Strategic Context

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. In British Columbia, less than 0.3 per cent of the forest is logged each year. In 2005, the B.C. timber harvest was 83 million cubic metres — about 1.8 per cent higher than the 2004 harvest and about nine per cent higher than the five-year average (see Figure 1). Fluctuations in the annual harvest level are not unusual. In the short term, harvest levels are expected to continue to be higher than historical averages due to the accelerated harvest of beetle-killed wood in the interior of the province.

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

The mountain pine beetle continues to devastate the mature pine forest in the interior of the province. The Ministry projects that 80 per cent of the merchantable pine in the province's central and southern interior could be killed by 2013 and more than half that pine could be dead by the summer of 2007. Lodgepole pine is a major feature of many ecosystems, making up more than half the interior's annual timber harvest, and is critical to the economic, social and cultural well-being of the province of B.C. The Province, the federal government, First Nations and communities are working closely together to effectively mitigate the impacts of the beetle infestation; however, mitigation will be an ongoing process over the next two or perhaps three decades.

Mitigating potential long-term environmental consequences in our forests due to climate change continues to be a key challenge at the provincial, national and international levels. Climate change will significantly affect forest and range ecosystems and the sectors and communities that rely on them. In B.C., climate change could increase forest and range productivity in certain areas of the province. However, it may also result in insect and disease outbreaks, forest-damaging events such as ice storms, floods and droughts, a shorter winter logging season and a longer fire season. It also has implications for rangelands, including wildlife habitat and the spread of invasive plants. In addition to supporting federally- and provincially-led mitigation strategies, the Ministry will be playing an active role by increasing knowledge and awareness of climate change through research and extension, examining reforestation policies to identify species and seed sources adapted to future climate projections, and providing leadership to the forest and range sectors in preparing for the impacts of climate change.

The environmental impacts of climate change on British Columbia rangelands will potentially have both positive and negative impacts. The loss of standing pine forest through direct impact of the beetle and/or associated salvage logging is expected to dramatically increase potential forage supply in the short term for both livestock and wildlife. Encroachment of forest onto grasslands now appears to be reversing in the dry forest grassland, expanding the potential forage supply in the long term. Restricted availability of water for livestock may be a hurdle in some areas, but with the reallocation of resources to manage the range resource, the opportunities for expanding the use of Crown range as a means of mitigating the forest-sector losses is a positive aspect of climate change.

As a result of global, national and local challenges, the ability to sustainably manage British Columbia's forests and range is becoming more complicated, as we move into the future.

World population continues to rise but the rate of natural population increase (births minus deaths) has slowed and the median age of the world's population is rising. In Canada, the population growth rate has surpassed the global average due to high rates of immigration. In British Columbia, partially due to the province's aging population, it is becoming increasingly difficult to attract and retain young skilled people in the forest industry. In addition to finding ways to replace retiring employees with qualified workers, the need to effectively transfer knowledge and expertise from more experienced employees to younger co-workers will continue to increase.

The ranching sector also reports similar difficulties in attracting labour, but business succession is the primary concern as fewer young people are indicating a willingness to take over the family farm or ranch, or take the significant financial risk of investing in a ranch.

Decreasing enrolment in post-secondary forestry programs, which has been in a notable decline for several years, is also complicating the ability to recruit qualified workers into the forest sector. In addition, the majority of students who pursue an 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. The urgency to address declining enrolment is increasing, especially as the role of forestry professionals, and society's expectations of them, grows. In response, the Ministry is working with other agencies and educational institutions on a recruitment strategy.

The population of British Columbia includes large, culturally diverse and geographically dispersed First Nations populations. Many Aboriginal communities are located in forested areas and have active land claims in place for ownership of land allocated for forestry activity. 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.

To reduce the number of deaths and serious injuries in the forest industry the Ministry of Forests and Range, the Ministry of Labour and Citizens' Services, the BC Forest Safety Council and Worksafe BC are aggressively moving forward on new joint safety initiatives. These include: a review of legislation, regulation and policy to identify gaps and potential improvements from a safety perspective; the development of a Memorandum of Understanding between the Ministry and Worksafe BC; and the development of a SAFE Companies standard by the BC Forest Safety Council, to be piloted with BC Timber Sales. This standard will allow forest sector companies to show, by way of an independent audit, that they meet certain benchmark safety criteria.

