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Coastal Clarion - Newsletter
Vol.7, Issue 1 · Spring 2011
On March 14 Premier Clark announced the formation of a new, smaller cabinet focused on "creating jobs and building a strong economy because that is the single most important thing we can do to support families and ensure we can invest in critical services like health and education."
As key employers on the coast our association members know we can contribute jobs and strong economic performance in collaboration with Premier Clark and her cabinet. The coastal forest sector has a bright future and is now positioned to invest in our businesses to capitalize on new markets and products. However, our ability to take advantage of changing forest product markets and emerging opportunities is reliant on government and industry working collectively to ensure a competitive, stable and cost-conscious operating environment.
To increase the economic contribution and family-supporting jobs of a healthy forest sector, Coast Forest will be working with government to:
- Maintain a stable, cost-sensitive forest sector policy framework, bringing a competitiveness and cost lens to all changes in provincial regulation affecting the forest sector
- Bring a coordinated, government-wide approach to the implementation of the New Relationship with First Nations, ensuring better outcomes and certainty for First Nations communities, the resource industry and the Province
- Review and assess greenhouse gas legislation and the carbon tax regime to ensure it remains relevant in light of evolving global GHG policies
- Increase government support for industry-led market development initiatives for B.C. forest products, including in emerging markets such as China and India
- Continue efforts to ensure a competitive and balanced tax regime, reviewing the municipal taxation system and providing transitional assistance to support communities, plus making best efforts to sustain the Harmonized Sales Tax as it advances to referendum.
Congratulations to Premier Christy Clark, her government and ministers! We look forward to working together to establish a strategic approach to industry competitiveness, regulatory cost-effectiveness, effective taxation and offshore market development that will allow our industry to remain a key part of B.C.'s economic engine well into the future.
We look forward to working with all of the provincial government ministers, especially Cabinet Ministers Steve Thompson, Forests; Mary Pollock, Aboriginal Relations; Terry Lake, Environment and Pat Bell, Jobs. Finally, we would be remiss not to acknowledge the great job Minister Pat Bell did in his three years serving as Minister of Forests and Range. Thank you, Minister Bell.
JAPAN IN CRISIS
Photo: Coast Forest Products Association
Coast Forest expresses its heartfelt condolences to the Japanese people and to all of our colleagues and associates, their friends and families, as they deal with the catastrophic aftermath of the March 11 earthquake and tsunami, and begin to rebuild their lives and communities.
Japan has been a friend and trading partner to us for decades, and for the past 15 years the forest sector has worked with the Japanese government and industry to develop earthquake resistance housing after the Kobe earthquake in 1995. These efforts have resulted in quantum leaps in building system technology and quality improvements. Coast Forest joins with the entire Canadian forest sector to support Japan's recovery and pledges to help Japan deal with its plans to provide housing for those affected by the disaster.
WFP QUALITY APPEARANCE AND STRUCTURAL WOOD PRODUCTS
By Don Demens, Senior Vice President Sales and Manufacturing, Western Forest Products
In 2010 global demand for B.C. coastal forest products was much improved from the record low levels experienced in 2008 and 2009. This increased demand allowed Western Forest Products to restart three mills which were previously curtailed due to the collapse of the U.S. housing market and global financial crisis. While this new business was certainly welcomed, competition remained aggressive and an appreciating Canadian dollar put additional pressure on mill returns throughout the year.
Maximizing value from the diverse coastal forest requires matching our unique fibre to markets and products around the world. Access to these markets calls for scale to allow for cost effective manufacturing and transportation to ensure competitive delivery to customers. At Western Forest Products, we have segmented our business into four key sectors: Western Red Cedar, Japan, Niche and Commodity.
Our Western Red Cedar business faced significant challenges in 2010, which have continued in 2011. This business is dependent on the U.S. market which consumes approximately 80 per cent of production. While the global financial crisis may be over, the U.S. housing recession continues. It is projected that recovery in the U.S. housing market will not occur until 2012/2013 at the earliest and even then housing starts will likely only achieve 1.0 million units, which is less than half of the 2005 level. Moreover, the repair and renovation segment, which is a prime sector for WRC, is also being adversely affected by the depressed housing market. Reduced demand has led to increased competition through the supply chain, yielding lower pricing which is in turn negatively impacting log and lumber margins and leading to industry curtailments.
The Japanese market for B.C. coastal species grew by about 30 per cent last year and prices improved by 5 to 10 per cent, reversing multi-year trends of lower volumes and weak pricing. This was good news for coastal sawmills and timberlands operators because Japan is a critical market for hemlock, which accounts for about 60 per cent of the coastal standing timber inventory.
