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Report On Business Early strategy gives Canada a natural softwood lumber advantage

There's one argument in the softwood lumber dispute that the Americans just don't want aired: With our huge northern forests, Canada has a natural competitive advantage that simply makes our trees cheaper.

U.S. lumber producers complain they spend far more money for timber rights on private land than Canadian producers pay in government "stumpage" fees to cut on Crown-owned land. Therefore, they argue, stumpage fees are obviously kept low to subsidize Canadian companies.

Here's a thought: If we have more available timber in Canada, it is possible that stumpage fees accurately reflect the value of trees in a situation of far greater supply.

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Canada has 417 million hectares of forest land, about 94 per cent of it owned by the Crown. The United States has half that amount, and 64 per cent is privately owned.

Over the past decade, huge tracts of U.S. timberland have become unavailable for forestry, further tightening available supply. Twenty years ago, 15 per cent of U.S. timber came from national forests, now it's down to less than 5 per cent. The change is due to a series of court challenges by environmental groups, making large tracts protected territory.

Forestry patterns have shifted enormously as a result. Less timber is being cut in the U.S. Northwest, where more of the forest is government-owned, and more is being cut in the 13 southern states from Virginia to Texas, where the timberland is largely privately owned.

The way this final frontier is being managed these days, it won't last forever, either, and then U.S. supply will truly be minimal compared with Canada's. Over the past 20 years, timber harvests have doubled in the South, which supplies about two-thirds of the U.S. total.

In the South, softwood lumber, such as pine, is now being harvested faster than it's being replaced, especially where clear-cutting is extensive. The chief of the U.S. Forest Service, Mike Dombeck, has said the South used to have a huge timber surplus (annual growth over harvest), but it has been eliminated in 20 years.

As supply tightens, U.S. producers insist ever more loudly that Canada should set stumpage fees based on an open auction, which would encourage "real" market prices to prevail. But wise voices -- even within the U.S. industry -- are warning their comrades to be careful what they ask.

If stumpage rights were auctioned in Canada, it's entirely possible fees would fall. Canada's vast size means there are often one or two major mills within a reasonable transportation distance from a parcel of land. When there is just one bidder and an enormous amount of product, the purchase price is pretty much a steal.

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Canada made clear-eyed choices 100 years ago to avoid the crucial errors it perceived the United States was making in timber management. By 1900, Canadian forestry experts believed it was a mistake for the U.S. government to sell or give away vast tracts of forest land. The Canadian government decided to keep forests in Crown hands to ensure their protection.

That means Canadian forests must be replanted when cut, unlike much of the private land in the United States. Although U.S. land often is replanted, it is also common for large tracts to be cleared and then sold for development.

More than a century later, Canada's early strategy is vindicated. Yet our timber industry is unable to reap the expected benefits because U.S. producers are using their clout to have quotas and duties imposed on Canadian timber, even though Canada keeps winning the legal challenges.

Canada's abundance of trees is a natural treasure for a northern country. But U.S. producers will never accept the inevitable imbalance as a simple fact of life. This means U.S. producers are going to be complaining about "unfairly" cheap Canadian lumber flooding their markets for decades to come. jmcfarland@globeandmail.ca

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