N.B. holds firm on royalty rates on Crown timber as Alberta, B.C. raise rates again

Timber royalties being charged to lumber companies in a number of provinces continue to rise in reaction to elevated prices for lumber, but the New Brunswick government is not budging yet from its decision to keep its royalty rates frozen at levels set six years ago by the former Liberal government of Brian Gallant.

On Tuesday, Alberta raised its fees on Crown softwood logs for large users to a record $166.63 per cubic metre, the sixth increase this year.   

The fees are more than five times the $31.09 New Brunswick is charging companies for a cubic metre of softwood saw logs, a rate numerous critics have challenged as a gift to industry given high prices the lumber the logs are made into are attracting.

Rick Doucett is president of the New Brunswick federation of woodlot owners and says it is not clear to him why the province is not making as much as it could from the wood it owns to fund services as other provinces are.

"The very least the government could do is get in the game and say we should be making some money here," said Doucett.

"It's staring them right in the face and for some reason, there's a real reluctance to act."

Alberta ties its timber royalties more closely to lumber markets than other provinces and it has been prospering mightily alongside lumber companies in the year long escalation of prices across North America .

Alberta's department of Agriculture and Forestry calculated the average North American market price for lumber in May was close to $1,940  per 1,000 board feet, nearly four times more than one year earlier. It then used that May price to set the royalty rate for June.    

At the new level, Alberta will be earning between $600 and $730 per 1,000 board feet from lumber made from its trees in June, depending on the size of logs harvested. New Brunswick earns about $137 on that quantity.

Depending on species and size, it generally requires between 3.5 and 4.4 cubic metres of softwood saw logs to produce 1,000 board feet of lumber, according to New Brunswick government documents. 

Brock Mulligan of the Alberta Forest Products Association said in an interview last week prior to the new stumpage fees being set, that industry has no argument with the prices being charged by the province for its wood.

"Stumpage rates are very much responsive to prices in the market," said Mulligan. 

"It's a fair arrangement. Forest companies and the government of Alberta are partners in this industry and so both partners are getting their share."

Also raising its timber royalty rates in response to high lumber prices have been Ontario and British Columbia.

Last month, executives with Conifex Timber Inc. and West Fraser Timber Co. Ltd. both said on their quarterly financial conference calls that they were expecting to be charged an additional $30 per cubic metre in royalties for saw logs in British Columbia starting on July 1.

"We have estimated our delivered log costs in 2021 will be somewhere between 20 and 25 per cent higher than in the previous year [mostly] due to stumpage cost," Conifex president Ken Shields said during his May 11 call.

In the last fiscal year ended in March, British Columbia earned 39 per cent more in stumpage fees than originally budgeted, an additional $299 million as timber royalty rates increased through the year in a tracking of lumber prices.

Timber royalties earned by New Brunswick did not budge at all during the last year and are projected to remain flat this year.

Mike Holland, natural resources minister in the Progressive Conservative government of Blaine Higgs, has said he prefers a "stable steady" stumpage rate for trees that does not rise and fall with lumber markets.   

He has not ruled out raising royalty rates on Crown-owned trees if lumber prices remain high but last month told reporters his department is not convinced yet those prices warrant charging industry more for trees.

"We monitor this on a monthly basis," said Holland.   

"We're watching trends in the southern U.S. We're watching trends in the western part of Canada and we're looking at it all throughout and beyond. I can't put specific parameters on it, but in the past we have chosen to not lower stumpage rates with over a year's worth of data."

On Wednesday, Holland's office repeated that position but also warned that fluctuating stumpage rates would penalize private sellers of wood once lumber prices fall.

"If the cost of wood is to remain at these levels, long term, he [Holland] would re-examine the file," wrote department spokesperson Nick Brown in an email.

"Using commodity prices to determine timber royalty rates can result in am unbalanced situation with private woodlot owners."

But Doucett said the current situation is unbalanced for private sellers of wood. He contends the province's refusal to raise royalty rates is blocking private sellers from raising their own prices, and it makes no sense to him that the New Brunswick government is not making what it can from the lumber windfall.

"There's an opportunity here for everyone to make a little bit of money," said Doucett.

"But when you have the biggest supplier who isn't concerned about making money and competing directly with those that need to make money, the system doesn't work. I mean, the opportunity is standing right in front of the face, and if they don't act on it there's some reason why."