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Strategic Plan for SBFEP in Prince George Forest Region
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Strategic Plan for SBFEP in Prince George Forest Region
We note that you have invited comment on the proposed SBFEP strategic plan
for the next five years. Brink Forest Products Ltd. wishes to participate in
the process but is concerned about the tight timelines. Furthermore, our interest
in participation is based on a genuine desire to ensure that our issues are
dealt with and that our contribution is not just one of convenience allowing
MoF to push through a strategy claiming industry buy-in for one that may already
have been set.
State of Emergency
The value-added industry in Prince George is in a near state of collapse. Four
of the largest operators, three registrants in the SBFEP, have folded or are
in the terminal stages of economic failure. Another is propped up by their access
to SBFEP fibre and a supply agreement that is contingent on the job creation
plan presented by a major licencee in terms of their recent acquisition.
The primary industry is also in dire straits. Lumber prices have slumped; uncertainty
prevails over the outcome of the Canada - US Softwood Lumber Agreement; and
the mountain pine beetle infestation precipitates an unheralded need to harvest
substantial areas of forest at a time when the fundamentals of the industry
are at their worst.
The harvest sector too is in a calamitous position being entirely dependent
on the rest of the industry. Furthermore, the silviculture sector, engineering,
forestry consultancy and all suppliers to the industry are mostly hurting. In
short the complete supply chain is in peril.
With this background we consider changes to the SBFEP as critical components
to recovery of the value added sector at least. We think also that any changes
cannot occur in a vacuum, but must take the whole supply chain into account.
The Current SBFEP Program is a Failure
The SBFEP has been particularly unsuccessful in the Prince George region. There
are a number of reasons for this and no strategy would be complete without first
analyzing those deficiencies. We are aware that the MoF commissioned several
studies on this issue. We concur in general terms with the primary findings
of five of those studies but the sixth, which had particular reference to the
subsidization of four companies in Prince George, has not been made public and
we would question why not. Our opinion is that the program flopped for the following
reasons:
- The Minister of Forests led the industry on a wild goose chase concerning
timber pricing and the incorporation of the Market Pricing System (MPS) in
1999. The system was poorly understood and operators were forced to make decisions
based on insufficient evidence of what the system might deliver in the future.
The MoF lacked an effective extension program providing inadequate information
on the technicalities of the MPS formula.
- The SBFEP moved rapidly away from its original objective to stimulate new
ventures in value-added manufacturing by ensuring a secure supply of fibreand
instead spurred the creation of companies dependent on the SBFEP whose business
plans are rely almost entirely on log trades to major licencees. These companies
maintain manufacturing facilities in order to achieve access to more fibre
at lower cost to meet the next log trade opportunity.
- The MoF has appeared to show a preference or 'most favoured' status to
some operators in certain communities. The relationship of certain operators
with senior MoF officials might well be questioned in some communities. Many
new entrants have been excluded as a result of the scare mongering of the
dominant operators who fear the competition inherent in having new entrants
able to bid for logs against them.
- There is a continuing tendency to move to larger and longer-term sales,
embodied in the pressure to include section 13 into the SBFEP. Specific companies,
dependent on log sale revenues, bid on these sales ostensibly to create jobs,
but in reality to meet economies of scale for large log trades that major
licencees determine are more strategically desirable in the long term. Thus
smaller sales are less than marketable and new entrants, who typically start
out with small, short-term sales, probably stand little or no chance of securing
a trade with a major licencee.
- The MPS is now accepted as a legitimate pricing mechanism but it does not
take into account local factors affecting demand for logs and is thus not
sensitive to local price fluctuations. The MPS is a non-negotiable system
ensuring that small business wood is not marketable, particularly in smaller
sales. Some of the problems are:
- Beetle kill wood flooding the market at significantly lower prices and
substantially higher fibre quality. This is likely to continue well into
the future as the impact of the beetle infestation overcomes the ability
of mills to process it. There is already talk of stock piling 'beetlekill'
wood in local lakes as a means of preserving the volume that is currently
at risk.
- The impact of production curtailments due to the Canada - US Softwood
Lumber Agreement resulting immediately in lower demand and in the longer
term in cut control problems for major licencees which will affect future
demand for logs
- Consolidation of the primary industry resulting in many "one buyer"
communities
- The failure to recover the 5% holdback in the wake of the massive level
of industry consolidation that is taking place. Instead the MoF has chosen
to hand back this volume to primary operators under sect. 56.1 on the
pretence of job creation programs further weakening demand for logs.
- Operators, who wish to utilize small diameter wood, find that the MPS
overstates its value.
- The failure of the Wood Fibre Transfer Program and the jobs for timber
accord is intertwined with the collapse of the SBFEP. The Wood Fibre Transfer
Program never got underway, was never supported by the primary sector, and
the lack of it will leave many more lost jobs once the SLA expires. Furthermore,
no attempt was ever made by government or the jobs for timber advocate to
measure the compliance of primary mills under the Wood Fibre Transfer Program.
