e Rapidly changing consumer tastes have caused a dramatic shift for sizes and grades of lumber in global markets.

Tenure reform
Continued from page fourteen

more distant mills that can get
more value from the log.
8. Switch to an end-product
specific appraisal system.
4. Simplify the current
appraisal system.
adhe Terminate ie comparative
me pricing system arc!
eo

6. Legislate a proactive mill
closure review policy.

7. Develop a made-in-B.C. lum-
ber Brice index.

8. Reduce the stumpage sys-
tem’s share of the profits from
new higher value products.

9. Establish an accurate log
grading system.

10. Switch to an efficient For-
est Practises Code.

¢ Maintaining an Adminis:
1S Pricing S
British Columbia is under no
legal or moral obligation to
switch from an administered
stumpage pricing system to tim-
ber auction sales. All of the 3 other
peayinees that are covered by the
.S.-Canada quota agreement have
administered systems. Because the
industries and governments in those
provinces are basically happy with
their current arrangements, no
major panne are planned. How-
ever, the U.S. Coalition gave its full
tacit approval of those systems
before t! auots agreement was
implemented in April, 1996.
¢ Nor is British Columbia re-
quired to maintain the current
regional stumpage target rate
system or comparative value
icing. Both were introduced acci-
Bantally because of the desire of the
B.C. government in 1987 to perma-
nently incorporate the 15 percent
MOU export tax into the existing
stumpage system. Neither has been
adopted by the other three covered
rovinces, and the U.S. Coalition
as not insisted that they do so.
However, target rate stumpage and
comparative value pricing pose huge
obstacles to the development of a
value-added lumber industry in
British Columbia.

Chapter 4 of the paper
describes the reasons that the

B.C. Coast and Interior saw-
milling industries need to
undergo a massive technological
upgrade in order to compete
with the Scandinavians in
global markets. Because coastal
and interior timber has a heavy
old-growth component, the fall-
down rate during the kiln dry-
ing process is close to 50 per-
cent. Since it is currently
difficult to detect internal
defects in an old-growth log
based on its outside appearance,
the loss in grade makes it uneco-
nomic to buck all logs to the cor-
rect lengths for the Japanese
market without the necessary
scanning technology.

e In Scandinavia, on the other
hand, processing managed sec-
ond-growth wood reduces the
kiln drying falldown rate to 10
percent. Because second crop
timber is generally of consistent
quality throughout the log, the
Scandinavians are able to carry
out a very refined log sorting sys-
tem. As a result, production in
Swedish sawmills is highly spe-
cialized. The mills are able to
turn out higher quality lumber
at significant wood and labor
cost savings.

e The Forest Industry Tech-
nology Improvement Fund

In order to assist the B.C. lumber
industry to finance the technological
upgrade which is needed to make it
competitive in value-added global
markets the government should set
up a Forest Industry Technology
Improvement Program (F.1.T.LP.).
Under the F.I.T.I.P. approximately
one-third of timber dues or
piemnage payments should be chan-
neled into a company’s individual
trust fund account. All companies’
accounts should be managed by the
industry according to strict guide-
lines. There must be no government
interference with the monies in the
F.LT.LP., or with individual project
approvals.

e The kinds of proposals covered
by the B.C. program should include
intensive silviculture, the R and D
work required to develop the neces-
sary logging and manufacturing
technology which is discussed in this
study, and assistance with the
acquisition of the new equipment
when it has been sufficiently devel-
oped for commercial application.

e The best part of this pro-

posal is that the industry will be
required to invest the F.L.T.LP.
money in its B.C. facilities. Plans
to acquire or update operations
outside the province simply will
not qualify for project approval.
That should help to slow down
the flight of capital from the B.C.
forest products industry to
other provinces and U.S. states.
As a result, B.C. companies
should enjoy a better rate of
return on their capital invest-
ment.

e Increased Value-Added

Employment

Since most specialized production
is more labor intensive, the switch
to value-added products will help to

restore many of the manufacturing

jobs that were lost in the process of

improving efficiency for commodity

output during the late 1970’s and
s.

¢ Goals of Tenure and Stump-
age System Reforms

The key difference between
our proposals for timber market
reforms and those for timber
auction sales is that under our
program the current tenure sys-
tem would remain in place. And
stumpage rates would continue
to be set by some form of adminis-
tered system without regional
target.rates and comparative
value pricing.

e The goal of the proposed
reformed stumpage system is to
create an efficient competitive
open log market system once the
timber has been harvested.
Amendments should be made to
the current stumpage system
that will provide the economic
incentive “to get the right log to
the right mill.” That incentive
must ensure the right of B.C.
companies to share in the addi-
tional rewards of carrying out
value-added production, includ-
ing the manufacture of higher-
value lumber such as J-grade. If
that reward is there, it should
encourage B.C. companies to
more accurately buck logs to
length, to carry out more refined
sorting for value and to engage
in greater volumes of intercom-
pany log trades.

e Following this approach will
permit the B.C. industry to
avoid the speculative excesses
that have characterized the pub-
lic timber auction sales program
in the U.S. West over the past 20
years.

While timber auction sales
may appear to have an aura of
respectability, there is nothing
efficient about having sawmills
go out of business as a result of
speculative bidding.

Particularly when the situa-
tion is aggravated by permitting
unrestricted log exports.

*

Specialized manufacturing facilities should produce higher value products.

sar sore st

LUMBERWORKER/SEPTEMBER, 1999/15