Section A: Forests and Range — Continued

Strategic Context

Vision, Mission and Values

Vision

Diverse and sustainable forest and range values for B.C.

Mission

To protect, manage and conserve forest and range values through a high performing organization.

People

People are valued for their contribution and dedication to the Forest Service, its mission and vision.

Values

Our Values:

Integrity: We are open, honest and fair.

Accountable: We are responsible for our own decisions and actions.

Innovative: We encourage and support each other to create new and better ways to do our business.

Respectful:

We show respect by listening to and recognizing a diversity of values and interests.

We work with each other in a spirit of trust, mutual respect and support.

Planning Context and Key Strategic Issues

Internal Trends

Recent policy changes, the Mountain Pine Beetle infestation, and international market forces continue to change the landscape of the B.C. forest sector. In 2005/06, the ministry will continue implementing the policy changes associated with the Forestry Revitalization Plan and the Forest and Range Practices Act. The ministry will also continue to address the softwood lumber dispute, expand dialogue with First Nations groups, deal with the impacts of the mountain pine beetle epidemic, and improve forest fire prevention and suppression practices.

Social Trends

B.C.'s population is changing, with more people locating in urban centres. As of 2001, eighty-five per cent of the British Columbia population was living in urban centres, up from eighty-two per cent in 1996 and eighty per cent in 1991. As the urban-rural split expands, the connection to and understanding of the natural environment is decreasing.

British Columbia is home to a large, culturally diverse and geographically dispersed First Nation population. Government has worked to strengthen relationships with First Nations, and is committed to finding new ways of working together.

Environmental Trends

At the global level there has been significant agriculture and forest degradation, and the ecological footprint of cities is increasing. Despite these trends, there is a growing surplus of wood in some regions and a general oversupply of forests as compared to demand.

Provincially, we are experiencing higher average temperatures, increased concern about water supplies, more severe fires, and epidemic insect infestations. As a result the pressure to manage our forests sustainably continues to be strong along with the need to consider our forest practices in response to possible long-term climate change.

The timber harvest in 2004 exceeded 80 million cubic metres — an increase of approximately 7.5 per cent from 2003, and five per cent above the five-year average harvest (see Figure 1 below). Although fluctuations in the annual harvest level are not unusual, the increase in the 2004 harvest level can be attributed to strong market prices for lumber, pulp and paper, and the salvage of fire and beetle killed wood.

Figure 1: Annual Timber Harvest (Crown and private lands), 1985-2004

B.C. is experiencing a mountain pine beetle epidemic. During the 2005/06 fiscal year the ministry will continue to work to facilitate the salvage of beetle killed wood, and to prevent the spread of Mountain Pine Beetle (MPB) in the B.C. Interior, as well as outside our borders through an agreement between Alberta and B.C., and with support from the federal government.

The widespread loss of lodgepole pine forest in B.C. due to the beetle epidemic is a long-term threat to the stability and economic well-being of Interior forest-dependent communities, and has serious implications for water tables, stream flow regulation, erosion, water quality, fisheries, forest fires and wildlife habitat.

Mitigating the impacts of this epidemic goes well beyond forestry-related activities or the scope of any one ministry. This prompted the development of a more comprehensive Mountain Pine Beetle Action Plan that provides a broader, longer term approach to direct other provincial ministries (Agriculture and Lands, Environment, Economic Development, Community Services, Aboriginal Relations and Reconciliation) and assist coordination between governments, industries and stakeholders. Starting in 2005/06 the Federal Government is contributing $100 M over three years, to assist the province in implementing the five-year action plan.

The MPB Action Plan sets out seven key objectives aimed at mitigating the social, economic and environmental consequences of the MPB infestation now and in the future:

• Ensuring long-term economic stability for communities;
• Maintaining and protecting public health, safety and infrastructure;
• Recovering the greatest value from dead timber before it burns or decays, while respecting other forest values;
• Conserving the long-term forest values identified in land use plans;
• Preventing or reduce damage to forests in areas that are susceptible but not yet experiencing epidemic infestations;
• Restoring the forest resources in areas affected by the epidemic; and
• Maintaining a project management structure that ensures co-ordinated and effective planning and implementation of mitigation measures.

