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Logging Costs Skyrocketing in BC

An Independent study reports a staggering 75 percent hike in logging costs in BC - in just five years - mostly due to the Forest Practices code. Will the Government Act.

By John Clarke
Copyright 1997. Contact publisher for permission to use.

For the first time an independent study has documented an incredible increase in BC logging costs over the last five years. The study has laid most of the blame for the rise on the province's controversial Forest Practices Code, and it is likely to force the NDP government of Premier Glen Clark to make more changes than it plans or wants.

Overall logging costs rose by a staggering $37.17 per cubic metre or about 75 per cent. Once "other" costs are added in the total increase is closer to 77 per cent. Stumpage accounts for $16.55 per cubic metre, including a super stumpage charge to finance reforestation through the province's other controversial initiative, Forest Renewal BC. The remaining $20.62 comprises $12.22 from "Code-related cost drivers" and $8.40 from general rate increases, inflation, land-use changes and tenure administration.

Of that $12.22 in Code-related items, 63 per cent or $7.70 is the cost of conforming to the Code's actual logging standards and $4.52 (37 per cent) represents the cost of planning and administering a Code the NDP likes to call the most advanced in the world.

What does it all add up to? Last year, the giant accounting firm Price Waterhouse estimated a rise of $1 billion in logging costs from 1992 to 1995, attributable to the Code. The Clark government hated that report because it came from a study commissioned by the industry and the number came as a dramatic surprise to Victoria.

The government is on the hook with this new report. It commissioned the study itself because it wanted independent numbers. It now has them and they will be difficult to dispute. The exhaustive study was done by KPMG, Perrin, Thoreau and Associates, and H.A. Simons, all highly reputable firms. Forests Minister David Zirnhelt has taken some solace that the report puts the delivered wood cost increases somewhat below industry claims - a point the industry disputes. But he otherwise can't argue with his own figures and he has conceded that something has to be done. The trouble is-what? The US Coalition for Fair Lumber Imports warns it will press for a new countervail if Victoria tinkers with stumpage rates or changes in logging standards to ease costs - in an attempt to create the 21,000 new forestry jobs that Clark has promised by the year 2000. The Coalition says these changes could be regarded as subsidies and would thus violate the Canada-US Softwood Lumber Export Agreement.

That leaves planning and administration as the place where changes can be made, although opinion is beginning to harden in industry backrooms that the standards themselves will also have to be revisited.

The report says: "Increased planning requirements in the form of additional plans, amendments to approved plans, various assessments and increased inventory requirements are the largest cost driver in planning and administration and the largest of all Code-related cost drivers. Increased planning accounts for $2.57 per cubic metre province-wide and $5.75 per cubic metre on the coast.

"Administrative delays in the approval process for operational plans, cutting permit applications, road and other permit applications increase costs because resulting reduction in standing timber inventories reduces flexibility and results in operational inefficiency in a number of logging phases.

"The penalty systems component of the Code causes cost increases through company training and due diligence activities put in place to reduce the risk of enforcement actions under the Code as well as overly conservative practices undertaken to ensure compliance."

Translated, this means just one thing: the BC Forest Practices Code is a bureaucratic monstrosity.

There is some room for ration- alization but how much may depend on the prescribed practices themselves. That's because the practices are governed by the planning process and one can hardly be changed without affecting the other. For instance, the study found that the "most significant cost driver in logging operations are cut-block size, road and landing requirements, soil conservation and green-up." (Green-up limits logging in some areas depending on tree height.) Planning costs for roads can't be easily shaved unless bigger cut blocks are allowed.

Industry officials are sensitive about commenting too directly on the report. They've been negotiating with the government for a way out of the mess. But they say enough for the record to show they don't believe a solution to bureaucratic planning problems will suffice alone.

The Code prescribes smaller cut blocks to minimize environmental damage and landscape scarring. But, says one company executive, no one has yet been able to show scientifically that there is any gain environmentally from smaller blocks. The industry argues that larger blocks are economically and environmentally more defensible.

With smaller blocks there must be more roads. With more roadbuilding there is a higher blow-down hazard. On this one issue alone the Code actually raises environmental risk by opening up more areas to potential landscape disturbance.

The report says: "Increases in road expenses were the result of more staff time spent attending on-site inspections with government agency staff in advance of road approval ... Administrative delays in road approvals resulted in inefficient use of roadbuilding equipment and work disruptions where more than one logging phase was forced into the same area.

Administrative delays sometimes forced operators to reschedule construction projects outside of optimal seasonal windows."

Visual Quality Objectives as outlined in the Code also have great potential to push up costs. The idea is to preserve wilderness vistas as much as possible, even in intensive logging areas. The report says: "On a provincial basis Visual Quality Objectives can be expected to have more impact over time since a number of operators have tended to avoid these higher cost areas while alternative areas are available. However, as constraints in other areas force companies to operate in visually sensitive areas in order to achieve harvest obligations, the costs associated with this driver are expected to increase."

As it stands now the Code generates an enormous amount of paperwork - 650,000 pages a year, according to estimates by the Council of Forest Industries. Individual logging plans can take upwards of 2,000 pages, which take a long time to prepare and as long to read. All this paper flow creates a grid lock and a grid lock makes it impossible to log anywhere efficiently.

It leads to lurch logging - hopping from one plan to another haphazardly and back-and-forthing with the Forests Ministry as plans get rejected and have to be reworked and resubmitted. Industry sources estimate lurch-logging adds about $10 a cubic metre to logging costs. The chances are just about nil of getting rid of it without radical changes in the Code. The potential for huge consequences from the decisions they face make registered professional foresters in the Ministry very nervous. They tend to ask for more clarification. Plans get sent back and time is endlessly wasted.

"When you have foresters in the government and the operating companies tied up at their desks and pushing paper, you don't have them out in the field where they should be," says one company official. "It's the wrong alloction of time. Company and government foresters can make decisions quicker and better if they're out in the field together instead of being chained to their separate desks."

What the industry wants is a two-year backlog of permits so it can get ahead with some practical advance planning instead of writing 2,000-page applications. How much change Zirnhelt will be able to bring to the Code is very much open to question. Hemmed in by highly sophisticated environmental lobbies, the belligerent coalition of American lumber producers, the perceived expectations of 'green' voters, and strong element within the party itself that would resist any Code 'backsliding,' there is not much room to move.

Forestry is still the biggest employer and the single biggest contributor to tax revenue in BC. Sales rose from $11 billion in 1992 to $18 billion in 1995 before falling back to $16 billion last year. Return on capital investment, 4.5 per cent a year between 1992 and 1995 according to the report, almost disappeared to 0.2 per cent last year. In the previous decade the return was 7.6 per cent.

As the report says, "it is clear that one of the most significant factors has been the substantial increase in delivered wood costs."

Unplugging the bureaucracy is not likely to be a good enough solution. Government and industry are putting a lot of faith in the idea of moving from a process-driven to a performance-based system. Operators would go ahead and log according to their own interpretations of the Code and then be audited to see if they're doing it right. But this report underlines how difficult that will be without at least some changes to the Code itself.


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