WSCA Frames Trust Fund for Silviculture

In a short discussion paper first presented to the Working Roundtable on Forestry the WSCA has outlined how a silviculture trust fund would ensure quality reforestation and remedy some of the paradoxes of the present tenure system. Concerned that licensees may not have cash on hand to pay for silviculture and that we are not practicing optimal forestry in B.C. the WSCA is proposing a model that could lead to new and innovative forest management regimes and more vigorous forests.

Western Silvicultural Contractors’ Association

DRAFT Discussion Paper: Introducing the Concept of a B.C. Silvicultural Trust Fund

Trust Discussion – Draft.doc

Background:

In British Columbia the public pays for reforestation and related silviculture activities on Crown Land. Generally, forest company license-holders undertake these activities as part of their tenure obligations and recover costs through silviculture stumpage credits accrued through the stumpage appraisal system. There is circumstantial evidence in the declining trends in silviculture activities —including wider planting densities, increasing reliance on natural regeneration, less site preparation, smaller seedling sizes ordered, deferrals of reforestation efforts, a growing gap between area logged and area reforested, decline in enhanced silviculture etc.—that suggest B.C.’s forests are not being tended optimally and the public is not getting best value for its investment.

Current events have only exacerbated these conditions creating the possibility of contractors going unpaid by defaulting license holders (this has already happened), the accumulation of a large silviculture liability on Crown land, and the resulting diminished prospects for the future of the public’s forest resource.

The reasons for the current circumstances are complex. But the situation has not been helped by how the present stumpage appraisal operates. Under this regime licensees are in effect paid for silviculture activities before they actually undertake them. Because stumpage credits are accrued at the time of harvest, they become a cost of the harvest and are treated accordingly.

The formulae and averaging methods used to arrive at the stumpage credit provide an incentive for companies to operate at a more ‘efficient’ level than the rate they receive. By being cheaper they can pocket the difference. Conversely a company with a more intense commitment (more ‘effective’ forestry and long term benefit to the provincial resource) may find itself penalized because the average credit doesn’t fully recognize their costs.

The trend inevitably then is towards a minimum level of compliance without any incentive to optimize the future value of the forest resource. The dilemma for the province, as the ultimate steward of public lands and forest resources, is the very real potential that the optimum long term health and vigour of the resource is compromised.

Putting silviculture appraisals in a trust:

One remedy to this condition is to consider introducing a forestry trust model to hold funds dedicated to silviculture and forest stewardship activities. In concept it would require the license holder to pay their full stumpage and deposit the silvicultural appraisal portion in a trust account. In effect it would be very close to a bond. Like a bond it would be released once a licensee completed the silviculture work and invoiced the account for the costs of the work undertaken.

In the trust notion’s simplest form the license holder could operate their own account combining professional reliance with due diligence on the part of government via quarterly reports and annual reconciliations. There would not be the need for the ministry of forests to act as a broker for the account nor for the creation of a third party to intervene in the fund’s operation.

Other more evolved expressions of this general concept can be imagined. In fact many are now in practice in other jurisdictions and resource sectors. Elements of the trust concept are being experimented with already here in B.C. in recent innovative cutting licenses. Considering that the forest sector would benefit from a diversity of tenures, players and economies, exploring the general notion of a silviculture trust as one possibility would be very much in keeping with the imperative of creating a viable future forest industry.

Key Benefits:

Silviculture Sector (Reforestation contractors and Seedling Nurseries)

• Increased stability in the industry as tenure holders no longer cancel or defer programs in order to conserve cash
• Reduced risk of payment default as funds are secured in a trust in the event of bankruptcy
• Increased innovation as the sector is incentivized towards better integration of silviculture with harvesting models
• Potential to provide recognition for innovation and intensive silviculture treatments for the optimization of the forest resource

Licensees (Forest Products Companies and other Tenure Holders)

• Stable, committed funding for silviculture established at harvest allows for better planning and increased efficiency – i.e. better alignment of harvest priorities and reforestation obligations
• Quantifiable process for accruing and discharging silviculture liabilities
• Minimum of additional reporting requirements and/or bureaucracy

Government

• Reduced risk of financial liability to meet the obligations of failed or insolvent tenure holders
• Reduced risk to the long term health and vigour of the provincial forest resource
• Potential to enhance the long term health and vigour of the provincial resource through innovative funding of silviculture and forest stewardship for enhanced future timber value, as well as the growing array of ecosystem services payments

Recent events have seen much discussion around ‘bail outs’ to ailing industrial sectors. Money available from these initiatives could be used to seed the proposed trust accounts. In the case of licensees who are coping with constrained credit markets and unable to fully fund their silviculture obligations in a timely way, government dollars could be treated as loans and loan guarantees to enable them to undertake forestry activities that might otherwise lapse.

This would ensure the future integrity of the provincial forest resource for the many communities that rely on the forest for their livelihood. In addition, it would greatly aid the silviculture contracting and nursery firms who are facing the withering of their businesses and a general industry-wide loss of capacity.

John Betts
Executive Director
Western Silvicultural Contractors’ Association
250-229-4380
hotpulp@gmail.com