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SPECIAL REPORT: An insider’s view of the forest industry crisis

Brink Group of Companies owner John Brink fears secondary wood manufacturers will become 'collateral damage' in softwood lumber dispute. Bill Phillips photo
Brink Group of Companies founder and CEO John Brink

You won’t get any argument from John Brink about how bad the forest industry crisis is in B.C.

“In the 55 years I’ve been here, I’ve never seen anything as serious as this,” says the founder and CEO of Brink Forest Products, which operates three secondary manufacturing mills in northern B.C.

However, you will get an argument from Brink over what should be, or can be, done about the spate of temporary and permanent mill closures hitting the Interior as mills grapple with higher costs and a dwindling fibre supply. His first argument is with the blame-game.

“The more troubling part about this, and I’m not political, is that I see the finger-pointing,” he says. “I believe that is not helpful. What I’m seeing is politicians pointing fingers but not offering solutions. We have not been very good stewards of our resources, particularly the forest resource.”

He points to the major changes to the Forest Act, brought in by the Liberals in 2003, as one of the drivers behind the wheel of an industry heading for the ditch (more on that later).

“That was the largest forest policy change in 50 years that dramatically took a turn to where we are today,” he says. “So I’m somewhat troubled by people like (Nechako Lakes MLA John) Rustad who are saying ‘fire the forest minister’ but are not offering any solutions. Most of (of the issues facing the forest industry) happened during the tenure of the BC Liberals.”

Brink says we have to understand how the industry got to this point to understand what needs to be done to carry it forward.

HOW DID WE GET HERE?

Brink says there are a couple of elements that have combined for a ‘perfect storm’ for the forest industry in B.C. … one is the market and the second is a structural issue.

“The one that we see now is because of market conditions … low prices of lumber in our consuming market, both in the U.S. and in China and other places … and the cost of round-wood fibre for primary manufacturing, or logs (stumpage) has gone up in terms of price,” he says. “For a long time, between 2000 and 2015-16, most of the primaries were relying on beetle-killed wood. Most of that wood that still had economic value is now gone. Everybody is now back to a near normal diet of fibre. That means the cost of that fibre is much higher.”

Stumpage rates, the tax government collects from, is based on a formula of the preceding market prices, so it trails actual market prices. That means stumpage is high now, when prices are low.

“It’s just like a perfect storm,” says Brink. “The cost of fibre input is at a high and the price of lumber is at a low.”

Housing starts in the United States are near a normal level, so one would think lumber prices would be high. That’s not the case and Brink says there are a couple of factors impacting the price of lumber.

“European lumber producers, who have had similar issues with forest fires and beetle kills, are increasing their cut levels and are selling more of it into the United States,” says Brink. “The other thing that has an affect is the Trump trade war with China. It has affected lumber markets, in particular, and that whole Chinese market (for lumber) is substantially coming down. The major (licensees) were sending as much as 30 per cent (of their lumber) to China, now it’s probably less than 10 per cent. That volume will also go into the North American market. All the capital that has been invested here in B.C., has affected more production into that market by probably a billion board feet than it was before. That has kept prices low.”

The price of Western spruce/pine/fir two-by-fours is currently $352 per 1,000 board feet. Last year the price was $546 per 1,000 board feet – a 36 per cent drop in price. It’s the same story for two-by-sixes which are selling today for $326 while last year they brought $404, a 19 per cent price drop.

“That’s where we are today,” says Brink. “We are affected by that, but it’s something that will correct itself, at some point. In the meantime there are major problems and major problems mean shut downs.”

THE SECOND PART OF THE PROBLEM

“The other part, which is more troubling, is what has happened with the allowable annual cut in the Interior,” says Brink. “The sustainable cut, over the long term without affecting the overall volume so we can continue to cut on an annual basis and maintain that with the amount of fibre that is grown, has been about 60 million cubic metres, province-wide. About 50 million of that is in the Interior. When the beetle kill hit, the cut went as high as 80 million cubic metres.”

