Never has a positive economic driver in the BC economy suffered so much negative publicity as has log exports. Some support the notion of selling a manufactured log to a country that can then use it to make wood products, while others believe that all logs should be processed locally and in doing so create jobs and improve the BC economy.
It is hard to argue with the later position and you would be hard pressed to find anyone in BC who does not support the notion that local jobs are better then foreign jobs. But when producing a forest product that competes in a global economy for buyers, be it logs, lumber pulp or veneer, it is not a simple matter to hope that the buyers show up. Such is the case with log exports.
Over the past couple of years, many coastal mills have had nowhere to sell their products, let alone at a profit and as a result, local demand for logs has fallen. At the same time however, foreign buyers have been hungry for B.C. logs and have paid higher prices for them.
Between 2000 and 2010, the level of log exports has varied between about 2.2 million cubic metres or 9% of the coastal harvest, to 4.4 million cubic metres or 21% of the harvest. Over the same period, the majority of the logs harvested were from private land.
With the advent of a burgeoning Chinese demand for logs to support their economic growth, exports are forecast to rise from the BC coast to as much as five million cubic metres very soon. If we assume an economic multiple of 0.81 jobs per 1000 cubic metres harvested (direct and indirect), this points to over 4,000 coastal BC jobs that are supported by log exports alone.
The following chart depicts the log export trend:
So let’s ask an obvious question to those that do not understand the positive economic benefits that log exports provide to the BC economy. “If we restricted log exports today, who would buy the logs?”
The answer might be that the local sawmills would be able to purchase them to make lumber thereby creating local jobs. Although a desirable notion, there are a couple of facts that suggest otherwise.
First, when operating at full operational capacity, BC coastal mills consume approximately 16 million cubic metres of logs per year. At the same time, BC’s sustainable coastal harvest level is 24 million cubic metres (including contributions from private land).
The following chart compares annual allowable cut to forecast log demand:
Even if every coastal mill got every log that they needed to operate fully, there would still be eight million cubic metres of potential harvest left over, some of which is exported today. Clearly, the export of logs does not appear to be negatively impacting the supply of logs to local coastal mills.
So if the current industry appears to have sufficient supply of logs to support operations, what would happen to the family supporting and often times union held jobs if we restricted log exports today?
Let’s dig a little deeper. The second problematic fact that escapes most log export opponents is that the cost to deliver coastal logs to mills is too high when we try to use those logs to make lumber. The 2009 average cost to deliver a coastal log to mills was reported to be $74 per cubic metre.
On average it requires about four cubic metres of logs to make 1000 board feet of lumber. This suggests that the raw material cost alone for producing lumber is $296. To this we add manufacturing and shipping, likely in the $115 to $120 for each 1000 board feet produced suggesting an average cost to produce coastal lumber of over $400. Today, China consumers are paying $255 for lumber.
The math seems compelling. If we restrict log exports and assume that new mills will be built that consume the logs currently being exported, and then further assume the average cost for logs, new mill owners would lose money on every board produced even with allowances for the sale of their sawdust and shavings. This is why a number of mills have already closed over the past decade on the coast.
Simply put, the cost to deliver logs for use in making lumber alone from steep and remote BC coastal locations is too high given the global price for the lumber products we produce.
So how is it that any mills operate on the coast today? The answer is simple. The revenue generated through the sale of some coastal logs provides the revenue with which sawmills can then purchase the remaining logs to operate their local mills at a profit. And, across the coast where significant volumes of timber are simply not harvested as a result of high costs, only the revenue derived from log exports will provide the opportunity to allow for their economic harvest at all.
For the past 20 years we have only been harvesting stands with a enough high value timber to justify taking the low value timber. This has led to poor forest management practices and an imbalance in the remaining forest profile as a smaller and smaller component of coastal forests are economic. Log exports can provided another way to increase the value of these stands, thus providing a solution to support their harvest.
Based on these facts it is clear that the solution to log exports does not lie in an outright ban. Log exports are just another market for one of many products produced by the coastal BC forest industry. Manufactured logs are no different than lumber, pulp, poles or veneer and they provide a significant contribution to the coastal and BC economy.
We can debate which logs we should export and what the process should be to export them, but what we should not be doing is talking about banning log exports.
Rather, we should be trying to develop log export policy that allows for the full harvest of the AAC. Think about it, the harvest of 24 million cubic metres, allowance for up to 25% log export (6 million cubic metres), a resulting domestic log supply of 18 million cubic metres that would provide a surplus of two million cubic metres to support new sawmill development (2 to 3 new mills).
Balanced log export policy, increased log exports and the potential for new sawmill investment and family supporting jobs... hard to believe. But so too is the adage that exporting logs is exporting jobs!
Restricting log exports in isolation is not a way to add jobs to our economy. Restrictive log export policy must be preceded by a domestic manufacturing investment strategy. Without mills that are prepared and able to pay what it costs to harvest our low value forests, there are no jobs to be created. Export policy that is targeted towards meeting the chief foresters concerns around rebalancing the coastal forest profile seems to a sensible place to start.
This article was written for the Forest Industry Network by Jim Girvan RPF MBA, MDT Management Decision and Technology Ltd. Jim is recognized as an authority in timber supply, economic and statistical analysis, forecasting and finance. As a professional forester, Jim has over 30 years of experience and recently served as the Executive Director of the TLA; “the quiet voice of reason” representing the political interests of independent community-based businesses reliant on the forest industry across coastal BC. He has authored reports and articles ranging from supply analysis to tenure reform and has addressed audiences from Oregon to New Zealand sharing his creative and innovative solutions to difficult forest industry issues.
