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The war for the woods

Clark Binkley says forests are a very attractive financial asset these days. Binkley should know.

Clark Binkley says forests are a very attractive financial asset these days. Binkley should know. He was once dean of the University of British Columbia's forestry faculty, and from 1998 to 2005 he ran the world's largest private timberlands investor.  He told a Financial Post interviewer just last month that “there are literally billions of dollars available for investment in forest land." 

No wonder the Financial Post ran five feature articles, 2007 making the case for selling off Crown forests to private buyers. The Post articles are a clear signal that the battle to privatize Northern Ontario’s forests lands is heating up.

The Americans may claim that our public forests give Canadian producers an unfair advantage, and the forest companies may be asking for more secure property rights, but the players to watch are in the financial markets. They want a chance to buy Canadian forests.

For long term investors, timberlands are an even better asset than mineral deposits. The price of wood may go up and down, but the trees just keep growing. Combine this natural growth rate with the long term rise in the value of timber and you can see why financial interests are drooling.

Add to the equation the fact that forest management in Ontario produces perhaps half the yield of private forest lands in Finland or the U.S. and you can see why timberland investors are sure they can make more money than the province on forest lands.

 So the war for the North has begun. On one side, embedded financial journalists like VanderKlippe
and    are reaching out to the southern decision makers. They are probably hoping for a new government that will move quickly and irreversibly to end the Crown forest era. It happened in New Zealand in the 1980s when a radical conservative government came to power. It could happen here.

On the other side is a weak and scattered community forest movement. The tiny Northern Ontario Sustainable Community Partnership, for example, has been circulating a Community Forest Charter. The Charter invites Northerners to think about shifting power to the communities of Northern Ontario. It puts forward the view that forest communities should actually have some control of their forests.

The movement has been gaining ground in BC, but it has been resisted and undermined by the Ministry of Natural Resources in Ontario since the 1990s.

The war could be over before most Northerners notice. The battle is happening behind the scenes in the financial press and in the halls of Queen's Park. The goal is to get the message across to up-and-coming politicians who might be willing to make radical changes if they happen to win the election.

The privatizers don’t argue that privatization is good for foreign investors and their Canadian minions. They argue private ownership is much more efficient than the current system of ownership by the Crown. There is a lot of truth in what they are saying. Privatizing Crown land would result in a more efficient forestry industry.

The fly in the ointment for the privatizers is that a sell-off is not the only workable solution. Community forests could be even better. Most arguments in favour of privatization also apply to community forests. Other economic arguments tell us that community forestry could be more efficient that conventional private forests.

The major advantages of community forests are that wealth would stay in the region and there would be a stronger tendency to create local jobs.  Domtar, for example, has no real interest in developing local value-added businesses.

The company doesn’t get the resulting property tax revenues. It can’t reward its shareholders when the school tax base expands. The towns where Domtar has mills, on the other hand, do benefit when they create a new businesses. 

Private forests really can be relied on to generate more money for investors. Community forests really will generate more jobs in the North and more tax revenue. Which system will win out?

In the end all this economic theory doesn’t amount to a hill of beans. The current system will change. Political power will determine whether we move to more private ownership or more community control. Northerners may not even be consulted.

Dave Robinson is an economist with the Institute for Northern Ontario Research at Laurentian University.drobinson@laurentian.ca