Part A: Ministry of Forests and Range — Continued

Strategic Context

Environmental Trends

Globally the total amount of forest area continues to decrease, but the rate of loss is slowing due to activities such as forest planting and natural expansion of forests on abandoned land. In Canada, there has been no significant change in the total forest area over the last 15 years. Less than one per cent of the forest is logged each year in British Columbia. In 2005 the B.C. timber harvest was 83 million cubic metres — about 1.8 per cent higher than the 2004 harvest and about 9 per cent higher than the five-year average (see Figure 1). Although fluctuations in the annual harvest level are not unusual, the recent increase is attributed to salvage of beetle-killed wood.

Figure 1: B.C. Coast and Interior Annual Timber Harvest 1995 – 2005

The mountain pine beetle infestation continues to devastate the mature pine forest in the Interior of B.C. As of summer 2005, more than 400 million cubic metres of the pine in the Interior of B.C. had been killed. In addition to threatening the economic well-being of First Nations and Interior forest-dependent communities, the beetle epidemic has serious implications for water tables, stream flow regulation, erosion, water quality, fisheries, forest fires and wildlife habitat.

In February 2005 the Kyoto Protocol for addressing global climate change came into force. As a part of this protocol Canada committed to reducing its greenhouse gas emissions by 270 megatonnes by 2012. In advance of the protocol coming into force B.C. established a plan to guide the province's approach to address climate change. The plan's target is to maintain the province's ranking of third-lowest per-capita greenhouse gas emissions. In connection with these plans the B.C. Ministry of Forests and Range established a Climate Change Task Team in June of 2005 to consider the ministry's role in mitigating the risks of future climate change on the province's forest and range resources.

Social Trends

World population continues to increase, however, the natural increase (births minus deaths) in population has slowed resulting in a rise in the average age of populations. In Canada the population growth rate has surpassed the global average due to high rates of immigration into the country. In British Columbia, as a result of the aging population, it is becoming increasingly difficult to attract and retain young skilled people in the forest industry — a problem which may become worse as older workers retire.

Enrollment in post-secondary forestry programs has been notably declining for several years and the majority of students who pursue advanced education in forestry now come from urban and suburban areas. As a result, few students are entering forestry programs with a practical understanding of forestry. In response the ministry has initiated work with other agencies and educational institutions on a recruitment strategy.

The population of British Columbia includes a large, culturally diverse and geographically dispersed First Nation population. Since 2001, the Province has been working with First Nations to provide economic growth and opportunities, especially in traditional areas like forestry. Government is committed to strengthening relationships with First Nations based on reconciliation, recognition and constructive consultation on social and economic issues.

Economic Trends

After a boom year, in 2004, B.C.'s forest sector faced many challenges in 2005, due to a number of factors including global competition for market share, the prolonged effect of the counter­vailing and anti-dumping duties on lumber to the U.S., declining commodity prices, the rising value of the Canadian dollar against the U.S. dollar, aging capital, and low returns on capital.

World competition in the global forest industry continued to grow in 2005. Many countries are playing an increasingly important role in the global forest industry as potential customers (e.g., China, India and Indonesia) and competitors (e.g., China, Russia, Europe and Brazil) of B.C. forest products.

Within Canada there were fewer sawmills producing more lumber as companies pushed to reduce costs by closing older, inefficient sawmills and expanding production at new, state of the art, lower-cost mills. In 2005 the 10 largest Canadian companies increased production per sawmill over 2004 levels by an average of 14 per cent.

The softwood lumber trade dispute between Canada and the U.S. continued throughout 2005 with a number of North American Free Trade Agreement and the World Trade Organization legal challenges. Efforts towards reaching a negotiated agreement were unsuccessful in 2005; however a tentative framework agreement was reached between the U.S. and Canada in April 2006.

In 2005 lumber prices continued to trend downwards (see Table 1). The decline in lumber prices, coupled with high log costs, resulted in some British Columbia coastal mills being forced to impose curtailments, or close permanently. In the Interior, despite the declining prices, lumber production rose in 2005 due to the availability of large volumes of beetle killed wood.

Pulp and paper prices rose throughout 2005 and remained strong in the first quarter of 2006 (see Table 1). However the B.C. pulp and paper industry continued to struggle to remain profitable due to its aging capital, the relative size of the industry in comparison to international competitors, competition from non-wood pulp and technological alternatives to paper, as well as rising energy costs. Due to the interconnectedness between the pulp and paper and lumber industries, the strength of the pulp and paper industry is an important factor in the health of the entire B.C. forest industry.

Table 1: Commodity Prices

*	YTD Average as of April 2006. Source: Madison's Lumber Reporter.
Source: Madison's Lumber Reporter.

 

The Canadian dollar continued to rise against the U.S. dollar averaging at 86.6 U.S. cents during the first quarter of 2006. The rising Canadian dollar has had multiple impacts on the B.C. forest industry including increasing the relative cost of production in B.C., and reducing B.C. companies' profits as most forest products are sold in U.S. dollars. The strong Canadian dollar has also made it relatively cheaper for Canadian firms to buy assets in the U.S. In 2005, West Fraser, Interfor and Canfor all acquired sawmills in the U.S.

Internal Trends

The key factor in the success of the ministry's service delivery in 2005/06 is the ministry's dedicated staff committed to finding solutions to the many forest sector challenges. A further key strength of the ministry is its efforts to improve efficiency of service delivery through adoption of e business. However, it remains a challenge to keep current with technology while addressing the demand on internal ministry systems. Most other internal factors that have affected the ministry over the past year have been directly related to the external factors described in the previous section. For example, the spread of the mountain pine beetle has focused resources towards issuing licences and reviewing timber supply in affected areas at the risk of attention to other areas. However, this infestation has promoted a review of policies and guidelines associated with future forests that could help avoid future outbreaks and benefit from the affects of climate change.

Linkage to the Five Great Goals

Government's goal to "Lead the world in sustainable environmental management, with the best air and water quality, and the best fisheries management, bar none," was directly supported by the ministry's new reforestation initiatives (Forests for Tomorrow), implementation of performance-based regulation, the new Wildfire Act and the Mountain Pine Beetle Action Plan. This included a significant role in supporting the Ministry of Aboriginal Relations and Reconciliation in treaty negotiations, furthering the New Relationship and assisting First Nations to become active participants in the forest sector through negotiation of Forest and Range agreements. The ministry also worked with the Ministry of Environment, Ministry of Agriculture and Lands and the Integrated Land Management Bureau on cross-ministry initiatives in support of sustainable environmental management.

The ministry directly supported the Government's goal to "Create more jobs per capita than anywhere in Canada," by working to maintain a competitive forest industry, complete market pricing reform, improve market access through trade negotiations and new markets in Asia and support rural job creation for First Nations and communities. A significant component of creating jobs in 2005/06 was working to address the socio-economic impacts of the mountain pine beetle infestation on communities. This is done in partnership with other government agencies.