed the sale back in 2003 – 2004, it would not have gone ahead. Other than a handful of Interior mayors who acted as shills, no one else would have supported it.
In addition to the criticism of the railway monopoly in the province, the Business Council of BC discussion paper also takes a shot at the “increased concentration of buying power among distributors (e.g., pro-dealers and big-box retailers).” This further monopolization “has resulted in the decline in the leverage of forest product manufacturers” and “transferred pricing power” into the hands of the big dealer and retail monopolies, especially in the U.S. (p. 73).
After all these criticisms of “monopoly power”, you would expect that perhaps the BC Business Council would be championing anti-monopoly and anti-trust legislation of some kind. But no. According to the Council’s discussion paper, the solution to monopoly is …even more monopoly.
The Council discussion paper makes the claim that “unless BC forest companies manufacturing firms are encouraged to rationalize and grow, they risk being muscled off the world stage” (p. 74). It also takes a swipe at the Federal government’s “Competition Bureau” which “governs the level of corporate concentration in Canadian industries” and has unduly hampered some big forest companies in their merger and takeover bids. To put it bluntly, the discussion paper wants the existing forest monopolies to become even bigger ones. Super mills here we come!
In an abrupt about face, the discussion paper then proceeds to criticize those “British Columbians (including many senior government officials)” who believe that it is “a bad thing for any one company in BC’s forest industry to control a large percentage of Crown tenure in any specific region” and that this has been “a sentiment that has been rife in BC for generations” (p. 75). So rail and retail monopolies are bad for BC, but forestry monopolies are good. Apparently, what is good for the goose, is not good for the gander.
In order to ensure a “brisk pace of industry rationalization and consolidation” (in other words, further monopolization), the forest companies need to have more “control over tenure” thus further consolidating their vertical structure. Although the discussion paper does not say this, its proposed 90 year “leases” would actually constitute de facto “ownership” by a handful of forest monopolies.
The discussion paper goes so far as to suggest that “existing pulp mills” and the “province’s emerging bio-fuel producers” should direct “logging activities” rather than sawmills and other processing sectors (p. 40). The implication of such a shift for existing small, medium and large sawmills, as well as logging contractors is not explained.
All of these proposed changes are supposed to make the big forest companies more attractive to some mysterious “investors” who, as major shareholders, would be the actual “owners” of these privately managed forests.
Just who might these investors be? If current trends continue, they would mainly be financial institutions outside the forest industry itself, such as Wall Street financiers, hedge funds, banks and private equity firms. The same crew who brought us the Wall Street meltdown.
If all the rhetoric is stripped away from the Council’s discussion paper, what emerges as a vision of the future for the forest industry is one or two giant monopolies in the Interior and one or two on the Coast. By increasing in size, such a forest industry will be able supposedly to “punch above its weight” and settle scores with the rail and retail monopolies which are crowding it these days.
The concept of seizing control of an entire industry in order to obtain near or complete monopoly, and then “consolidating” and “rationalizing” operations (closing plants, layoffs, etc.) is remarkably similar to the methods of certain hedge funds like New York based “Third Avenue Management”, which has recently built up substantial investments in ailing, but still valuable, forest companies like Canfor, Catalyst Paper and others in the province.
But where does that leave workers, logging contractors, small and medium forest companies, forestry officials, communities, First Nations and everyone else? Implicit in the discussion paper is the view that the problems in the forest industry have arisen because the provincial government has catered too much to these other sectors and not enough to getting maximum “return on capital” for the big companies and their Wall Street “investors.” But is this really the case?
We will discuss this issue further in Part 2 of “Critique of Business Council of BC report on the forest industry.”
Peter Ewart is a writer and columnist who lives in Prince George, BC. He can be reached at peter.ewart@shaw.ca
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Posted by: socredible on October 21 2009 8:14 AM