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Open the timber market to save Ontario’s forest industry

By Anne Koven, Tom Clark, and Jeremy Williams The Canadian forest sector is enduring its most difficult period since the 1930s.

By Anne Koven, Tom Clark, and Jeremy Williams

The Canadian forest sector is enduring its most difficult period since the 1930s. In Ontario, harvest levels have plunged by 50 per cent, many mills have closed, and major companies are in receivership or are in a weakened financial state. A recovering economy will provide some rebound, but the recession has exposed years of accumulated structural weaknesses.

By contrast, four of the 10 largest global forest products companies are based in Scandinavia, which has less forest than Ontario’s 26 million hectares. It is not the forest resource that has held us back.

Contributing to this poor performance is forest tenure, the system for licensing provincial forests for harvest. The shortcomings of the current tenure system include inflexibility; high level of government control over which mills process which wood; and lack of available timber for new companies, including Aboriginal entities.

The current system also leads licensees to view the forest as a cost centre, and greater competitive pressures in recent years have combined with reduced harvests to create “unfunded silvicultural liabilities” or renewal funding shortfalls on many forests.

To its credit, the Ontario government has recognized the shortcomings of the present system and last year launched a full-scale review. On April 30, 2010, the provincial government released its proposed overhaul. If it proceeds, this proposal will lead to the most significant change in who manages Ontario’s forests since the early 20th century.

The government has it right with its proposal to create new local forest management corporations (LFMCs) and empower them to plan and manage the forests, thereby shifting this responsibility away from forest products companies. Separating the mill owners from the business of managing the forest will allow them to focus on their core manufacturing role and create opportunity for new enterprises and existing producers who wish to expand.

The government’s proposal also allows LFMCs to sell the timber from the forests they manage and rightly emphasizes that the governance of the LFMCs is critical for their success; they should be overseen by a board with strong local participation. The proposal goes too far in prohibiting forest company representation on LFMC boards; industry can bring important knowledge to the LFMC but should not be in a position to dominate board decision-making.

Despite the positive changes proposed, there is risk that the LFMCs may come to resemble wood marketing boards rather than companies seeking to optimize their sustainable, long-term return. The board selection process must be designed so that local communities and business are meaningful participants.

Board membership should not become a patronage opportunity and must be more flexible than having “designated” positions for local community and Aboriginal people. The coalitions of communities and First Nations that have developed across the North are a potential nucleus of an LFMC.

A key reform that the LFMC structure makes possible is the creation of a timber market; LFMCs must be able to sell wood by long- and short-term contract, spot sales, and auction. This function is absent in the current system. Besides enabling wood to be used by the most deserving enterprises, developing a market would undermine the central contention of the United States’ timber lobby that timber is not sold at a fair price. Escaping from the countervailing duties and export taxes inflicted by the infamous “softwood lumber dispute” would be a major benefit.

The government is proposing that between five and 15 LFMCs be created across Ontario. We suggest that 20 to 25 is optimal, as having too few LFMCs risks undermining the argument that there is now a market for timber in Ontario. Undoubtedly, some LFMCs will experience growing pains and having too few means that major start-up glitches will have broad impacts. A virtue of the LFMC concept is to allow for diversity, to reflect local circumstances and encourage innovation; again, having a few, large LFMCs also undermines the realization of this benefit.

Forests are widely recognized as being valuable for their biodiversity, water purification, and carbon storage. They provide recreation and contribute to Northerners’ quality of life. Many observers note that the non-timber values of forests have increased far more than their timber value. A final recommendation is to broaden the scope of tenure from timber to other forest resources. In this way, a LFMC will have greater incentive to manage the forest to provide a range of benefits.

Finally and most importantly, this is a very rare opportunity to rectify in a small way some of the wrongs done to Aboriginal people. The government proposal refers to “aboriginal involvement” and limited Aboriginal participation on LFMC boards; instead, the government proposal should fully enable the concept of aboriginal tenure. Most small northern communities are experiencing unprecedented levels of poverty, which has been all too commonplace on Aboriginal reserves. Providing real opportunity through tenure reform is both a legal and moral imperative.

If the government does not fully engage the Aboriginal people, and propose viable options for Aboriginal tenure, then any chance of tenure reform is jeopardized.

Our research supports the case for bold action, and the government’s proposal should be bolder. Redesigning forest tenure is about reshaping incentives and opportunities. With a more business-like approach that is sensitive to local needs and protects the public forest, Ontario has a historic opportunity to set the foundation for a revitalized forest sector. The government should take advantage of the widespread support for major change in the sector and redesign tenure so that Ontario can take advantage of the full range of opportunities.

Anne Koven owns and operates HipGuard Canada.

Tom Clark is a board member of Westwind Forest Stewardship Inc.

Jeremy Williams is a principal of ArborVitae Environmental Services Ltd.