Strategic Context

Environmental Trends

The total amount of forest area in the world continues to decrease due to deforestation. Despite this trend, nearly every major forested region of the world is growing more wood than it can use annually. In British Columbia, the 2004 timber harvest was about 80 million cubic metres — five per cent above the average five-year harvest (see Figure 1). Although fluctuations in the annual harvest level are not unusual, the recent increase is attributed to strong market prices and the salvage of fire and beetle-killed wood.

In early 2005 the International Kyoto Protocol came into force. Under the terms of the protocol, Canada, along with 38 other countries, committed to reducing carbon dioxide emissions. The protocol discusses long term storage of carbon in growing forests as a potential contribution to countries meeting Kyoto targets; however it is not yet clear how it may apply to our managed forests.

Locally, British Columbia continues to face a number of ongoing environmental challenges including higher average temperatures, increased concern about water supplies and air quality, more severe fires, and epidemic insect infestations. Currently, a Mountain Pine Beetle infestation is devastating the mature pine forest in Interior B.C. In addition to threatening the stability and 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. Mitigation of the impacts of the epidemic is addressed in a comprehensive Mountain Pine Beetle Action Plan, described in Appendix 2.

As a result of global, national and local challenges the pressure and need to sustainably manage British Columbia’s forests will become even stronger as we more forward into the future.

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

Social Trends

The population in Canada is aging as a result of increased life expectancy and lower birth rates. In relation to the aging population, the forest industry in British Columbia and all across Canada is facing challenges attracting and retaining young skilled people — a problem which may become worse as older workers retire¹.

The location of B.C.’s population is also changing with more people locating in urban centres. As of 2001, 85 per cent of the British Columbia population was living in urban centres, an increase of five per cent since 1991. As the urban-rural split expands, the connection to and understanding of the natural environment may become a challenge. This may be a symptom of why post-secondary enrollment in forestry programs has been declining over the last several years. The ministry is working with other agencies and educational institutions on a recruitment strategy including having the office of the Chief Forester located at the University of Northern British Columbia.

The population of British Columbia includes a large, culturally diverse and geographically dispersed First Nation population. The provincial government has committed to build a new relationship with First Nations in B.C. and to help ensure the strategic vision and goals set for all British Columbians are achieved for Aboriginal British Columbians. The new relationship is based on respect, recognition of Aboriginal rights and title, and reconciliation.

1	Performance and Potential 2005-06 — The World and Canada: Trends Reshaping our Future, Conference Board of Canada, 2005.

Economic Trends

The economic circumstances and condition of the B.C. forest industry is continually changing due to a number of factors including global competition for market share, duties on lumber to the U.S., fluctuations in commodity prices, the value of the Canadian dollar against the U.S. dollar, aging capital investments and low returns on capital.

• World competition is growing. 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., Russia, Europe and Brazil) of B.C. forest products.
• The trade dispute between Canada and the U.S. over softwood lumber is ongoing. In B.C. we continue to look for policy solutions to help bring resolution to the dispute. In the meantime, while B.C. maintains its 18 per cent U.S. market share, the U.S. market share of other countries is beginning to grow. Despite the dispute, the U.S. continues to be the primary market for B.C. forest products, as 65 per cent of British Columbia’s total provincial forest product was exported to the U.S. in 2004.
• Lumber prices were relatively strong throughout 2005 (see table 1) however prices are anticipated to deteriorate in 2006 which will affect the B.C. forest industry’s ability to offset softwood lumber duties and other costs.
• Although pulp and paper prices remained strong in 2005 (see table 1), the B.C. pulp and paper industry struggles 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 November 2005. Source: Madison’s Canadian Lumber.

• Throughout 2005 the Canadian dollar continued to rise against the U.S. dollar and as of November was just below 86 U.S. cents. 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.
• Although B.C. sawmills are considered to be some of the largest and most efficient in the world, the financial performance of the forest industry is threatened by its low return on capital. The situation is worse on the Coast where the average return on cost of capital is half of the B.C. average. The coastal industry is faced with high fibre costs, loss of markets and lack of capital investment. Much has already been done through forest policy changes, and the government continues to explore new ways to work with the coastal forest industry to explore new markets and streamline regulations.

Internal Trends and Capacity

A key strength of the Forest Service continues to be dedicated staff with a commitment to finding solutions to the many forest sector challenges. The loss of expertise through retirements and the challenge to attract new recruits will also impact the ministry. A further key strength of the ministry is improved efficiency of service delivery through adoption of e-business. However, a related challenge is to keep current with technology as demand builds on ministry systems.

Key Strategic Issues

Recent market based policy changes, the Mountain Pine Beetle infestation, a struggling coastal and pulp and paper industry, international market forces and fostering the development of a new relationship with First Nations all continue to challenge the B.C. forest sector. In 2006/07, 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 deal with the impacts of the Mountain Pine Beetle epidemic, address the softwood lumber dispute, work to improve safety in the forest industry, work closely with First Nations to increase their participation in the forest sector, and consider our forest management practices in light of fuel management and mitigation of climate change impacts. Forestry is a cyclical industry and despite the current challenges it is anticipated that the forest sector will continue to contribute positively to the province’s economy. The forest products exports make up 45–48 per cent of the province’s exports.