J.D. Irving and other forest companies take an axe to the longtime marketing board system
In the kitchen of his Queens County farmhouse, Jim McCrea flips through photo albums spread across the table until he comes to the image of an elderly man with a pipe clamped in his mouth.
“This is my grandfather,” McCrea said. “When he was 90, he had his ankle broken yarding logs with a horse.”
The McCreas go back almost two centuries in New Brunswick, and over the years since the first tree was cut, their property in Shannon has grown to more than 2,400 hectares of farm and forest land.
Every year, thousands of cords of softwood would be hauled out of the McCrea woods near the Washademoak Lake, enough to employ four men operating a pair of skidders and two logging trucks.
But no longer.
Forestry giant J.D. Irving Ltd. has changed its way of doing business, bringing logging at McCrea Farms to a complete stop.
Under a new “model” reminiscent of bygone times, JDI now buys its logs the way it wants from whom it wants — mostly turning its back on the forest marketing boards created to make the system fair.
“I'm not anti-Irving,” said McCrea, who considers JDI co-CEO Jim Irving, and his father, J.K. Irving, friends of the family.
"I've hauled wood for nigh on 40 years myself. I haven't hauled a load of softwood for three years. I'm concerned about the future of private woodlots, especially in southern New Brunswick."
Half the private wood used by JDI comes from southern New Brunswick, and it’s here JDI has been locked in a fight against the local wood marketing board, a fight that could decide the future of all seven boards in the province and tens of thousands of woodlot owners.
A hard-won balance
Jim McCrea remembers the struggles of the 1960s and '70s to organize private woodlot owners across New Brunswick so they could all get better prices from the mills.
His father, Lawrence McCrea, travelled the province with activist clergyman William Hart, trying to persuade families to join the New Brunswick Federation of Woodlot Owners.
Submitted by Jim McRae
“We needed organization,” said Jim McCrea , now 70. “We needed to put our wood in one pool and get better money.”
The federation eventually won a system based on marketing boards, which were formally recognized by the Richard Hatfield government in 1978 and enshrined in the Crown Lands and Forest Act of 1980.
CBC Archives 1978
In a difficult balancing of interests, the act handed control over Crown forests to the 10 companies that then owned the biggest mills in New Brunswick.
Today, only four companies control that same area: JDI, Fornebu Lumber, Twin Rivers Paper and AV Group, which is made up of AV Nackawic and AV Cell.
The act also said the forestry giants would have to buy their wood from private sources first, using Crown wood only as a secondary source.
Marketing boards would negotiate the prices, so that a woodlot-owning family would be spared having to cut individual deals.
Whether the companies have the legal authority to bypass the marketing boards is now being weighed by the New Brunswick Forest Products Commission, an arm’s-length regulatory panel.
JDI, backed by AV Group and more than two dozen private contractors who work for the companies, appealed to the commission after the SNB Forest Products Marketing Board issued an “order” declaring how wood sales must work in the region.
All wood sold in its territory had to be sold through the board, said the board based near Sussex, and all wood purchased in its territory had to be purchased from the board.
Irving also launched a challenge through the Court of Queen’s Bench related to the same order.
When the commission heard the case in August, JDI explained how it does business outside the board system.
Woodlot owners who want to sell wood to JDI simply contact the company, Irving vice-president Jason Limongelli testified.
A “direct contract” is worked out, setting out the price, volume of wood, delivery schedule, and bonuses for achieving targets, he said.
The marketing board is acknowledged only in that it receives a fee from each, as required by law.
Limongelli said Irving hasn’t bought wood through SNB since 2012. At the commission’s insistence, JDI did try negotiating with the board, but the company didn’t get what it wanted.
"We indicated that we weren't interested in a board contract under the terms of unnamed contracts, whereby all the wood was purchased from the board and sold to the board," he said.
The Irving-led fight against the marketing boards has largely gone unnoticed.
But a chorus of voices is now calling for a reset, or at the very least a public discussion about the future of the marketing board system.
The voices include Alan Graham, a former natural resources minister who once relaxed provincial laws at industry’s request, and Green Party Leader David Coon, who is frustrated by what he sees as the current Liberal government’s failure to stand up for thousands of small woodlots owners.
Forests are New Brunswick’s biggest resource, with an industry that employs 22,000 people full time. Half the wood is on publicly owned Crown land, which is licensed to the big companies.
With so much Crown wood available to industry, the trick has always been finding a way to ensure woodlot owners like Jim McCrea can still find a market and fair price for their logs.
The law says the price of Crown wood cannot be lower than private wood, so each year, private wood prices across the Maritimes are surveyed.
But who really controls the price of private wood? With fewer and larger companies as potential buyers, woodlot owners are competing against each other for contracts.