While the rebuilding efforts from the horrendous effects of the Tohoku earthquake and tsunami in early March will increase demand in the next few years, we can expect competition from U.S. suppliers and domestic Japanese producers for the additional orders.
U.S. suppliers offering Douglas-fir products have grown their shipments to Japan three-fold over the last three years. In 2010 these shipments totalled more than 320 million board feet, which is equivalent to the output of three coastal sawmills. As the U.S. housing market is showing no signs of recovery in the near term, we can expect to see U.S. producers aggressively trying to grow market share in Japan. Additionally, Japanese government tax initiatives supporting the consumption of domestic species will create another competitive pressure in the market.
Niche markets, such as Australia and Europe stabilized in 2010. These countries remain good consumers of the higher quality component of our fibre basket and as their economies improve we expect to see increased sales volumes in 2011.
In the last few years we have repositioned our U.S. commodity business to China and we continued to participate in the country's rapid growth as a major log and lumber destination. This phenomenon is showing no signs of slowing in 2011. While demand for wood products has been primarily generated by concrete forming needs, we are excited to see that new approvals for wood home construction are beginning to cause an increase in demand for higher value wood products. From a volume perspective, we expect China to be our largest market in 2011. Much has been said about the "China Miracle" and what it means for the B.C. lumber business. It is certainly true that China has an insatiable appetite for lumber, but price is the determining factor and in order to compete profitably we must be a low cost supplier.
2010 was a significant year for Western Forest Products, marking a step change in the financial performance of the company and its outlook. The improved performance was due primarily to three factors: reorganization within the business focused on cost reduction, moderately improved market conditions and a higher utilization of the company's financial and operational assets. Our company remains cautious about the prospects for 2011. While we believe that both lumber and log demand will be slightly improved from 2010, it is our expectation that a recovery in selling prices back to trend levels will not occur until at least 2012 and as such, our operating environment will remain complex, competitive and challenging.
The creation of the Ministry of Natural Resource Operations last October separated forest policy development from field operations. The separation was counter to one of the forest sector's key challenges it continues to advocate for - the maintenance of consistent linkages between forest policy and operations. The new MNRO was quickly becoming known by insiders as the Ministry Not Really Operating, due in part to the disconnect between policy and operations. This March, Premier Christy Clark reunited forest policy and operations by adding Forests and Lands back into a new ministry – the Ministry of Forests, Lands and Natural Resource Operations (MFLNRO).
It appears the Premier is heeding United States Senator Warren Rudman's sage observation, "...I think that any government reorganization has to come in relatively small bites, or else you get indigestion." Clarke appointed Randy Hawes Parliamentary Secretary for Natural Resources Operations Review, signalling the mandate of the new combined ministry is not yet settled. Coast Forest supports this review as the ministry still appears to be a grab bag of activities and continues to delink the important policy and operations in the remaining resource ministries.
Going forward, the leadership must establish organizational clarity at all levels throughout the MFLNRO to ensure the desired economic, social and environmental objectives are delivered. Competing demands for coastal forest lands will continue to grow, so it is incumbent on government to make informed land-use decisions designed to maximize the net benefits from our forests for British Columbians.
As such, the first bite the review needs to deliver on is an effective interface between policy makers and the final decision makers while at the same time initiating a protocol for effective engagement of the forest sector with the policy makers. The link at both levels currently appears broken and the level of consultation inadequate. Just as important, a number of draft policies being developed, such as the Open Burning Smoke Control Regulation, Water Modernization Act, and Mitigation and Offset Policy, lack an economic competitive lens and in some cases are inconsistent with existing regulatory obligations.
The second bite is to have the MFLNRO implement a "gatekeeper" approach to land-use decisions. Many of the decisions on land use in B.C. have been made through a political process or they have focused on the "best" decision from an environmental perspective only. Essentially, some form of economic or benefit-cost balancing in the decision making process has been missing.
Both government and industry as land managers could do a much better job at meeting conservation targets without duplicating objectives unnecessarily and at the same time have more land available for timber harvesting. The creation of the MFLNRO might provide the right opportunity for a change to include this kind of balance when future land use decisions are made. As the MFLNRO assumes the decision-making role for natural resources on the ground, it must take a much more comprehensive approach to managing the forest land base by taking into account government's economic objectives and the cumulative impacts of land base removals.
Coast Forest will continue to offer support to ensure a smooth transition through this review to preserve the interests of our industry and mitigate any negative impacts. It would be unacceptable to lose the progress and momentum that was being made with the forest sector prior to this reorganization and it would be unforgivable to squander the coastal forest industry's assets in resources, people and geographic location.
ONLINE GUIDE TO SPECIES-AT-RISK
A new online tool is helping forest land managers identify and protect species-at-risk on B.C.'s Pacific Coast. The field guide, produced by the South Coast Conservation Program in partnership with Interfor, Capacity Forest Management and the Ministry of Environment, was made possible with a grant from the Sustainable Forestry Initiative.
