Timber Models, reprinted by suggestion from Forestry MiningCo.

[Don Staples]

Re: Re: Re: Re: Timber Models 
 Written by BC Wet Coast on Wed Aug 26 16:30:42 1998 GMT 

     It's a made at home problem, but has many factors associated with
it. 

     The industry is split into two sectors, the Coast and the Interior.
     Traditionally, the major markets for the Coast has been Asia and
     Europe, because of the easy access to shipping. For the Interior,
the
     traditional market has been to the US by truck and rail. 

     A couple of years ago, when the Canada/US Softwood Agreement was
     signed, duty-free supply quotas were negotiated and allocated to
     various mills/provinces/companies (I'm sure of the details of quota
     allocation). The Coastal companies were not allocated any US quota,
     because their markets were abroad. Since then, the Asian economy
     is in the tank, and the Japanese have found a very cheap supply of
     logs and lumber from Russia. (Although, I don't think this will
last long,
     as there is no effort being put into reforestation). 

     As far as the Interior is concerned, they are still selling as much
wood
     into the US as they ever have, but are still losing money. Why? 

     Production costs have skyrocketed and the increase can be
     completely placed at the hands of government regulation. Virtually
all
     forest land is governement owned (95%) and then allocated to
     companies in varying forms of long term operating licences. Some of
     the licences are volume-based, and some are area-based. 

     Because of this ownership model, the government can dictate the
     level of planning that is required prior to any harvesting. To
appease
     environmentalists, in 1995, the government enacted the Forest
     Practices Code. This code is extremely process oriented, rather
than
     results oriented with trust put into the hands of the professional
     foresters. The amount of paperwork to get cutting permits is
     outrageous. 

     The upshot of all this is the stumpage rates are now through the
roof.
     The stumpage system is very complicated, but in essence, it is the
     value of your stand minus the costs for an average efficient
operator
     minus the average stand value for the region. This figure is then
     added to the "base rate" to give your stumpage. The base rate is a
     target government stumpage revenue divided by the forecast annual
     cut for the province. So if you have a totally average stand with
     average logging costs you will pay the base rate. Better quality
stand
     you pay more etc. The Coastal Base rate for June was $25.35 /m3. It
     is not uncommon to have stumpage rates for cutting permits at
     $100/m3. One m3 = 35.32 cu ft or about 212 bd ft. 

     On top of the stumpage, we have a surcharge called superstumpage
     for a fund called Forest Renewal B.C. Good name, but it has become
a
     slush fund for many waste money projects. 

     On top of the stumpage and superstumpage, you then have your
     basic planning, harvesting, milling and transportation costs. The
     Forest Practices Code alone has raised planning costs about $8/m3. 

     The other factor is a low pulp market, which is affecting people
     worldwide, but the sawmills can't get enough for their chips to
offset
     the cost of logging the pulp logs. 

     So why are the mills closing? Simply, the government has tried to
grab
     more economic rent out of the forest that the forest can produce
and
     is killing the goose that laid the golden egg. 

     Some interesting notes:
     -Stumpage rates in Alberta are about 1/10th of ours. -Swedish mills
     can put 1" boards into Minnesota cheaper than we can by rail -A new
     Austrian supermill on the Danube can put wood into our traditional
     markets in the US cheaper than we can. 

     Thanks for giving me a chance to rant, I'm just getting so
frustrated
     with this government it hurts.
-- 
Don Staples
UIN 4653335

Web Offerings:  http://www.livingston.net/dstaples/