Canadian Lumber update

Larry Stamm larryst at vis.bc.ca
Wed Dec 24 11:55:18 EST 1997


John Butt wrote:

>Larry,  How do you know this is a subsidy?  Doesnt all the land management
>cost fall to the industry with this system.  Here on Fed land almost all
>the cost falls to taxpayer in most places.  (There are exceptions like
>Allegheny and West Coast National Forests 20 years ago).  

>If you have any research on the economics of the Canadian system would be
>interested in learning more about it.

>John

>In article <34964113.4556248 at news.cancom.net>, larryst at vis.bc.ca (Larry
>Stamm) wrote:

>
>>> Very true.  But, with the exception of Prince Edward Island, every Canadian
>>> province and territory enters into long term, renewable agreements with
>>> multi-national timber corporations that gives such corporations
>exclusive rights
>>> to harvest timber over large tracts of Crown land for a set stumpage
>(or a set
>>> formula for determining stumpage).  Few, if any, of these agreements were
>>> solicited on a really competitive basis.  To my knowledge, there is
>nothing even
>>> remotely like this practice happening in the US.  And at least in Western
>>> Canada, the amount of privately owned timberland is relatively
>miniscule while
>>> there is a substantial amount of privately owned land being managed for
>timber
>>> in the States.
>>> 
>>> My knowledge of eastern Canadian forestry regulations is hazy, so somebody
>>> please correct me if this is wrong.
>>> 
>>> IMHO, the basic nature of the Canadian forestry tenures constitutes a huge
>>> subsidy to the timber corporations, and does more harm than good to everybody
>>> except the corporation owners.
>>> --
>>> Larry Stamm
>>> PO Box 561
>>> McBride, BC V0J 2E0

Not all land management costs are ultimately borne by the tenure holder.  In BC
and Alberta, road building costs can be written off against stumpage owed even
if the roads will be deactivated following logging.  Any other permanent
"improvement" can also be written off against stumpage.

But the real reason I feel the tenure system constitutes a subsidy is that it
awards vast amounts of Crown timber through a basically non-competitive
process, and the stumpage charges are not determined by a competitive process.
These tenures can be rolled over indefinitely, so once a corporation is awarded
a forestry tenure it could be theirs forever.  Banks are willing to lend money
against this timber for capital projects.  In other words, a corporation could
be awarded unnallocated timber (if there is any left) by promising to build a
mill in a new area, then go to the banks and stock markets for the capital to
build the mill with the awarded tenure as collateral.  Plus the provincial
governments have historically backed loans to build such mills.  There has been
no opportunity for local entrepeneurs to put in their bids on this timber.
Virtually all the modern forest industry in northern BC and the Prairie
Provinces was initiated in this fashion, and there is very little place left for
somebody with a new or better idea to compete against the established
corporations.

Larry
--
Larry Stamm
PO Box 561
McBride, BC V0J 2E0



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