Soaring lumber prices triggered look at "profitability" of N.B. forest companies, but no action

New Brunswick would have made more than $200 million in timber royalties during a recent 13 month surge in lumber prices had it copied rates in use by the Alberta government it was studying, documents from both provinces show.

Instead New Brunswick made less than $70 million, after opting not to charge forest companies more for the trees they were using. 

The decision still mystifies the president of the New Brunswick Federation of Woodlot Owners.

"Everyone seems to be quite dumbfounded by the situation,"  said Rick Doucett.

"You could collect that money, put it in the coffers of the province and the mills themselves will still be doing quite well.  So there was an opportunity there to do something, and it's quite perplexing as to why they didn't move on it."

The amounts also challenge claims made by the New Brunswick government last spring that the province's approach of leaving royalty rates unchanged since 2015 has been better financially for tax payers.

"We have a steady stable approach to our timber royalties to provide consistency and also to make sure we don't leave money on the table,"  said Natural Resources and Energy Development Minister Mike Holland in May.

New Brunswick is Canada's fifth largest lumber producer and beginning in the spring of 2020, the province's forest industry began to earn record profits as lumber prices across North America escalated rapidly. 

The cost of standard two-by-fours doubled between June and August 2020 and, after a market correction in the fall, doubled again, eventually peaking at more than $2,000 per thousand board feet in May of 2021.

It was a windfall for forest companies.

In the 13 months between July 2020 and July 2021, New Brunswick sawmills and wood preservation operations recorded sales of $1.85 billion on treated and untreated lumber products according to Statistics Canada.  

It was $830 million more than the companies earned on similar production during the previous 13 months.

But New Brunswick decided against raising what it was charging forest companies for crown wood they were cutting into lumber, even though its own research was showing other provinces were making millions per month extra from raising their rates.

Several provinces, including Ontario, British Columbia and Alberta link at least part of what they charge for crown timber to the price of the lumber it is turned into.  Through the second half of 2020 and first half of 2021 they each watched their royalty revenues soar as a result.

New Brunswick appeared to consider the move, but ultimately did nothing

According to documents obtained by CBC News under a right to information request, New Brunswick officials began to investigate earlier this year how much money forest companies in the province were making and what kind of revenues other timber royalty systems might generate.

"As lumber prices continue to soar I'd like to take a look into what kind of profitability our mills are seeing," wrote Natural Resources and Energy Development assistant deputy Minister Chris Ward in an email to the director of the forest operations branch on March 8 of this year.

The answer to that question was not  provided in the material sent to CBC News but the documents did show the province made some effort to understand what other provinces were earning.

In April, a chart was constructed inside government specifically comparing Alberta timber royalty rates to those in New Brunswick.

It traced how Alberta, which has historically charged less for timber than New Brunswick, suddenly began taking in millions of dollars more per month as lumber prices began to increase.

The chart showed in September 2020, Alberta was charging forest companies triple the rates New Brunswick was charging for wood and then in October 2020, the difference widened to four times as much.

Figures in the documents suggested revenues to New Brunswick from forest companies for the use of crown timber in October alone would have been close to $25 million by using Alberta's rates, about $18 million higher than what New Brunwick was charging.

The province did not change any policy based on the information and now says the work was part of normal information gathering practices.

"The department is always looking at the health/profitability of our forest industry," wrote department spokesperson Nick Brown in an email.

In May, based on the research his office was doing, Natural Resources Minister Mike Holland acknowledged Alberta was taking advantage of soaring lumber prices by charging industry more, but argued over a longer five year period New Brunswick had made $52 million more from its royalty system than had it been using Alberta rates the whole time.

"The stable, steady approach ensured that we didn't leave $50 million on the table." he said

But that claim was made as of the end of March, while lumber prices were still on their way up.

In May. Alberta was charging forest companies five times as much for crown wood as New Brunswick and in June it was more than seven times.    

By August, Alberta royalty rates for softwood had been above New Brunswick rates for 13 consecutive months, upsetting the claim the "stable, steady" approach has been more profitable for taxpayers over five years.

Holland's office said he was not available for an interview about the royalty issue.  . 

New Brunswick did cut crown timber charges for industry in 2008 to help mills when lumber prices were low, and Doucet said it is galling that precedent was not followed

"We have in the past lowered royalty rates in down times," said Doucett.   

"So now we had an upturn and nothing happened. Everything stayed very stagnant. So what we have here is clearly a broken system."