With the beetle-killed wood no longer merchantable, cut levels are coming down to pre-beetle levels … and more.

“(The cut) has to be adjusted for the wood that has been lost to beetles, both pine and spruce, and we have had severe fires that has, again, reduced the allowable annual cut by about 25 per cent,” says Brink. “Where it was 50 million cubic metres before, now it’s about 40 million. If you think in terms of what happened during the 15 years that there was the benefit of the extra volume, mills increased capacity and now there’s only half of that. That means there’s too much capacity (to mill lumber). We already knew that.”

From the early 2000s forward, the industry knew there would likely be 12-13 mills that would close when the beetle wood ran out, says Brink. Now it looks like it will be 15 or 16 mills, he says.

“That’s a structural problem,” he says. “That means it likely will be 30 to 35 years before we will see the AAC slowly increase. If we continue to do what we’re doing now, it will likely take 70 to 75 years.”

What does that mean? It means it will affect communities in a dramatic way, particularly Mackenzie, Fort St. James, and likely others.

Add to it the 21 per cent duties on all the lumber that is exported to the United States and it really is a perfect storm of woes for the forest industry.

“In terms of structural changes, we will have a different industry,” he says. “A number of pulp mills will likely shut down, potentially pellet manufacturing. It will affect those, at some point.”

He says the province has not been very good at handling its resources, from a political perspective. He points specifically to the Liberal changes to the Forest Act in 2003 which made major changes to forest policy.

Previous to the changes, five per cent of the cut in a timber licence would return to the Crown if a forest licence changed hands. That has been eliminated.

Appurtenancy, the policy that timber harvested in a community should also be processed in that community, was also scrapped.

The small business program, Brink says, that was aimed at creating secondary manufacturing and giving secondary manufacturers access to fibre, which they could then trade for the fibre they needed, was also scrapped.

The result of much of that was the consolidation of timber companies.

“Because of this policy, it virtually destroyed the secondary manufacturing industry in this province,” Brink says. “In the 2000s, the B.C. government spent a lot of money marketing lumber to China. Most of what was exported to China was low-grade lumber, which what the secondary manufacturers relied on.”

Government policy is extremely critical to what that industry will look like, he says.

“What happened in the early 2000s dramatically changed the direction of the forest industry in B.C. and not for the better.”

WHERE DO WE GO FROM HERE?

One of the suggestions coming from the BC Liberals is to reduce costs for the forest industry, including an immediate reduction in stumpage rates.

“You can’t do that because the Americans would say ’subsidy,’ and double the duty,” he says. “That’s something that the government can’t do, even if they wanted to. The duties would likely go to 40 per cent. The structural change of mills going down, that’s a fact of life. There’s nothing we can do about it.”

Earlier this year the NDP government brought in Bill 22, which gives the forest minister the final say on tenure transfers, ostensibly with the goal of determining whether communities and First Nations are going to benefit from the tenure change.

“With Bill 22, it created another filter,” he says. “It opens the door for a stakeholder to come in and say they don’t want that timber to leave. All of a sudden the process stops.”

People have to become aware of what has happened, and is happening, in the industry because it is their future. The industry will be smaller, he says.

“We have to become better stewards of our resource,” he says.”Are we replanting the forest in an adequate matter? We should do a major study of how much ‘not sufficiently restocked’ land there is and why isn’t it being replanted. That is our obligation to future generations.”

The other issue the province and the industry has to deal with is climate change and one of the most effective ways to combat greenhouse gas emissions is to plant more trees.

THE SWEDISH MODEL

“Then we can work on extracting more volume from our working forest base, he says. “Our forest land base is about the same as Sweden and we extract less than 50 per cent of what they do.”

According to a 2012 Canadian Centre for Policy Alternatives study called Restoring Forestry in B.C., both B.C. and Sweden have about 22 million hectares of commercial forest land.

