November 9, 2021 – 9:30am Susan Yurkovich, CEO, Council of Forest Industries, Topic: BC’s Forest Industry: Our foundation and our future – ZOOM

Susan Yurkovich is President and CEO of the BC Council of Forest Industries (COFI) where she advances the strategic interests of the BC forest industry, Canada’s largest lumber producing region. She also serves as President of the BC Lumber Trade Council representing the interests of the BC forest industry on trade matters, including the Canada/U.S. Softwood Lumber Agreement. Ms. Yurkovich has 24 years of experience working in B.C.’s resource sector. Prior to joining COFI, she was Executive Vice-President at BC Hydro responsible for the Site C Project, a $9 billion dollar hydroelectric dam and generating station on the Peace River in Northeast BC. She led the project through the development phase including engineering design, environmental assessment, and regulatory review and permitting. Prior to joining BC Hydro, Ms. Yurkovich spent 12 years working in the forest sector including 10 years with Canfor Corporation where she was Vice-President of Corporate Affairs. She is currently a Governor of the Business Council of BC and a Director of Vancouver College. She is a past Governor of the University of British Columbia and Director of VGH & UBC Hospital Foundation, Pharmasave Drugs (National), Vancouver Coastal Health Authority, and the Vancouver Board of Trade. Ms. Yurkovich holds a Bachelor of Arts and a Master’s of Business Administration from the University of British Columbia, a diploma in international business from Erasmus University, Netherlands, and the ICD.D designation from the Institute of Corporate Directors.

Summary of presentation

While not everyone agrees on how BC’s forestry sector is managed, most know its importance to the province’s economic well-being. It contributes $13 billion in GDP and 100,00 well-paying jobs both directly and indirectly, resulting in $8 billion in wages and salaries and $4 billion to the government. Half of the jobs in the forestry sector are located in the Lower Mainland ranging from marketing, finance, legal, logistics, research and development, to technology. As the most significant lumber-producing region in the country, BC produces a wide variety of products which it exports to over 100 countries, making up about a third of the province’s exports.

However, the sector is facing some significant challenges right now. One of the biggest challenges is access to fibre. While there is still an abundant supply of fibre, the annual allowable cut has been declining due to consecutively bad wildfire seasons, the effects of Mountain Pine Beetle, the emerging Spruce Bark Beetle, and the increases of Parks and Protected Areas and urban development on the coast. All of these factors are creating significant pressure on the working forest land base. The BC government also recently announced the deferral of about 2.6 million hectares of land due to public pressure to reduce the amount of old-growth harvesting, a very emotional and polarizing topic in the province right now.

The sector is also continuing to face challenges when it comes to trade. Currently, the province sells most of its forest products to the US, China, and Japan. The sector has been locked in an exhausting battle over softwood lumber with the US for the last 40 years, with now five countervailing duty investigations. In the last 35 years, BC has only had 33 months of free trade in softwood lumber with the US.

There is always uncertainty with the sector’s second-largest market, China. So far, there hasn’t been an issue, but tariff barriers are always a risk given the shaky relationship between the two countries.

BC’s forestry sector has also had a long-standing relationship with Japan. However, this might be changing soon. After WWII, many trees were planted in Japan. Now, those trees are coming to an age where the government wants to develop its own forestry industry. Currently, there is a $2 billion annual subsidy directly to Japanese forest product producers, which puts pressure on the markets for products that might otherwise come from BC.

Finally, there is the matter of increased regulatory complexity in BC’s forestry sector which in 2019 resulted in BC being the highest-cost producer in the world despite the industry’s high levels of efficiency. The confusion around regulations makes it difficult for the province to attract investors and reduces the province’s ability to compete on a global level.

In order for the sector to overcome these challenges and remain foundational to the province moving forward, Susan Yurkovich, the CEO of COFI, offers the following solutions:

1-Invest in and protect the working forest by setting targets just as we do with parks and Protected Areas.

2-Develop a rigorous yet efficient and transparent environmental regulatory system with timely reviews and approvals so that potential investors can make informed decisions.

3-Strengthen the participation of Indigenous people in partnerships. Currently, 9% of the direct workforce identify as Indigenous. The forest industry is becoming an employer of choice for Indigenous people, not only as employees but also as suppliers, tenure holders, and business owners. These partnerships are highly valued and also provide an opportunity to develop future human capital in the industry’s ageing workforce.

