Planting the Seeds of a New Forest Economy in Ontario
5/29/96
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** Written 6:36 PM May 29, 1996 by web:wildland in cdp:taiga.news **
FOREST DIVERSITY * COMMUNITY SURVIVAL
FACT SHEET #9
New Directions in Ontario's Forests
PLANTING THE SEEDS OF A NEW FOREST ECONOMY
This is the ninth in a series of fact sheets examining the economic links
between healthy forest ecosystems and the long-term viability of
resource-dependent communities in Ontario. This fact sheet looks at the way
Ontario's public timber is sold and considers some other approaches that might
help to fund healthier forests and more sustainable communities.
Ontario's forests have suffered from years of abuse, resulting in degraded
ecosystems and depleted forest capital (see Fact Sheets #1-5). To take advantage
of the many economic opportunites offered by healthy forests, forest capital
must be rebuilt through ecosystem restoration. Ontario will need to implement
ecological harvesting practices and encourage more sustainable and diverse
community economies.
Forest restoration is costly, however, and timber-dependent communities will
require financial support if they are to make the transition to an economy
capable of maintaining both long- term jobs and healthy forests.
How can we afford to pay for these changes? Part of the answer may lie in the
pricing of the province's timber and in how these funds are managed.
PUBLIC FORESTS:
Premium resources at bargain prices
The province (i.e. the people of Ontario) owns 88% of Ontario's productive
forests.[1] Companies or individuals who want to cut trees from these public
lands pay the Ontario Ministry of Natural Resources (MNR) a fee - called
"stumpage" - for this privilege, based on the volume of wood cut.
However, the price paid for the province's wood should not reflect simply the
cost of cutting trees; full compensation for use must account for the
maintenance and renewal of the overall forest resource. The TRUE cost of timber
production includes the impacts of logging on the health of the forest
environment - impacts such as erosion, siltation and destruction of fish
habitat, tree species conversion, damage to wildlife habitat, and loss of soil
fertility (see Fact Sheets 1-5).[2] Forest managers are a long way from even
understanding - much less calculating - these costs. The price is paid not just
by those who use wood products, but by everyone in society and by the forest
itself.
Even in terms of simple tree replanting and tending of logged-over areas, the
public appears to have subsidized Ontario's forest industry for many years. From
1990 to 1992, for example, the province paid an annual average of $267 million
for forestry management but took in only $67 million in stumpage fees.[3]
CHANGING THE PRICE STRUCTURE:
New problems, new opportunities
In October 1994, the Ontario government initiated a "New Business Relationship"
with the forest industry. This included reorganizing the stumpage system to make
it more "market-based" and have created a more complex fee structure, the
proportion of money going to forest regeneration in 1995/96 is virtually
unchanged from what was spent in 1990 (see table above).[4,5] Nothing has been
done to ensure that the province's stumpage rate more accurately reflects the
full cost of timber production.
The new stumpage rate, tied to the volume of wood cut, is actually three
separate charges: a BASE RATE, a RESIDUAL STUMPAGE CHARGE and a FOREST RENEWAL
FEE. There is also an AREA CHARGE (not technically considered stumpage), which
is determined by the number of hectares under licence to be cut.
In terms of financing sustainable forests, this new stumpage system has
serious shortcomings. But these problems could suggest new opportunities.
TIMBER REVENUES:
An opportunity for forest renewal
A primary concern is that only about one-half of the stumpage fees collected are
reinvested in the forest (through the forest renewal charges).[4] Both the base
and residual fees go directly into "Consolidated Revenue," the general
government treasury[6], for allocation to all government departments and
programs. If we want to ensure sustainable forest resources, a strong case could
be made that the government's treasury should not be allowed to turn a profit
with business-as-usual timber extraction until the costs of previous forest
abuse have been paid.[2] All money generated by government timber sales should
instead be returned to ecosystem management until there is convincing evidence
that forest-harvesting plans are sustainable.
WINDFALL PROFITS:
A chance to invest in sustainable forests and communities
Another concern is the method of calculating RESIDUAL STUMPAGE. This charge is
tied to the market price for a specific wood product such as pulp or sawlogs.
When the market price rises above the industry's cost of production including a
"reasonable rate of return for profit and risk," the provincial government takes
a 29% share of the additional windfall profit as residual stumpage. If the
market price is exceptionally high (as it was for pulp over most of the 1995/96
year[4]), the government's share actually drops to a paltry 10%.[6]
This arrangement raises troubling questions. Is it acceptable for the forest
industry to make windfall profits from a public resource that is already
seriously depleted? And why would the government's (i.e. the public's) share of
forest profits drop just as industry's profits reach exceptionally high levels?
We are left to wonder: Would not a more sustainable approach be to reinvest all
of these windfall profits back into replenishing forest capital and easing the
transition for timber-dependent communities? Perhaps an allowance could be made
to provide financial incentives to companies that adopt more ecological forestry
practices.
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STUMPED ABOUT STUMPAGE?
