New Brunswick will temporarily increase timber royalties, also known as stumpage rates, on Crown land before implementing a new system that could see royalties adjusted monthly.
Natural Resources Minister Mike Holland said the changes will increase the price the timber industry pays to extract timber from Crown land by about $10 per cubic meter and generate an additional $50 million in government revenue this year.
The temporary boost is a reaction to record timber prices in the last two years.
“This is a transition year that captures that commodity prices are high and that we have seen a couple of years of high commodity prices, this adjustment that we made will allow us to transition to that new system next year. Holland said.
That new system will be implemented through new legislation introduced in the fall and will take effect on April 1, 2023. It will set a base market rate for Crown land stumpage each month, then apply a upward” to reflect the prices of basic products. in order to ensure that Crown land prices do not undermine private owners of timber lots. The revenue generated from that additional adjustment will go to help private forest lot owners manage their land.
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Logging rates in New Brunswick have barely budged since 2016 and the provincial government faced mounting pressure to increase timber royalties as timber prices soared last year.
“Mr. Speaker, the Minister of Natural Resources continues to praise the stability of the current stumpage fee system, but ‘stable’ does not mean frozen. Stability does not mean comatose. Stability means that, in times of extremely high prices, we should expect reasonable returns for our fiber. In return, in times of extreme lows, the industry can hope not to fall into a crisis,” Liberal natural resources critic Rene Legacy said during question period on May 11.
Holland said the province was concerned that by chasing resource prices when timber prices were high, it would have to do the same when prices are low, thus undermining private timber lot owners.
“That’s exactly why we don’t act on a knee-jerk reaction to commodity prices with our royalty rates, because we need to make sure that Crown land is always priced higher than forest parcel fees. private,” he said.
“We don’t want to get into a situation where we are competing with or undermining our private forest sector.”
However, according to the president of the New Brunswick Federation of Woodlot Owners, the province’s stable timber royalties effectively act as a market capitalization for private sellers, and therefore low crown prices meant that private sellers had little ability to raise their own rates.
“The government is the largest supplier of wood to the national market,” said Rick Doucett.
“If they have a discounted price for their lumber, all the other suppliers end up with the same discount.”
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The temporary increase in stumpage rates, along with the new system for adjusting those rates on a monthly basis, should result in a more competitive market and allow private sellers to get better rates for their product, says Doucett.
“It’s a great first step in creating that path and the next step that we need to take is how can we create enough value for the lumber so that the growers, the cutters and the truckers can make some money, but also the industry can make money. ” he said.
“It’s about finding that sweet spot where everyone makes a little bit of money.”
When asked for comment on the changes, JD Irving, the province’s largest forestry company, provided a statement from New Brunswick Lumber Producers.
“Although studies have shown that stumpage prices do not directly correlate with downstream timber prices, the New Brunswick Timber Producers understand the New Brunswick government’s position that increases in royalty rates for Crown timber could be justified when commodity prices are extraordinarily high, particularly given the time lag between the government’s survey of private stumpage prices and the implementation of the new fee rates. of Monte de la Corona,” said Jerome Pelletier, vice president of JD Irving’s sawmill division and president of New Brunswick Lumber Producers.
“However, we are disappointed by the lack of transparency and detail associated with the government’s proposal.”
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The statement goes on to call on the government to immediately publish how the new system will calculate its market rate and “upward adjustment.”
“If the system proposed by the Minister is not properly structured, there is tremendous potential for severe and negative impacts on the long-term sustainability of New Brunswick’s forest products industry,” the statement read.
Asked what impact the changes might have on the ongoing softwood lumber trade dispute with the United States, Holland said those issues are not part of his experience. In 2017, Washington removed New Brunswick’s softwood lumber tariff exemption, arguing that the amount of timber harvested from publicly owned Crown land amounted to a subsidy to the industry.
The province implemented a five-year freeze on the amount of timber available to be harvested from Crown land in 2015.
Doucett called the changes a great first step, but says more needs to be done to create a more competitive market for private forest landowners. Part of that is on the supply side, where so much crownwood is available that private sellers have very little leverage when dealing with mills.
He also said that the continued weakening of forest products marketing boards has further diminished the power of local vendors. The province has several regional marketing boards that were established in the 1970s to act as intermediaries between sellers and buyers of timber. Originally, vendors sold only to the board, which then sold to lumber producers.
In 2012, JD Irving stopped buying lumber through the Southern New Brunswick Marketing Board and instead made deals with individual vendors. The practice was challenged and ultimately upheld by the New Brunswick Court of Appeals in 2018.
The irrelevance of marketing boards makes it more difficult to secure a higher price for all private sellers, says Doucett. However, he still thinks the current trading system can be fixed to produce higher prices.
“We need to look at the trading system that exists today and we need to plug all the holes,” he said.
“There is no need to sit down and negotiate a deal with a marketing board.”
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