Part 2- Critique of Business Council of BC discussion paper on forestry
By Peter Ewart
Friday, October 23, 2009 03:48 AM
By Peter Ewart
The first article in this series (see “Part one”) talked about how the Business Council of BC’s discussion paper, “Opportunity BC 2020” – BC’s Forest Industry”, used inconsistent and illogical arguments to justify further monopolization of the forest industry in the province.
This article will examine how the Council’s discussion paper identifies various problems in the forest industry, but again comes to illogical conclusions about the causes of and solutions for these problems, using jumbled and often contradictory arguments.
For example, while praising the industry “for its rapid adoption of state-of-the-art processing technologies”, the discussion paper criticizes it for its lack of reinvestment in its “aging” pulp & paper mills, and, especially on the BC coast, in the sawmilling sector (p. 53).
Although it repeatedly praises the big companies throughout the document, the discussion paper does chide the industry for being “slow to develop new products and develop aggressive marketing and supply chain partnerships” (p.16). In addition, it points out that “one of the structural weaknesses of BC’s forest products manufacturing sector for many years has been its very low levels of spending on R&D in new product development” (p.53).
Regarding education, the discussion paper notes that “the BC forest industry invests comparatively little in workforce skills training and upgrading”, that, unfortunately, the industry “expects education to be free”, and is following a “19th century [business] model, not one suited for the immense technological and related challenges of the 21st Century” (p.79). As a result, the forest sector “has been losing key talent to other sectors” (p.80).
On the issue of developing the “value-added” wood sector, the discussion paper has much to say. It comments that “Overall … it is valid to conclude that so-called ‘value-added’ manufacturing activities in BC’s forest industry have been quite limited to date” and that “this is not through any lack of market opportunities” (p.54). In other words, the opportunity has been there, the industry has just not chosen to take it up.
The point is made that Canada, as a whole, “does not compare well against other countries in the value created from its wood harvests”, that “among timber-rich countries Canada created only U.S. $123 of GDP per cubic metre of fibre”, while the U.S. “created $290 per cubic metre” and Germany and Japan “created $510 per cubic metre respectively” (p.76).
Apart from bio-energy and wood pellets, the discussion paper concludes, “the overall recent record of the BC industry is quite poor” (p.58).
Interestingly, the discussion paper notes, but does not criticize, the fact that many of the big companies are outsourcing operations to other countries – the implication being that they have had little choice. It also glosses over the fact that one of the reasons why the value-added sector has not developed more in the Central and Northern Interior of the province has been precisely because the big forest companies have not wanted additional players competing for the same timber resources.
In any case, after making all of these criticisms, you would expect the discussion paper to say, “Hey, big companies, pull up your socks, and fix these problems.” But it doesn’t follow that logical conclusion. Instead, it veers off and lays the blame for the current woes of the forest industry elsewhere.
So just who is to blame for the industry’s lack of reinvestment in its operations? Its lack of return on investment? Its lack of diversification of product? Its lack of diversification of markets? Its failure to invest in R & D? Its outsourcing to other countries? Its lack of entrepreneurial culture, and so on?
The discussion paper leaves it to an anonymous “BC Forest Industry Executive” to put the blame squarely on the backs of the culprits.
According to this “industry executive”, “95% of people working in the BC Forest Service don’t give a damn about the health of BC’s forest products manufacturing industry” (p.88). As the discussion paper argues elsewhere, it is these same “forest service personnel” who, through their management practices and forest policies, are sinking the entire industry, scaring away Wall Street investors, and blocking it from achieving its potential.
Thus, it is “government management” of BC’s Crown forests that is “stifling wealth creation by the forest industry … and driving private sector capital away.” The simple and easy solution is, of course, to simply hand over management of the forests to the big companies in the form of 90 year leases, and then everything will be great.