Economics

Forest sector economics are currently dynamic with a lot of rapidly changing forces. In addition to changes in global markets and an increasingly competitive interior forest industry, the mountain pine beetle infestation and increased harvesting in the Interior is having a considerable impact on sellers in B.C. Access to the North American market for wood products continues to be essential for the B.C. economy. There is a need to find new ways to utilize and market beetle killed wood other than dimension lumber in Asia, U.S. and Canada, as well as alternative uses for chips and by-products.

Global Forest Industry

China, Eastern Europe and South America are playing an increasingly important role in the global forest industry as emerging suppliers and exporters with very competitive cost structures. China is rapidly expanding its wood processing capacity to meet its increasing domestic demand. Producers from Northern Europe continue to invest in the Russian wood products industry, and Russia is also emerging as one of the largest log exporters in the world.

Due to an improved Japanese economy, the value of exports to Japan increased and Japan continued to be the second largest export market for British Columbia forest products in 2004.

In 2004, world prices for lumber, pulp and paper significantly increased from 2003 prices; however the depreciation of the U.S. dollar against the Canadian dollar reduced returns for Canadian producers. European, Chilean, and New Zealand lumber exports to the U.S. continued to increase in 2004.

Consolidation

Consolidation is happening in almost every aspect of every commodity sector. Over the last several years there have been mergers and takeovers within the global forest industry, which have resulted in a consolidation of production as multinational companies continue to pursue lower unit costs. Within British Columbia recent changes include the Slocan-Canfor and Riverside-Lignum mergers in 2004, the West Fraser-Weldwood merger in early 2005, as well as the announcements of the Tolko-Riverside merger and Brascan's purchase of Weyerhaeuser's coastal timberlands in 2005. Despite recent mergers, B.C. companies are relatively small on a global scale which influences their ability to attract capital and to serve larger, more consolidated customers.

Prices

The B.C. forest industry's reliance on the export of their products into global markets makes commodity prices an important determinant of the sector's performance and health. On average, wood product commodity prices in 2004 were significantly above 2003 levels (see Table 1). As of June 2005, the 2005 year-to-date average commodity prices had fallen from 2004 levels for both solid wood products and pulp and paper however remained above 2003 levels.

Table 1. Commodity Prices

Exports

Although British Columbia's forest-based industries produced an array of wood products during 2004, the production of lumber, pulp and newsprint (see Figure 2) is expected to continue to dominate the industry in 2005.

Figure 2: Export by Forest Products

While forest product exports from British Columbia continue to be less than the five-year high that occurred during 2000, total B.C. forest product exports in 2004 were $15 billion, up 16.5 per cent from 2003. A large portion of the increase is attributable to increased efficiencies made by the forest industry which have reduced production costs allowing exports to the U.S. to be financially feasible despite softwood lumber duties and other costs. Softwood lumber typically accounts for over 40 per cent of total forest product exports (see Table 2).

Table 2: Total Forest Product and Softwood Lumber Export
(CAD $ billion)

The primary market for B.C. products continues to be the United States, which imported 65 per cent of British Columbia's total provincial forest product exports in 2004. Japan was the second largest destination for B.C. forest products in 2004 accounting for approximately 14 per cent of the total (see Figure 3).

Figure 3: B.C. Forest Product Exports by Major Market — 2004

Softwood Lumber

The current softwood lumber dispute between Canada and the U.S. commenced in April 2001. From May 22, 2002 to December 20, 2004 most Canadian softwood lumber exported to the U.S. was subject to a combined countervailing and anti-dumping duty of 27 per cent. As of December 20, 2004, the duty was reduced to 20 per cent.

Canadian federal and provincial governments and industry have been working to eliminate these duties, both through legal challenges under international trade rules, and through attempts to negotiate a long-term solution to the dispute. Despite several World Trade Organization (WTO) and North America Free Trade Agreement (NAFTA) rulings in Canada's favour, the U.S.-imposed duties on Canadian softwood lumber have yet to be eliminated.