In fact the mechanism set up to do that, the Issues Committee, only ever met
once. No benchmark measures were ever established nor were any formal rules
enacted. The primary mills managed to obtain concessions under the guise of
"internal remanufacturing" as well as being able to claim historical shipments
as part of their commitment.
- Inefficient companies were bailed out by the government and allowed to
retain or even expand their licences creating inequities in terms of competitiveness
on both the demand and supply sides of the equation. This directly penalizes
successful companies. The bulk of those bailouts have subsequently failed
and in the mean time new entrants and opportunities for further expansion
at successful plants, have been lost.
- The SBFEP as applied has had nothing to do with the building of a successful
value-added sector as has been claimed. The administration of the program
has had everything to do with meeting the volume commitments (4.6 million
cubic metres) made by the minister and staff and thereby filling some kind
of political agenda.
- Political favour for community forest pilot projects, first nation interests
and other issues taken at the expense of the SBFEP has served only to confuse
the issue. With more demands to satisfy these pressures, the MoF has opted
to pick on the SBFEP as the weakest and least organized link in the tenure
system and thus the least likely to provide stubborn resistance.
The SBFEP Must be Revamped and New Objectives Defined
We believe that the entire program should be scrapped and a new program developed.
Firstly, we should address the objectives of the SBFEP. As currently written
in the MoF Business Plan, the objectives are loose and difficult to measure
and in our opinion have been used to allow political intervention in the process.
Furthermore, the program is unfocussed and has a one-size-fits-all approach.
Arbitrary changes have been made to the original SBFEP with little or no consideration
to the eventual impact on the industry and usually with insufficient consultation
with stakeholders.
We recommend that the MoF scrap the program as it is. The MoF should consider
an alternative small business program comprising three different components
targeted at the following segments of the forest industry.
- The independent, secondary and specialty wood manufacturing sector
- The remanufacturing sector
- The hardwood sector
The Independent, Secondary and Specialty Wood Manufacturing Sector
The Independent, Secondary and Specialty Wood Manufacturing Sector may be loosely
defined as companies requiring logs for conversion to specialty dimensions and
grades from their own or custom milling facilities; for engineered wood products;
for log home construction; other log specialty products or where processing
of commodity lumber is not practical.
We suggest that the PG Region set up a log merchandising and sort yard to deal
with small business wood directed at this sector. The precedent set in the Vernon
Log Yard is a case in point. Value-added operators of all sizes and types of
business would have right of first refusal and may bid competitively for suitable
fibre to meet their needs allowing market forces to set prices. The log yard
would consider all orders for grades, volumes, species and size and process
fibre accordingly. Logs surplus to value-added requirements or unsuitable for
value-added manufacture may be made available to primary mills, pulpmills or
others. The object of this component is:
- Economic development of the small, independent, secondary and specialty
wood manufacturing industry with the object of stimulating the investment
of private capital and the creation of new employment opportunities
- The development of new wood products with the object of product diversification
from commodity markets and to stimulate exports opportunities
- To encourage start-up companies and new entrants
- To diversify the log market allowing more opportunities for other tenure
types (hardwoods, loggers, woodlots, community forests etc.)
The Independent Remanufacturing Sector
The independent remanufacturing sector may be loosely defined as companies
that are able to use commodity lumber dimensions and grades and remanufacture
them to higher valued products.
We suggest that the PG Region set aside a volume of (volume to be determined)
within the AAC of each major licencee for use in the Wood Fibre Transfer
Program. The major licencee may bid for access to this volume, at competitive
stumpage rates, in exchange for a commitment to supply a minimum of 25% of their
TOTAL sawn output, graded to NLGA grades, to independent remanufacturers
in the PG Region. All transactions should take place at arms length and subject
to market prices and conditions of sale. A precedent has been set in the award
of Forest Licence A62247 to Dunkley Lumber Ltd. The object of this component
is:
Economic development of the independent remanufacturing industry with the object
of stimulating the investment of private capital and the creation of new employment
opportunities
The stabilization of communities by ensuring that further manufacturing of
commodity products is kept locally in the PG Region.
The establishment of strategic alliances between primary and secondary manufacturing
The Hardwood Sector
The hardwood sector may be loosely defined as specialty mills that saw, dry,
remanufacture, process hardwood lumber or engineered wood products. We suggest
that:
The PG Region identify the inventory of hardwood currently being harvested
and set up a procedure to allow licence holders of all forms of tenure to supply
to the log sort described above, or make directly available to sawmillers and
manufacturers of hardwood products with no impact to their softwood AAC.
- Economic development of the hardwood lumber manufacturing industry with
the object of stimulating the investment of private capital and the creation
of new employment opportunities
- The value-added utilization of hardwoods and lesser commercial species
- The development of new wood products with the object of product diversification
from commodity markets and to stimulate exports opportunities
- The stabilization of communities by ensuring that hardwood manufacturing
facilities are developed locally in the PG Region.