4-Develop the province as a hub for expertise for low carbon products and building. BC has already been a leader in green building. We have the expertise, the architects, the designers, and the constructors, but we need to train more of them.

5-Diversify the market and products. BC produces a wide variety of products, from commodities like paper and shingles to specialty high-value products. As we move into green fibre in the Interior, the province now has the opportunity to move up the value chain by producing more bioproducts and products created from wood waste. In particular, more people, jurisdictions, and industries are moving away from single-use plastics towards products that are made from forest fibre (e.g. food packaging, PPE, furniture, and shipping packaging). Wood products are the better choice for the planet since they store carbon for the products’ lifespan and help fight against climate change. The sector also needs to continue to expand its markets. BC will always rely on the US as its strongest market, but with emerging issues with China and Japan, the sector needs to continue looking for other markets to help diversify. With China’s labour costs moving up, many of the Asian markets like Malaysia, the Philippines, and Vietnam, are losing a lot of production capability.

6-Prepare the next generation. COFI has a forest education program recognizing that the skillsets that the next generation will require to work in the forest sector will be much different with all the new technologies emerging.

7-Provide stable, long-term, and predictable access to fibre at a reasonable cost. If BC continues to be the highest-cost jurisdiction in the world, it cannot compete in the global market.

8-Develop fact-based, balanced and inclusive approaches to public policy. The advisory panel that called for the recent deferral decision primarily consisted of conservationists and not enough foresters. There needs to be a balance of perspectives when developing policies like this.

9-Continue to be a leader in conservation and sustainable forest practices. BC has an independent chief forester who sets the annual harvest in each area across the province with the goal of achieving long-term sustainability while managing for multiple values, including timber values, wildlife, biodiversity, and visual quality. These sustainability

Q&A Transcription

Question from Michael Jacobson: Many of the major forestry companies have moved to the US because the business climate is business friendly and the political climate in BC is toxic.

Answer: Well, you know, here’s the thing. Two things about that. First of all, major companies were continuing to invest in BC, while also buying assets in other jurisdictions, which I think is quite normal. It’s actually not normal to only be invested in one jurisdiction, if you are a globally significant entity, whether you’re a widget maker, or a forest products company. What’s troubling to me more, and you won’t maybe see this as much as me…What’s really troubling to me is all of the small companies now that are buying assets quietly in Alberta, Saskatchewan, and the US. You don’t hear as much about them because we only hear about the majors who, frankly, from my perspective, should be invested in more than one jurisdiction. You don’t put all of your retirement savings in a single stock. Like, we tend to think that diversification is a good thing. And frankly, if you want to serve your customers around the globe, you have to have manufacturing facilities in different locations. What’s more troubling to me is some of the companies, as I say, that you don’t know about, that are making decisions to go elsewhere.

And, some people say, well, you know, if we take back 10 years… first of all, it’s not from my perspective, a sure thing that companies that have bought assets will be compensated if their 10 years have taken, and I think, whatever business you are in, if you can’t depend on the rules, or if you buy something at fair market, and it can be taken away, I think that has a chilling effect for investment. And, I think, we have to think about the general investment climate in British Columbia. But I do think that we don’t have a business-friendly climate here right now. And that’s unfortunate. I don’t think people in government are bad people, but I think they’re making choices that are not incenting people to invest here.

And even if you do compensate businesses, what they’re going to do is they’re going to take their money and invest it elsewhere. Look, and while my job is to represent the forest sector, I love this business, it’s in my it’s in my soul, my job is to do the best for my member companies. But as a British Columbian, I actually want people to be making choices to invest here. And so, if we don’t have a climate that encourages that, it’s difficult because capital is mobile. It doesn’t care how you vote, it goes to where it can have a reasonable expectation of earning a return and I think that’s becoming increasingly challenging in British Columbia.

Question from Mark Johnson: Can you tell us what portion of our fibre is exported as raw logs?