Sweden, however, logs about 65 cubic metres per year whereas B.C. logs about 48 million cubic metres. The value of production in Sweden is just over $29 billion and in B.C. it is $13 billion. Sweden employs 85,000 people in the industry, while B.C. employs 46,000. In Sweden, the annual growth rate in terms of cubic metres per hectare per year is 5.5, while in B.C. it’s 3.3. Also, in Sweden the percentage of privately held forest land is 81 per cent, while in B.C. it’s three per cent.

“They have two-and-a-half times the value from the amount logged than we do,” says Brink. “Are we replanting as much as we should? For every tree we log, we should plant three. Are we? We need an immediate valuation of how much not-sufficiently-restocked land we have and let’s start a program, right away, of re-foresting the lands because common sense dictates if there are problems, which we recognize there are, then start fixing it. There’s no time to waste … the first thing we can do is plant enough enough trees. There is no excuse as to why we are not doing that.”

Brink says the province has to better manage the forest.

“The increased growth per hectare per year in Sweden is nearly double ours … why?” he asks. “Managed lands … thinning, selectively making sure they manage it. Develop technology where we can manage that better. That’s where we want to get to.

Another change Brink would like to see is one that has been debated, off and on, for years in this province … area-based tenures rather versus volume-based. B.C. currently has a volume-based tenure system where forest companies are expected to log a certain volume of timber over time.

“In B.C. three companies control 85 per cent of all the timber, that’s not the right system,” says Brink. “I believe it is much better to have a system that is not volume based, but area based.”

Under an area-based tenure system, a forest company would be allotted a certain area in which to log. It would be up to the company to manage the resource, over time. If it can manage that area to produce more timber, then it will do better over the long haul as will the Crown.

“(Under the volume-based tenure system) there is no incentive for (forest companies) to do more and we already know that with very little effort we can do (more).”

In Sweden, 81 per cent of the land is privately owned so owners have to manage their land better if they want to stay in business.

And, he says, reform have to include policies that includes community input into what happens with the timber harvested in the region.

“We also have to create a skilled workforce,” he says. “We have to have the best skillsets ready for the 21st Century here, in this region. We want to be a region of excellence. We have the resources, we have the transportation systems, we have entrepreneurs, we have the markets, the biggest deterrent is access to a skilled workforce.

“Now is the time. The industry has to change. The business model that they have cannot succeed. Now is the time to change. Communities have to be more pro-active. Communities have to become informed and become part of an agenda that is our agenda. Prince George should, once again, become the Spruce Capital of the World.”

SECONDARY MANUFACTURING

More secondary manufacturing has been one of the planks in the current NDP government’s push for forest reform, which is all good, says Brink, however it takes a tremendous amount of capital for a firm to get started. And, that won’t happen without guaranteed access to fibre.

“If you don’t have a reasonable expectation of access to fibre, it makes it virtually impossible to obtain that kind of capital.”

Brink is the longest serving member of the Council of Forest Industries and was the founding president of the B.C. Council of Value Added Wood Processors in 1996. He served as president until 2003.

There were eight local associations throughout the province and part of their mandate was to secure fibre for secondary manufacturers who did not have, or could not get, a forest tenure. It had about 800 members.

“Today, for all intents and purposes, the organization doesn’t exist anymore,” he says. “I believe that of the 800 (secondary manufacturers) there are probably less than 200 operating in the province. Those are still disappearing, virtually on a daily basis. The big problem for secondary manufacturers is access to fibre and it’s costly.”

BRINK FOREST PRODUCTS

Brink owns three value-added mills in northern B.C. – Brink Forest Products in Prince George, Vanderhoof Specialty Wood Products, and Pleasant Valley Remanufacturing in Houston.

“We are obviously affected by low lumber prices and we get affected by some of the mills curtailing, in particular, on our supply,” says Brink. “Fortunately we’ve been able to secure sufficient enough lumber. We have had minor curtailments of about an hour a shift for the past two weeks. Otherwise, we’ve been able to keep running. It’s our objective to keep our employees working as much as we can. We are running near normal.”

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