Featuring 95 species-at-risk fact sheets, the guide provides photos for field identification and current conservation status of forest-dependent species for vertebrates, invertebrates and plants.
"The guide also completes essential work being done to protect grizzly bears on the central coast," explains Interfor's Gerry Fraser. "It fully maps out critical habitats for grizzlies creating reserves forestry companies can't go in to, which may include a forested buffer around them to maintain their integrity."
To view the guide visit www.geog.ubc.ca/biodiversity/factsheets
Photos: Warren Warttig, Interfor
UPDATE ON THE HST British Columbians will have their say on June 24 in a referendum on whether to return to a provincial sales tax or stick with the harmonized sales tax.
At a recent HST symposium organized by the Canadian Tax Foundation, the Canadian Institute of Chartered Accountants and the Institute of Chartered Accountants of B.C. Vancouver tax lawyer David Robertson outlined how restoring the PST could cost B.C. tax payers $5 billion.
He also pointed out that if the PST was reinstated, it would be retroactive to June 30, 2010, which means anybody who purchased goods for their business since then would have to pay an extra seven per cent in owed PST, a tax first designed and implemented back in 1949.
CONSEQUENCES OF RESTORING PST By restoring the PST on business inputs like equipment, materials, rent, and office supplies, we strip away any opportunity for competitive businesses to drop their prices. In fact, the cost of business will climb higher through additional administrative and accounting fees. We'll also have to pony up to hire more tax collectors since B.C. will have to reopen a standalone tax collection branch, at a price tag of $30 million per year.
The tax on beer or wine will be more. Tax on hotel rooms would rise a point, hurting tourism. And forget about spotting movie stars around B.C. Ontario has already said it will use a B.C.'s rejection of the HST to steal film production and other job-creating investments.
But as the HST stands now, the poorest families in B.C. – the almost 1.1 million British Columbians with low incomes – will lose their HST credits. For a family of four earning less than $25,000, that's close to a $1,000.
HST IMPACT ON INDUSTRY However, if the HST is retained some of B.C.'s bedrock industries and biggest employers – like forestry, construction, mining, film production, and tourism – will see more investment and jobs thanks to the money they will save due to the HST's flow though deductions.
The HST will help our resource sectors compete globally by levelling the playing field with other producers around the world who don't pay PST, giving them an advan- tage when fighting for new markets and customers around the globe. The HST is saving the B.C. forest industry money that it can reinvest in its mills and machinery, and use to sustain and create jobs. Not to mention, the HST is a deal breaker when it comes to the industry's ability to compete in the global marketplace and meet China's low-cost demand.
CONSUMER IMPACT In the long run, pre-tax prices of many items should lower because of the flow-through tax credits of the HST. The only real caveat on those lower prices is how much competition is in an industry. The greater the competition, the more likely it is businesses will exploit the HST advantage to drive down their prices.
And since there's no HST on basic groceries like fresh fruit, meat, veggies and milk people can avoid the HST all together at the grocery store by eating healthy foods.
However, it does mean that higher-priced NEW homes will cost even more since buyers will have to pay HST on the value over $525,000. A $1 million home would cost about $23,000 more because of the HST. And your $3 morning coffee will cost you more as well – an extra 21-cents a day – or $54 dollars a year. Many households will see an increase in how much they are paying in sales taxes under the HST. For instance a family of four making $60,000 will pay $107 a year more because of the HST.
If we're worried about the extra 21 cents on a cup of coffee alone, we're thinking about the loose change in our pockets, not the big picture – like new jobs opportunities for our children in a stronger economy. All British Columbians owe it to future generations to read and learn as much about the HST as possible before the upcoming June referendum. It is important to know all the facts before casting your vote. Visit www.hstjobs.ca to learn more.
FIBRE CONNECTIONS BC
The Fibre Connections BC website is now live, an initiative of the Govern- ment of British Columbia intended to improve the flow of wood fibre to its highest and best use. The website provides information about BC's forest sector, and lists Fibre Officers across the province, who can assist you in finding additional information to support your fibre or investment inquiries.
Coast Forest represents forest and paper companies in coastal British Columbia engaged in the harvesting and manufacturing of primary and added value forest products, and pulp and paper products. Together, these companies manufacture 95% of the lumber produced on the coast, 70% of the pulp and paper production and are responsible for 70% of the total harvest. The Association works to ensure that the five coastal species and their product lines have fair access to the global marketplace. Committed to providing leadership to create a thriving forest industry, Coast Forest facilitates cooperation between stakeholders and government on behalf of its member companies.