Softwood goes deeper than just lumber

Small logs on the winter roads

Reading more about what the experts from both sides of the border are saying about the Softwood Lumber Agreement (SLA) I see common threads.  If you read the Canadian take, you see that governments of Canada, Provinces, in particular, are doing whatever they can to support their mills.  This is evidenced by Quebec Premier Phillipe Couillard stating that the provincial government is prepared to provide Canadian lumber companies with loan guarantees.  I don’t fault them.  Actually, I think it’s great.  They should support them.   One thing I don’t hear is the empathy for similar situations that have been going on in communities on the south side of the political line.

Mill towns in the US have gone out of business and auctioned off while Canadian Producers invested in the US South.  This is an interesting dynamic, but a topic for another day.  The fact remains that Canadian lumber companies continue to enjoy a supply of logs from government sources, while US counterparts that are in areas with a high density of federally owned timberland continue to die off.  This has far-reaching consequences for the US Forest Service and other land managers that no longer have markets to sell their logs.  That brings me to a question, why can’t mills positioned near the Canadian border compete for logs that are in Canada?  Now that the Canadian system is more market-based, shouldn’t logs be free to cross the border like lumber?

The rules are a one-way street and certainly don’t seem to follow the same “Free Trade” spirit that is expected for lumber.  My experience is with British Columbia, but it is my understanding that similar things are in place in other provinces as well.  There are really two types of log sources in Canada.  Government logs (Forest Licenses or Timber Sales) and privately owned timberlands.  If the owner of these logs would like to sell (export) these logs outside Canada, there is a process by which the logs or timber needs to be advertised to local mills.  If a mill wants to block that export, they can.  This essentially means the logs must be sold into the local market, even if the prices are higher elsewhere.  There is an appeal process, but it’s long and the chances winning are slim.  I don’t think there’s any issue here with the government logs, however, why should private landowners be held hostage by their local market. The United States has no process for preventing privately owned logs from freely going into Canada.  To be fair, all US Forest Service timber is export prohibited.

Chips being moved on the water

Blocking isn’t just for logs.  The same applies for other wood by-products in Canada.  Again, my experience is with British Columbia so other areas may differ.  This restriction on by-products actually puts sawmills the produce these by-products at a disadvantage.  It essentially keeps all wood chips, sawdust, shavings, and hog fuel (bark) in Canada unless it is determined that there is a surplus.  This same process does not exist for products going north.  A pulp and paper mill in Canada can buy all other wood by-products within Canada and the US that it can afford, however, US pulp and paper mills cannot freely buy those same products in Canada.  They are held within Canada creating a market discrepancy that can put Canadian sawmillers at a disadvantage with American mills that can freely sell either side of the border.

It’s important to understand that these issues go much deeper than just lumber prices in the US and how much the Canadian softwood producers ship into the US market.  Currency is a big driver, but with raw material availability and cost driving mill profitability, logs cannot be overlooked.  This has been and will continue to be a North American market.

Our place in the world

We need to find ways to make that work for everyone so we can continue to provide reasonably priced forest products to builders and consumers.  If we simply enforce a duty or quota, winners and losers will be created.  Maybe it’s Pollyanna of me to think there is a better way, but I think there must be.  A solution where North American producers share in the good markets with unconstrained trade, yet limit the down markets by preventing long market depressions.  The graduated quota system that was in place for BC softwood producers worked well much of the time, however adding a currency data point would help keep the playing field level.  If a new system can be put in place that is fair while the US government gets back in the business of sustainably managing federal lands, there shouldn’t be many squeaky wheels.

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