Answer: In the Interior, virtually none. Almost none. On the Coast, there has been a history of exporting a small portion of logs and let me tell you why that happens. Logging costs on the Coast are probably about $100/cubic metre before stumpage. A log on the export market attracts probably about $130/cubic metre, on the domestic market about $70/cubic metre. So, the business school that I went to says, you can’t harvest at $100 and get $70, for a sustained period of time. That doesn’t work. And so, what you’ll see, and what we’ve seen in periods of real downtime in our sector, is that companies will keep running underwater for a while, but then if they can’t bridge they will shut down and we saw a massive shutdown in 2019 as companies were far below the cost of production. What happens on the Coast in particular, companies will export some logs. So, they’ll take some of the $130 and some of the $70 and the blend it to meet their costs. And so that’s why a small portion of logs are exported, because they allow for other uneconomic stands to be harvested without the companies losing money.

So, you know, there’s very, very stringent restraints on log exports in the province. Frankly, it’s a huge trade irritant to the US, it’s what kills us always on our trade case. So, it’s a double-edged sword, and I’m not making a value judgment of whether we should or we should not, but the fact of the matter is that having that small export allows us actually to get value out of some of the uneconomic stands and to blend and that’s why some companies export a small portion of logs.

The second thing is, when you’re a major producer, your customers often want a suite, they want some cants, they want some two-by-fours, and they want some raw logs, and so what you might do is, in order to maintain that customer, you want to be able to offer the suite of products. And so that’s the other reason for it.

Question from John Kay: Why do we export $500 million in raw logs?

Answer: I don’t know where the number comes from and I don’t know if the figure is accurate, but I just explained the issue about raw logs, and that’s really only an issue on the Coast.

Question from Bob Nash: How many employed in the industry and latest trends?

Answer: Okay, so the last time we did our economic impact study, I think we were, we had 100,000 jobs in the sector supported. And we divide that into direct and indirect, of course, and so I think the directs were about 50,000 in our last survey, of course, that’s gone down in recent years, as I talked about the fiber supply, the annual allowable cut going down, and of course, as we get more efficient in terms of producing, you know, fewer people are employed in a mill operation. If you’ve gone into a mill lately, even me going away, I was in the energy sector for nine years, and I came back, and we used to have, you know, people standing there grading… well, now you have auto graders, and then you’ll have a checker, right. And if you go into a mill now, you have optimization technology, where, basically there’s an operator in a cab, and as the log is coming through, it’s taking a picture. It’s got real time data on market pricing in it, so, it’ll see if there’s imperfections or waning or whatever, and it cuts the log best. So, there are fewer people employed in technology, however, there are lots of people employed in the sectors that are actually providing new technologies to the sector, companies that are helping us with technologies particularly that we’re applying in the in the forest now, more on the harvesting side, and in software and equipment that we’re using our facilities.

Question from Rene Mutsaerts: Does COFI conduct tests for using mass timber for high-rise buildings?

Answer: So that’s a really good question. So, in term of codes and standards of course, we follow the National Building Code. Currently, in Canada, buildings of 12 storeys are permitted under the National Building Code. You can build taller than that, but under exceptions. We have a group called the Canada Wood Council, which is full of technical experts that work on codes and standards and with specifiers, and do fire testing and strength testing, all that testing and then, we have grading agencies that audit those standards. So, anybody who’s selling anything has to have it graded and get a grade stamp on it and then those standards are periodically tested. So, there’s a very rigorous process.

It’s really important. We wouldn’t want to have products that didn’t meet tests, that actually failed, because that would be catastrophic from an industry perspective. And so, the rigor around grading, testing, and ensuring that we have the right standards is a very thorough process that’s done by the Canadian Lumber Grading Standards Association, the National Association, the Canadian Wood Council, and the government when they finally come up with what their building code is.

Question from John Ritchie: The last fire season was very difficult. Did the fire fighting program work well or could improvements have been made? Did we do better with fire fighting in the 1980s and ‘90s?

Answer: So, it’s really interesting. How we fight fires and how we manage forests are linked, right? In particular, you know, we might not want to have forests, right surrounding a community. You might want to actually have a buffer. Another thing to consider is that Mother Nature actually takes wide swaths. When she did the beetle infestation, it was a wide swath, when you have fire, you have a wide swath, ironically, if you actually put roads, and if you’re harvesting, we’ve had this place where we wanted to have contiguous areas, so we might harvest a little bit here and a little bit here a little bit here what that does is it actually creates a pathway for fire. So, one of the things that they’re looking at is, how do we actually harvest? How do we clear areas around community? I think there was a bunch of things in the Abbott and Chapman report that was done after the 2018 season that haven’t yet been implemented. Sometimes people are saying, well get all the industry out of the bush when we have fires right? But actually, the industries out there with expertise and equipment. And I think Rick man wearing the Deputy Minister understands that very well, because he was before becoming the deputy minister was the Associate Deputy Minister and he has a real good understanding of fire and fire management. And so, you know, the industry is drawn on. I mean, we had, you know, people down with tools from harvesting, but they’re out there with their equipment to do be doing fire management. So, I think we have more we can learn about how we can do things differently from a forest management perspective that can improve our resiliency from a fire perspective. And I also think that we need to make sure that we have adequate resources and that, we rely on industry as we did this year, but we need to make sure that we have the right resources in the right place. And I think I think there are a bunch of things in the Abbott and Chapman report that still haven’t been implemented so, I think we’ve still got work to do. That would be my answer on that.