The economic circumstances of the B.C. forest industry are continually changing as a result of many factors including: global competition for market share; the implementation of the Softwood Lumber Agreement between Canada and the U.S.; continued consolidation within the sector; reduced demand and declining commodity prices; the strong value of the Canadian dollar against the US dollar; aging capital investments and low returns on capital.

The economic circumstances in the ranching sector are similarly difficult as the lower US dollar affects the value of Canadian beef exports, thereby putting downward pressure on the price of feeder cattle shipped out of B.C. to Alberta and beyond. Trade restrictions on the export of mature cattle related to the occurrence of BSE¹ in Canada are particularly hard on the cow-calf sector, which is the primary component of the B.C. beef sector making use of Crown rangelands.

World competition in the global forest industry is increasing and returns are tight. Many countries are emerging as potential customers of B.C. forest products (e.g., China, India and Indonesia) while others are becoming strong competitors (e.g., China, Russia, European countries and Brazil). Given that approximately 80 per cent of the sales by the B.C. forest industry continue to be destined for non-Canadian markets, there will be continuous pressure to maintain and improve the forest sector's competitiveness. This pressure is intensified by the relatively low returns available in the sector. PricewaterhouseCoopers, in their global survey estimates that the average return on capital employed (ROCE) for major forest, paper and packaging companies was 4.5 per cent in 2005. For listed Canadian companies, nearly half of which are based in B.C., the average return on capital employed was 2.5 per cent. These returns are expected to be lower in 2006 given weaker forest product markets.

In September 2006 an agreement was signed between Canada and the U.S. to end the trade dispute over softwood lumber. The agreement took effect on October 12, 2006 and has a term of seven years. As a result of the agreement, B.C. forest products are no longer subject to U.S. countervailing and anti-dumping duties; however, a border measure is imposed when lumber prices fall below $355 per thousand board feet. Unlike the countervailing and anti-dumping duties, funds collected as a result of the border measure will remain in Canada.

In 2006 lumber prices continued to trend downwards (see Table 1). In 2007 lumber prices are anticipated to remain low as a result of reductions in U.S. lumber consumption due to a decline in housing starts, rising interest rates and higher energy prices. The price of hemlock baby squares, a key coastal lumber product used in the construction of traditional post and beam Japanese houses, remained steady in 2006 (see Table 1). In 2007, average prices for hemlock baby squares are expected to rise slightly to an average price of US$610 per thousand board feet.

Table 1: Commodity Prices

Pulp and paper prices rose throughout 2006 and are forecast to remain strong through 2007 (see Table 1). Despite the strong prices, the B.C. pulp and paper industry will continue to struggle to remain profitable due to its aging capital, the relatively small size of the industry in comparison to international competitors, competition from different types of pulp, 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.

Throughout 2006 the Canadian dollar was strong against the US dollar peaking at over 91 US cents in May. The 2006 provincial budget forecast an exchange rate of 85.2 US cents for 2007. While this is lower than the May peak, the prediction means that the Canadian dollar is expected to remain strong throughout 2007. The strong Canadian dollar will continue to impact the B.C. forest industry by increasing the relative cost of production in B.C., and reducing B.C. companies' profits as most forest products are sold in US dollars.

A key strength of the Forest Service continues to be dedicated staff with a commitment to the careful and thoughtful management of British Columbia's forests and range resources. The loss of expertise through retirements and the challenge to attract new recruits will continue to impact the Ministry. To address this recruitment issue and other human resource challenges including knowledge transfer, the Ministry is working to implement a comprehensive human resources strategy to better position the Ministry to address the trends affecting our workforce in the short and long term.

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.

While recent market-based policy changes and the implementation of results-based approaches have benefited the sector, the mountain pine beetle infestation, struggling coastal and pulp and paper industries, and international market forces all continue to challenge the B.C. forest sector. In 2007/08, the Ministry will continue implementing the policy changes associated with the Forestry Revitalization Plan and the Forest and Range Practices Act while working to develop a new relationship with First Nations. The Ministry will also: continue to deal with the impacts of the mountain pine beetle epidemic; implement the Softwood Lumber Agreement; work to improve safety in the forest industry; work closely with First Nations to increase their participation in the forest sector; and ensure that our forest management practices mitigate climate change impacts and fuel-management concerns.