But are things so simple? For one thing, the discussion paper claims that forest service personnel “don’t give a damn” about the health of the industry. But doesn’t the very “evidence” put forward in other parts of the discussion paper suggest that this charge might be more appropriately laid at the feet of the big forestry companies, who have failed to reinvest in their operations in the province, neglected R&D, refused to provide training for employees, and so on.
Furthermore, the question must be asked: Are the big companies getting such a raw deal from the Ministry of Forests these days?
Not if you look at stumpage fees charged by government. Indeed, the discussion paper is forced to admit in another section that stumpage fees in BC are “some of the lowest” in the world (p.68)..
Then what about forest service oversight of the industry? Over the last 8 years, there have been significant cutbacks in the government forest service especially in the field. Some observers even claim that forest service people have become as rare as spotted owls. It does seem like a bit of a stretch, to say the least, to lay all the blame for the forest industry “malaise” on such narrow shoulders.
A very common complaint amongst people in the forest industry, including many forest service personnel, is exactly the opposite. Many feel that forest policy and the leadership of the Ministry of Forests itself has, for too long, been under the thumb of the big companies to the detriment of logging and silviculture contractors, small and medium sized independent companies, workers, communities, First Nations, and others.
One of the features of this discussion paper is that a number of its key arguments do not appear to be consistent. For example, while towards the end of the document, the authors make all sorts of complaints about government “forest management”, earlier on in the document the authors make the contradictory statement that “within this decade, substantial improvements have been made in the regulatory environment affecting the industry” and that the days of “the BC discount” under the NDP are long gone (p.69) .
In other words, since the Liberal government took office over eight years ago, the big forest companies have pretty well had their way with forest policy, getting the Ministry of Forests to remove appurtenance - which required forest companies to process logs in the communities where they were harvested – and other regulations, as well as allowing the industry to consolidate and shut down “uneconomic” mills.
So, if that is the case, why are the forest companies making this big fuss now, casting blame for all their woes on the forest service, and demanding that they now need complete control of forest management?
The discussion paper does give some clues. For example, an entire section of the paper is titled “A fresh look at the fundamental issues – Investors’ viewpoint.” Indeed, the entire paper is geared to this mysterious “investors’ viewpoint.”
As discussed in Part 1 of this series, the investors most likely being referred to are financiers, hedge funds, banks on Wall Street and other financial centers, such as New York based Third Avenue Management and others. If the forest companies get their “90 year leases”, this will mean the BC forest sector’s attractiveness to the financiers will go up significantly – or so the logic goes.
Why? Because the Wall Street and other tycoons realize that a “90 year lease” amounts to de facto ownership of the forest resource. This means that the timber rights take on dramatically new value and can become pawns in the international financial markets to be bought, sold, and speculated with in all sorts of ways.
It also means that the big forest companies, under the direction of international financiers, will become even more like feudal princes, and that, by becoming the sole “managers” of the forest resource, they will be able to more easily strangle and / or gobble up small and medium sized competitors by using monopolistic tactics, squeeze or eliminate contractors, consolidate and rationalize production, close mills, layoff workers, and skirt environmental regulations.
But there is one other clue in the discussion paper that explains why - using a mishmash of clumsy arguments to build the case - this drastic proposal is being pushed right now. Almost with a wink of the eye and a nudge, the document states, “it could be argued that today is as close as it may be possible to come to the ideal timing …. to introduce proposals for major policy changes of this nature” (p.90).
In other words, when tens of thousands of forest workers are laid off, mills are closed, communities are reeling or devastated, and when many people in the province are facing an uncertain future and are at their most vulnerable, what better time to concoct and push forward a proposal that is so objectionable that, during any other period, it would be soundly rejected by the population?
What better time, indeed.
In Part 3 of this series of articles, we will be discussing how similar techniques to those used in the privatization of BC Rail are being dusted off to sell the discussion paper’s idea for “90 year” forestry leases.
Peter Ewart is a writer and columnist based in Prince George, BC. He can be reached at: peter.ewart@shaw.ca
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Posted by: just the facts on October 23 2009 3:41 PM