Question from Michael Jacobson: Have you changed your planting of trees from a monoculture which I understand aggravates the fire situation?

Answer: That’s a really good question. We’re actually doing some work right now with McKinsey the consulting firm to kind of look at, you know, what are some of the technologies that can be applied, and one of the things we’re really looking at is seedlings and seed stock. And we’re learning from other jurisdictions that actually have modified some of their seed stock, about how they are increasing both resiliency and yield of the forest. And I think that’s really important, what we can learn from other jurisdictions. We have a regulation of what we have to plant and so, we need to have flexibility from government because we are required to plant certain things. But I think that’s something that needs more work. I think it can have both a benefit from a fire perspective and also, if you are have a declining cut, we have an incentive to look for ways that we can increase the yield of the area that we are using for working for us and I think there’s value in looking at that. That’s one of the things we have McKinsey looking at right now. There are people that are working on this, of course, in institutions around the country but I think we need to have a tighter focus on what are the things that we can do. Government is talking about modernizing its forestry policy, but what are we actually what do we actually mean by that and what are some of the practical things we can actually do in terms of forests and forest management?

Question from Zoobkoff: Is selective logging a practical alternative particularly in old growth?

Answer: Yes, selective logging is a practical alternative. My view is we will continue to have modest old growth harvest. We do have selective logging in some areas and we could look at doing more of that.

Question from Chris Finch: Do mixed forests have a role in replanting logged areas?

Answer: Yes. It’s same question with respect to the seedlings.

Question from Bill Hooker: What about bamboo?

Answer: I don’t have much experience about bamboo other than at my house and bamboo is something goes really quick. If you’re a gardener, it’s not something you want anywhere near your place, but I happen to like it. I don’t really know. You know, we’re not planting something that’s planted in other jurisdictions. Part of the advantage of the fiber that comes from British Columbia, and the reason why it’s kind of coveted, is because it comes from a place, particularly in the SPF (the spruce, pine, fir) that comes from the Interior, it has a long fiber, because it grows slowly over a long period of time and so that has strengthened characteristics that are important. Even if you’re just using a little bit of it.  Let’s just say, people were all over looking for pulp to do pulp and paper to put into our PPE at the start of the pandemic. And so, they were looking for this special fiber that is produced in one of the mills here in British Columbia that goes into the fabric, it’s not really fabric, it’s kind of paper, but it’s kind of like a papery fabric that makes gowns and masks, etc. And so, what you have in the Interior is long fibers, and that creates strength characteristics. And that’s important. And that’s why, you know, we will continue to, I think, be a desirable place. I don’t know, that we’ll be replacing crops with some things like bamboo which are growing in other parts of the world.

Question from Hugh Robinson: The problems are many! How much is our Prov Gov? But surely the biggest problem is the countervailing duties in the USA.  How do we manage these problems?

Answer: No, it’s not the biggest problem. The biggest problem from my perspective is access to fiber. It’s terrible that we have this ongoing fight with the Americans on softwood lumber, but it’s not the biggest challenge. The biggest challenge is the erosion of the working forest, and the complex operating environment, which is creating significant cost pressures for the industry. The duties are unfortunate, we will continue to fight them, at some point, we will get to a point and place where we will, I think, strike another deal. I don’t know when that will be. Usually it’s when there’s a big enough pot of money that’s piled up and the Americans are kind of salivating, the industry is trying to get some of that and maybe we’ve had a couple of legal victories and then there’s something else. But I think the biggest issue for us is really the operating environment and the pressure on the timber harvesting land base and the cost of fiber here and the overall uncertainty for the sector. That is the biggest challenge for us.

 


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