Atlantic Forestry January 2018

Uncertainty abounds
Heading into 2018, New Brunswick wood markets are in turmoil

by David Palmer
    It looks like one great big mess in New Brunswick’s forest industry these days. The marketing board system lies in ruins after a ruling from the provincial Forest Products Commission; punitive softwood lumber tariffs have been imposed against New Brunswick sawmills; the Doaktown sawmill project promised by J.D. Irving has been postponed again due to market uncertainty; and the Auditor General’s report on the market system in New Brunswick is under attack and will be reviewed by an “independent” consultant. All this is taking place at a time when lumber and paper prices are at an all-time high and there should be enough money to go around for everybody to prosper and smile a little.  
    As the new year rolls in, countervailing duties, which had been suspended pending a final ruling, will resume. To nobody’s surprise, the U.S. International Trade Commission (ITC) confirmed the U.S. Department of Commerce’s final ruling in a unanimous decision made on Dec. 18, 2017. The duties, set to take effect soon after the ruling, will be levied against New Brunswick sawmills at a rate of 9.92 percent for Irving mills and 20.83 percent for all other mills. Softwood lumber products from Nova Scotia, P.E.I., and Newfoundland and Labrador mills will be excluded from the duties, provided that the lumber produced from those mills comes from logs harvested in those provinces.  
    New Brunswick, which used to be part of the Maritime exclusion, lost its special status because the U.S. Coalition for Fair Lumber Imports specifically targeted New Brunswick. In its brief to Commerce, the Coalition pointed to reports produced by New Brunswick’s Auditor General that examined the relationship between supply and demand for forest products in the province. The AG had concluded, “The fact that the mills directly or indirectly control so much of the source of timber supply in New Brunswick means that the market is not truly an open market.”
    This is the view every woodlot owner has held for a long time. In fact, it was the same conclusion reached by forest economist David Lutz in 2004, when he did an investigation of New Brunswick market conditions for the Coalition. The province narrowly avoided losing its special status at that time. Industry’s response to the implementation of tariffs, and to the AG’s report, has been to insist that nothing has changed since the previous Softwood Lumber Agreement (SLA), which exempted New Brunswick from duties, was signed in 2006 – and to demand that the government review the AG’s report, which they blame for the loss of their special status. 
    Ceding to industry demands, the government has agreed to undertake a review of the AG’s work, while the AG is standing by her conclusions. In a CBC interview, Trade Minister Roger Melanson was very careful not to say that the province didn’t have confidence in the office of the AG, yet insisted – contrary to the AG’s report – that there continues to be a fair and open market for private wood in the province. 
    New Brunswick continues to pay $40,000 a month to David Wilkins, the former U.S. ambassador to Canada, to represent the province in Washington on the lumber trade file. So far, this effort has produced no positive result. Now the province is going to spend more money by hiring an as-yet-unnamed “independent” consultant to review the very credible work of the AG. You can bet that a short list of candidates has been provided to government by industry, and you can also bet that the Coalition knows this.  
    We’re not dealing with fools here; Zoltan van Heyningen, the Coalition’s executive director, is an extremely capable and intelligent man who knows the Maritime lumber file well. In 2013, as an invited speaker at the annual meeting of the Maritime Lumber Bureau, he warned that if the proportion of Crown wood supply were to rise above 50 percent, red lights would start flashing in the Coalition’s office. Apparently, nobody was listening. Today that number has inched up to 55 percent in New Brunswick.

    There are two possible outcomes to the review. One is that the consultant concludes there is a “fair and open market” for private wood in New Brunswick. This seems to be the result that industry is expecting. If this happens, it won’t change a thing. When presented with these findings by the New Brunswick government, the U.S. Department of Commerce will hand off the report to the Coalition for comment, and the Coalition will respond that in their opinion the AG has more credibility. Tariffs will continue.
    The second possible outcome is that the consultant will agree with the Auditor General. What then? Will there be a hue and cry to discredit the consultant, or will some lights come on in places where they haven’t shone before? Perhaps the consultant could be retained to recommend measures that could be implemented to restore a fair and open market. It won’t be an easy task. Since the last SLA was signed, there have been many changes that further concentrate market and supply balance in the hands of industry. The number of sawmills in the province has declined, and the province’s 2014 Forestry Plan, which practically enshrines a long-term over-supply of softwood timber, makes matters worse.

    To muddy the waters further, a recent ruling by the New Brunswick Forest Products Commission (FPC), striking down an order by the Southern New Brunswick Forest Products Marketing Board that required all private wood in its region to be marketed through the Board, raises serious doubts about the future of marketing boards. If the marketing boards fail, there will never be a fair market system. Prior to the FPC decision, woodlot owner and longtime marketing board supporter James McCrea, of Shannon, N.B., called upon the government to help marketing boards defend themselves against the Irving-led legal challenges. After the decision, Fredericton South MLA David Coon (who is leader of the provincial Green Party) demanded to know why the government hadn’t stepped in to support woodlot owners. When Minister Rick Doucet responded by saying, “It’s about time we started to stand up for the mills in this province,” the Liberal caucus burst into cheers. You could be forgiven for thinking the MLAs were celebrating the demise of woodlot owner organizations.  
    Even former Minister Alan Graham – who was at the helm of the Department of Natural Resources when the marketing boards lost “primary supply” and had their negotiating powers taken away by the McKenna government back in 1992 – thinks the pendulum has swung too far. “Woodlot owners still need the protection of marketing boards,” he said. “It’s not the free market JDI claims.” He added, “I’m not calling for a Royal Commission or anything like that, but I think there should be…an overall look at access to wood and the marketing of wood going into the 2020s and beyond.”

    Since New Brunswick is going to pay a consultant to look at the system, which many consider to be broken, maybe the consultant should stick around a bit longer and try to fix it. While they’re at it, they ought to take a sober second look at the Forestry Plan, which – after Irving’s most recent postponement of a key element, the building of a new pine sawmill in Doaktown – appears to be in danger of coming apart. The reason for the postponement, according to Irving, was uncertainty about market conditions due to the lumber tariffs. The company has said its commitment to the new mill remains “firm,” pending the outcome of the softwood dispute and “market conditions.” The announcement kicked off a fiery tit-for-tat exchange between MLA Jake Stewart and Jim Irving, with some mayors from the region siding with Irving and others with Stewart. 
    But it was former PC Finance Minister Norm Betts who had the final word for 2017 on the Doaktown mill deal. Betts was chair of a Committee on Wood Supply that recommended industry be given a more predictable Crown timber supply in 2011, and he was present when the timber guarantees were signed in 2014. “Industry promised to deal with the uncertainties of the market if the province dealt with wood supply,” he said.   
    As for the marketing of private wood, the FPC has said that the companies can continue to bypass marketing boards and sign direct contracts, but it affirmed the right of marketing boards to regulate the sale of private wood, and promised to bring in some rules in the spring to outline how that regulation will be framed. In the meantime, while SNB still has no contract, JDI is negotiating with other marketing boards for a portion of the total amount of wood that they contract in the respective regions.