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Talk of tenure take-back unnerves forest industry

Horgan government thinks too much forest tenure is in too few hands

Of the roughly 48 million cubic metres of harvestable timber held within B.C.’s Crown forest tenure system by forestry companies, First Nations and communities, about 27 million is held by just five companies, according to B.C.’s Ministry of Forests, Lands and Natural Resource Operations.

With 9.1 million cubic metres, Canfor Corp. (TSX:CFP) is the single largest tenure holder. West Fraser Timber Co. (TSX:WFG) is the second largest, at 5.4 million cubic metres. Western Forest Products (TSX:WEF) holds five million cubic metres of tenure, Interfor Corp. (TSX:IFP) 3.6 million and Tolko Industries 3.4 million.

The B.C. government has passed legislation that allows it to take some of that tenure back, for redistribution to First Nations and smaller companies.

With an annual allowable cut (AAC) that is entering a long-term decline, the BC NDP under Premier John Horgan feels that a dwindling timber base is concentrated in too few hands, restricting smaller players or new entrants from competing.

But the way it is going about tenure redistribution, through Bill 23 (Forest Statutes Amendment Act) and Bill 28 (Forest Amendment Act), has unnerved the forest sector, which accounts for B.C.’s single most valuable export.

Unlike in 2003, when there was a 20% take-back for the creation of BC Timber Sales (BCTS), tenure holders have no idea how much timber they stand to lose through tenure redistribution, although the B.C. government’s goal, according to the Modernizing Forest Policy in British Columbia report, is to increase First Nation’s share of tenure to 20% from the current 10%.

During debate on the new legislation, Forests Minister Katrine Conroy confirmed that “those with more volume in the same timber supply area would carry a greater proportion of the reduction than those with less volume.”

Bills 23 and 28 provide the mechanisms by which the government can shrink or increase the AAC and allocate – or reallocate – tenure. They include the creation of forest landscape plans and special purpose areas.

“This is the scary part, where the government can just randomly walk in …, create a special purpose area and say, ‘We want that piece of timber for our purposes,’ which could be the old growth timber, it could be for BC Timber Sales volume, it could be for First Nations,’” said David Elstone, managing director of the Spar Tree Group forestry consultants.

“The government’s strategy is to take part of those timber rights away for the purposes of old-growth deferrals or reallocation to First Nations, communities and BCTS,” Russ Taylor of Russ Taylor Global forestry consultants wrote in a recent analysis.

“The transfer of forest tenures will not be at a fair market price because the government has cleverly changed how it will compensate companies for the reductions to harvesting rights. This is one more way for the government to send out strong signals that investing in B.C. is now a very high-risk proposition.”

Of the 57 million hectares of forest in B.C., 22 million is theoretically available for timber harvesting. But the AAC is about to shrink, due to a pine beetle infestation, wildfires and pressure from environmental groups to make more timber, notably old growth, off limits to logging.

The Horgan government has stated that B.C. needs to do more with less and has touted value-added manufacturing like cross-laminated timber for making mass timber products. But it notes that it is hard for “new entrants” to get a start in B.C. because they have no access to fibre.

It clearly thinks the forestry majors in B.C. have too much tenure and are no longer investing in B.C. All of the majors have been buying sawmill operations in the U.S., Europe and Eastern Canada.

“So that concentration of tenure is a challenge,” Nathan Cullen, NDP MLA for Stikine, said recently during debates on bills 23 and 28. “It blocks new entrants or those that have just managed to get their foot in the door from expanding.

“The social contract that may have existed in the ’50s, ’60s, ’70s between some companies and those local communities…. Well, those companies have expanded their interests with large investments in other places around the world.” 

But, say critics of the government’s direction, if it is concerned about the majors investing elsewhere, it might ask why anyone would invest in a region that now has the highest operating cost in North America, a shrinking timber supply, and a government that appears indifferent, if not hostile, towards the most successful companies, which is to say the big ones with the most mills and most tenure.

“People have bought assets over time, including tenure, and Bill 28 now says that you can effectively have an asset removed with no compensation, and that has a chilling effect on investment,” said Susan Yurkovich, president of the Council of Forest Industries (COFI).

Canfor CEO Don Kayne said making lumber is the backbone of B.C.’s forestry sector. Every sawmill that goes down hits something else, like a domino, when it falls – a pulp mill, a pellet mill, a plywood plant.

“Without a solid primary industry in British Columbia that has got the hosting conditions to invest … then we have no pulp and paper industry, we have no pellet industry, we have no secondary manufacturing industry, we have no [cross-laminated timber] plants – we have none of that,” Kayne said. “We need to figure out how to have a sustainable, globally competitive primary industry here in British Columbia to support all the rest of our ambitions.”

He said Canfor has invested $1.7 billion in B.C. over the last 10 years. The company operates nine sawmills in B.C., four pulp and paper mills and three pellet plants, and employs 4,000 people. He added that if the B.C. government wants the industry to invest in things like secondary manufacturing, it may not be creating the best investment climate.

“In terms of new capital for greenfield or brownfield or any of that sort of investment, it’s not going to happen,” Kayne said. “And the reason it’s not going to happen is that it’s the least competitive region globally.”