Guiding Principles for a Viable Industrial Strategy
The next five years are critical to the long-term viability of the value added
industry. The opportunity to consider bold and innovative changes to the current
program should not be lost. What is required is an industrial strategy whose
main purpose is to encourage economic development of the region. Such a strategy
should be subject to a number of guiding principles that remain consistent and
dependable over time.
- Sustainable forest management should be a basic foundation for the
program. The primary driver of forest management is the growth and yield of
the forest, managed to incorporate public standards for multiple use, indigenous
species, environmental impact and recreational values. Stands should be managed
under an intensive silvicultural program using modern scientific principles
to enhance the growth, yield and quality of timber for any given site conditions.
- Consideration should be given to an area-based program. The modern
wood products consumer demands evidence of an eco-certification system that
contains the four critical elements of global recognition, independent third
party verification, chain of custody, and multi-stakeholder buy in. To guarantee
these elements, it is essential that specific land areas are demarcated and
managed under an environmental management program. An area-based system would
also be advantageous for enhanced forest management and silviculture.
- Market access for wood products should be free and unfettered. In
order to ensure this, any program must ensure that its mandate and rationale
do not inherently build in subsidies, real or perceived, that may affect WTO
rulings, eco-certification and whatever evolves from the current SLA.
- The program must be subject to vigorous competition. The entire working
forest should provide equal access to fibre across the whole supply chain
ensuring no preference for the harvest sector, primary sector or secondary
sector in terms of pricing, access or favour. Entrepreneurs and investors
should be given the opportunity to take risks and the ability to reap the
rewards of risk-taking in a competitive environment.
- Pricing must be market driven and sensitive to sudden changes in
market conditions. There should be no target revenues artificially imposed
by the government and any attempt at 'water bedding' should be abolished.
- The program requires an attractive investment climate. Businesses
react to such issues as, tax climate, availability of capital, innovation,
availability of a skilled work force, flexibility and efficient government
services. In particular the climate must provide favourable conditions for
startups and new entrants.
- The program should be fair to all. There should be no political intervention
and uncertainty generated by political considerations such a First Nations
Treaty negotiations. We believe that aboriginal groups in BC are a full and
integral part of the provincial economy and culture. We need to ensure that
they have the same economic and cultural opportunities as all other British
Columbians while maintaining a stable, certain political and economical environment.
- The program should be managed on a regional basis. Political interference
and tinkering by bureaucrats in Victoria create problems for local operators.
The program should be managed with frequent input from all stakeholders on
a regional basis in a clear and open process of accountability and responsibility.
Effective, cost efficient audit and reporting procedures should be employed
to ensure conformance with commitments made under the program.
Public Investment
The components of the industrial strategy suggested above, are clearly targeted
at the economic development of the independent wood products industry with the
object of stimulating the investment of private capital and the creation of
new employment opportunities. However there is still a requirement for additional
public investment in the strategy to ensure that public ideals are achieved.
Public investments are usually returned through the provision of government
services such as healthcare, infrastructure, education, law and order and other
services partially funded by stumpage revenues and taxes. These services include
the administration and management of the forests. Forest Renewal BC has been
funded through a super-stumpage mechanism to ensure re-investment of public
monies directly in the forests. We believe that better use can be made of public
investments by directly supporting the development of the industrial strategy.
We suggest that:
- The MoF establish an Extension Office with a mandate to implement the industrial
strategy and provide additional extension services. The office would be staffed
by officers that are prepared to help companies access fibre through the program's
various components. They would be able to determine an entry strategy
for companies new to the program and an exit strategy for those that
have successfully used the program. They would ensure a flexible, simple and
cost effective application and award process for the various components of
the program based on results. Extension officers would oversee all aspects
of forest certification on public lands, compliance with forest practices
code regulations and advise companies on how to achieve the agreed benchmarks
and standards.
- The MoF establish an investment fund. This fund would be managed locally
and invested in areas that support the objectives of the program. Such investments
would be administered and delivered by the extension officers in consultation
with local advisory boards and might include items such as:
- Investments in education and training programs including the development
of infrastructure at CNC, UNBC and Northern Lights College
- Incubator programs to stimulate start-up companies
- Market development and expansion programs to stimulate, develop and
maintain access to long-term export and domestic markets and to finance
promotional activities for wood products from the region
- Research and development funding to encourage technology transfer, R&D
activities into new products, new manufactuiring processes, growth and
yield studies, and silvicultural and harvesting improvement techniques.
Conclusion
The current SBFEP is an absolute failure, and is epitomized by the wave of
failed value-added operators in Prince George. It must be revamped and replaced.
We have provided some ideas that we believe have substantial merit in the development
of an innovative, industrial strategy for the value-added industry in the Prince
George region. We have provided comments on why we feel the current program
has failed. We have further provided indications on what we think the objectives
of a strategy should be and we have made recommendations for some basic guiding
principles under which we think such a strategy will thrive. Finally we have
provided suggestions on how we see public investments can be made to support
the overall implementation of the industrial strategy.
We look forward to discussing these ideas with other stakeholders in the region.
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