Wood has never been so valuable, so why aren't New Brunswick trees worth more?
Lumber prices have tripled in the last year but NB timber royalties paid by forestry companies haven't budged
New Brunswick is receiving no extra royalties from forestry companies for trees cut on crown land this year, even though prices for lumber made from those trees are at record highs.
Meanwhile. other provinces are moving to claim some of that growing windfall for their taxpayers.
That points to a fundamental flaw in New Brunswick's timber royalty system according to Chris Spencer with the Southern New Brunswick Forest Products Marketing Board.
"If the value of the product is going to increase and you're fortunate enough to be sitting on some of that raw product you would expect that you would receive the benefit," said Spencer, who works on behalf of private woodlot owners in New Brunswick.
"It's unfortunate New Brunswick's system doesn't allow that."
Lumber markets this year have shocked experts and stunned consumers, posting record prices almost weekly.
John Jarvis runs the Home Hardware in Grand Bay-Westfield and hears disbelief from customers hit with sticker shock regularly,
"The increases haven't stopped," said Jarvis.
"Plywood in March 2020, we were selling it for $34.95. April 2021 it's $95.95. People who are used to buying a two-by-four for three and four dollars and they come in and its $8.50 are like 'What is going on?'"
It's been the same story in lumber markets across the continent.
Low interest rates have fuelled a steady increase in North American housing starts since a brief collapse at the beginning of the pandemic, with home renovation projects also spiking among people stuck at home over the past year
According to Vancouver based Madison's Lumber Reporter, trading prices in kiln-dried eastern spruce, pine and fir two-by-fours shot up from $450 US per thousand board feet in most of 2019 to over $1,600 US this month.
"North American construction framing softwood lumber prices are reaching ever higher to the point most veteran industry players can't believe it," said Madison's in a report issued last week.
That has been tough on consumers, but a windfall for forestry companies, especially sawmills, which have been selling record amounts since last year.
A number of publicly traded Canadian forestry companies with significant sawmill divisions, like West Fraser Timber, Resolute Forest Products and Interfor Corporation all set share price records on the Toronto Stock Exchange this month.
In New Brunswick, sawmills have been upping production to meet demand and take advantage of high prices while they last. According to Statistics Canada, New Brunswick sawmills produced 797 thousand cubic metres of softwood lumber cut from spruce, pine and fir trees between November and January, seven percent more than a year earlier.
In Alberta which ties timber royalties to the market prices of timber products, those record prices have also been generating record amounts of public revenue.
In the fiscal year ended March 31, Alberta reported timber royalties were $111 million over budget, more than double projections because, it said, of "North American lumber prices".
Alberta has raised timber fees and royalties even further in April in response to ongoing price increases in lumber markets.
Spencer said private woodlot owners in New Brunswick, like the province, have received no increases in the price of wood they have been selling to mills this year and believes Alberta's model is something worth adopting for both the province and private sellers.
"They are benefiting from these surges, unlike New Brunswick," said Spencer.
In his budget last month, New Brunswick Finance Minister Ernie Steeves took no action to address royalties and budgeted $65 million in crown timber revenue this year, unchanged from his first two budgets.
Asked why he would not raise more revenue from forest companies cutting on crown land, given the explosion in lumber prices, Steeves said that was an issue handled by the Department of Natural Resources and Energy Development.
"I'll tell you the truth, I'm not familiar on that one," Steeves said about timber royalties during CBC's post-budget Political Panel.
No change, says DNR
In an email Monday, a spokesperson for Natural Resources said even though the price of lumber products has doubled and in some cases tripled over the last year, that does not mean trees the lumber comes from are more valuable and deserve higher "stumpage" rates.
"The lumber market reacts to supply and demand factors across Canada and the US," wrote Nick Brown, in explaining why timber royalties in the province are not growing despite record prices for wood..
"The stumpage market, while very complex in its own right, is inherently local, and those prices reflect local demand and supply factors. Because overall stumpage supply has remained generally constant and overall mill capacity has not increased, there has not been a significant increase to the demand or the supply of stumpage locally."
Brown said timber royalties in New Brunswick also do not immediately react when lumber markets fall and suggested the province and private sellers of wood are better off under the current system.
"The Department does not use a similar approach (to Alberta) because timber royalties could result in prices lower than private woodlot owners in the province would be willing to sell their timber," he wrote.
Spencer disputes that and believes private sellers of New Brunswick timber and the province would be better off with prices and royalties that rise and fall in sync with free lumber markets.
"Here we are in New Brunswick with our most abundant natural resource and we're not receiving the financial benefits that other jurisdictions are receiving," said Spencer.
"There should be another way to divide up the economic pie."