Liberalize the market to revive the forestry sector



    MONTREAL, Nov. 20 /CNW Telbec/ - Promoting the creation of a competitive
market for timber would help the forest industry restructure and meet
international competition more effectively. The industry could thereby play
its major role in Quebec's development without resorting to short-term
solutions based on subsidies and protectionist regulations.
    In an Economic Note published by the Montreal Economic Institute, André
Duchesne, former president of the Quebec forest engineers professional
corporation and of the Association des industries forestières du Québec,
explains that "a return to competitiveness will necessarily require
consolidating the timber taken from public land in the most profitable mills,
which will have to increase their size and productivity."
    In dealing with the impact of a crisis such as that suffered by the
forest industry, the usual reaction is to demand government assistance, mainly
in the form of tax relief, investment assistance and subsidies carefully
crafted to be tolerated by taxpayers and foreign competitors in the context of
international trade agreements. Such an approach has just a short-term effect
and cannot rescue the forest sector sustainably from the slump it has fallen
into.

    Creating a competitive market for forest products and services

    The Forest Act does not permit the transfer of wood from one mill to
another without the express authorization of the minister of natural resources
and wildlife. Decisions are discretionary. Regional self-sufficiency is
favoured at the expense of the industry's viability. These constraints stand
in the way of achieving the economies of scale and the productivity increases
that consolidation of operations is likely to bring about. Moreover, the
minister is prevented, both legally and politically, from revoking a mill's
timber supply and forest management agreement, even if the mill is closed,
unless the timelines set out in the Act have expired and as long as there is
any hope of the mill reopening. Taking account of the reduced harvests decided
on by the chief forester, the Act could be revised to enable the minister
immediately to rescind the agreements linked to closed mills.
    Under the proposal developed by Mr. Duchesne, the forest land freed up in
this way could come under a new type of contract, unconnected to a mill, that
would authorize its holder to sell timber rights on the market in exchange for
an annual rent and compliance with conditions ensuring the longevity of wood
and wildlife resources.
    This new type of contract for public land would favour the development of
a forest management industry distinct from the traditional forest industry,
for which this activity is merely a cost to be reduced as much as possible.
The new approach would put companies in charge of the integrated management of
all forest resources. It would also lead the industry to use market forces to
help deal with the old conflict pitting timber users against hunters,
fishermen, campers, vacationers, nature lovers and other forest users. In
fact, by attempting to optimize their income, the holders of such contracts
would be open to demand for each of these uses as well as to the cost of
supplying each forest good and service. Because of the closings that have
already occurred, a market for millions of cubic metres of timber could be
created, accessible to any new or existing mill able to pay the competitive
value of this wood. The most profitable mills would be the most likely to use
this supply since they have the most room for manoeuvre and the greatest
chances of development.

    The hardships faced by the forest industry

    It should be recalled that a number of factors have gradually made the
forest sector vulnerable and have led to the closing of one-sixth of all mills
in Quebec, involving the loss of more than 10,000 well-paying jobs. These
factors include:

    
    - The rise of the Canadian dollar, making wood products more expensive to
      export.
    - Higher energy prices, making the drying of paper more costly.
    - The capital tax imposed by both levels of government, to be abolished
      only very gradually.
    - U.S. intervention in the lumber sector, which has penalized the
      industry.
    - The high (and rising) cost of raw material, compared to world market
      levels.
    

    The Economic Note, titled How can the crisis in the forest sector be
resolved?, was prepared by André Duchesne, F.Eng., former president of the
Quebec forest engineers professional corporation and of the Association des
industries forestières du Québec. He was awarded the Montreal Economic
Institute's George Petty Entrepreneurial Idea Prize for 2007.

    The Note is available at www.iedm.org

    The Montreal Economic Institute is an independent, non-partisan,
non-profit body that takes part in public policy debate in Quebec and across
Canada, offering wealth creation solutions on matters of taxation, regulation,
and reform of health and education systems. Its publications since 2000 have
included the Report Card on Quebec's Secondary Schools. In 2004 it won a
Templeton Freedom Award for Institute Excellence for the quality of its
management and public relations.




For further information:

For further information: and interview requests: André Valiquette,
Director of Communications, Montreal Economic Institute, (514) 273-0969 ext.
2225, Cell: (514) 574-0969, avaliquette@iedm.org


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