Stumpage is the fee companies pay to cut timber on provincial forest land.
Calculated by volume of wood logged, stumpage is actually made up of three
separate charges (or "revenue streams"):
(1) a fee that varies with the species of tree cut,
(2) a basic set fee, and
(3) a fee based on how the wood will be used.
Fees collected from the levy on tree species (about half of all stumpage
collected) goes into forest renewal. The remainder (from base charges and
residual stumpage) goes directly into the government Treasury.
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COMMUNITY CONTROL:
Not industry control
Problems also abound in the charges for FOREST RENEWAL - the stumpage fee
specifically earmarked to pay for regeneration after logging. Far from covering
the full costs of forest ecosystem renewal, these funds only provide for
replanting and tending of designated tree species identified in the site's
forest management plan. There are no regulations that require a stand be brought
back to its pre-logging mix of trees species. Neither does the forest renewal
trust provide increased funding for poor quality sites that are difficult and
expensive to regenerate.
Forest industry licence holders are now responsible for regeneration of the
sites they log in the many regions under Forest Management Agreements and
Sustainable Forestry Licences. Licence holders are reimbursed for this work from
the forest renewal trust. Given their mandate to maximize profit and ensure the
highest return to shareholders, timber companies should have the incentives and
ability to complete silviculture work inexpensively. However, the forest
industry does not have similar incentives to manage forests for ecological
health, community stability or the interests of all forest users.
In April 1996, the MNR suffered massive budget cuts and staff layoffs of over
40%.[7] These cuts severely weaken the MNR's ability to monitor the forest
industry's new responsibilities and to ensure compliance with forest management
standards. There is an alternative to increased forest industry control: Local
community-based forestry authorities with a strong interest in comprehensive,
long-term forest health could assume more responsibility for overseeing and
monitoring logging and reforestation practices (see Fact Sheet #6).
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FOREST RESTORATION:
Two approaches
British Columbia spends 26 times the amount of money Ontario spends for forest
restoration (adjusted for the difference in the value of wood product
shipments). Unlike Ontario's exclusive focus on timber regrowth, B.C. hopes to
use its timber industry revenues to ease the transition to sustainability.
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FOREST RENEWAL B.C.:
An example for Ontario
British Columbia's approach to the funding of forest sustainability - although
far from perfect - could offer some valuable lessons to Ontario. B.C. has a fund
for forest restoration that is similar to Ontario's Forestry Futures Fund.
B.C.'s fund, however, provides 26 times greater financial support than Ontario's
fund (adjusted for differences in wood product values).[8,9] While Ontario
concentrates its finances on timber regrowth, B.C.'s fund is divided into five
segments, each contributing to a different aspect of forest health and economic
recovery of timber-dependent communities.[9] In this way, B.C. hopes to use
timber revenues to ease the transition to sustainability.
The interests of forest-based communities are not served by low stumpage
rates and increasing industry control over Ontario's public forest lands. We do
have other options. Communities could play a larger role in monitoring and
allocating forest resources for long-term sustainability. Forest products could
be priced and taxed to better reflect the true cost of timber production. Timber
charges, in turn, could be dedicated to restoring our damaged forests,
supporting communities in developing a greener, more diverse economy and putting
people back to work in the forest.
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Produced by the Wildlands League through its Forest Diversity u Community
Survival Project, this series seeks to promote constructive dialogue between
resource-dependent communities and forest conservation advocates (see Fact Sheet
#1 for more details). We hope the information will be useful in developing
economically sound approaches to forest stewardship in Ontario that can help to
ensure sustainable economies and sustainable communities.
IN THIS SERIES TO DATE:
#1 Where Have All the Loggers Gone?
#2 Cutting the Future Out of Prosperity?
#3 A New Appetite in the Forest
#4 Undercutting Our Natural Capital
#5 Biodiversity at the Crossroads
#6 Ecological Forestry ... A Cut Above
#7 Crafting More Jobs with Less Wood
#8 Nurturing Diversity Through Ecotourism
#9 Planting the Seeds of a New Forest Economy
UPCOMING:
Bringing People and Forests Together
REFERENCES*
1. The State of Canada's Forests 1994. Natural Resources Canada, Canadian Forest
Service.
2. Raphael, Ray. More Tree Talk: the people, politics and economics of timber.
Island Press. Washington, DC. 1994.
3. MNR, Forest Values - Sustainable Forestry Program, Forest Management
Accounting Framework. Queen's Printer. Ontario 1993.
4. MNR. Phone interview March, 1996. Information confirmed by phone and fax.
April 15-17 1996.
5. Compendium of Canadian Forestry Statistics, 1994.
6. The Ontario Market-based Stumpage System. Ministry of Natural Resources.
1995.
7. Ibbitson, J. Tory cuts mean less red tape - more user fees. Ottawa Citizen.
April 12, 1996.
8. MNR. Trust Funds: Draft document. March 1995.
9. Forest Renewal BC. Business Plan 1995/96; Highlights. June 1995.
*Complete references available upon request.