“The biggest challenge, I suppose, is to compete against Crown land wood,” McCrea said. “It flows freely, it flows freely, and mine doesn’t.”
Early chips in the law
David Coon blames Frank McKenna’s Liberal government of the 1990s for starting the erosion of the marketing board system.
Ten years after the landmark Crown Lands and Forest Act was passed, the government bowed to pressure from mill owners and relaxed the so-called primary-source rules.
Those rules required companies to make private wood, including their own, their primary source of supply and Crown wood a source of last resort.
In a recent interview, Graham said the industry was in trouble in 1992, when he, as minister, supported giving the mill owners a break.
But conditions are different today, said Graham, who believes woodlot owners still need the protection of marketing boards.
“The pendulum has swung,” he said.
The McKenna government also opened the door to JDI’s direct contracts with woodlot owners, although the move was intended to apply only to the largest private suppliers.
A marketing board had the right to sign off on such direct contracts, and the company's initial use of them was not the norm it's become in southern New Brunswick.
The next big changes happened in April 2014, when David Alward’s Progressive Conservative government made even more Crown forest available to forestry companies.
In exchange for 20 per cent more Crown wood, the companies, chiefly JDI, promised to invest hundreds of millions of dollars to modernize or expand their mills.
The pact with JDI was billed as an opportunity for woodlot owners to sell more wood.
Those landowners, however, suspected the additional Crown harvest would only hurt their bargaining power.
In fact, as the natural resources minister, Paul Robichaud, was announcing the Crown deal, JDI had already shifted to its new purchasing model, away from marketing boards.
Today, said McCrea and others, the biggest players control it all: Crown wood, their own forests and sales from private woodlots.
It’s not the free market JDI claims, they said.
The marketing board system is not without its faults. The way it works, in essence, is that boards try to win the price their members want, then put out a call to woodlot owners to deliver the logs.
But there have been times when a board has failed to deliver on contracts with mills. Or a spike in prices has led some woodlot owners to drive their logs to Maine to sell.
“There is still an element of freedom in the small wood producers' world, where you can do as you wish,” said Bud Bird, a natural resources minister under Hatfield and an architect of the wood supply system created in 1980.
“It’s difficult to control all 35, 000 of those woodlot producers into a single cohesive source of supply that is totally reliable, day after day, year after year, in good prices and bad prices.”
At the hearings in August, JDI had the support of more than two dozen harvesters, often woodlot owners themselves, who have each negotiated direct contracts with the company.
But the testimony of contractor Doug Murray of Sussex was telling. Murray revealed he had no choice but to go after his own contract with JDI instead of sticking with the SNB board.
Murray defended the direct contract model, saying it gives him a place to sell his wood, and he’s better able to plan and schedule the harvesting.
SNB lawyer David Duncan Young told the commission that Irving, its contractors, AV and others simply refuse to accept regulation of the industry.
"They want a free market economy, they want control over their destiny," he said.
Later, in response to a request for comment, JDI’s Limongelli returned to that theme.
“JDI believes there is a role for forest products marketing boards in New Brunswick,” he said in an email.
“JDI also believes it is critical to ensure there is a free market in the province, where willing buyers and willing sellers are free to make commercially acceptable agreements.”
How free is the market?
David Coon scoffed at the notion of a free market for forestry products in New Brunswick.
With so much Crown land wood available to mill owners, he said, a free market is not possible.
"That's why the province has put in place over time legislation to kind of create fair-market access for the woodlot owners.,” Coon said.
Jim McCrea believes there’s a correlation between the 2014 deal to give JDI greater Crown access and the loss of negotiating power for private woodlot owners.
In 2012, his pulpwood fetched $14 a tonne. In 2014, after the Crown land deal, similar trees sold to JDI for $8 a tonne.
“It may be a bit of an exaggeration,” McCrea said, "but I maintained the day Paul Robichaud signed that contract with Crown land, private wood went down $6 a tonne. And I have the paperwork to prove it.”
Last month, McCrea showed visitors around the rolling expanse of farmland and forest the family owns in Shannon.
A few kilometres south of his home, next to a forest of spruce and fir, he got out of his pickup truck and and walked into the woods, pointing to some larger trees that are now dead.
"There's probably 25 to 40 acres where we're standing of over-mature forest," McCrea said.
He estimated another 250 acres, or more than 100 hectares, in other pockets are also ready for cutting.
By remaining loyal to the marketing board, and therefore unable to sell his wood, he is being punished, McCrea said. Even if he tries to sell wood, unsolicited, at the gates of an Irving mill, he'll make considerably less than landowners who choose to sign contracts with the company.
A government standing back
The unpopularity of the Alward government’s Crown land deal with JDI in 2014 helped Brian Gallant’s election prospects the following year.
Yet both McCrea and Coon see an unwillingness by Gallant and his government to get involved at all in the dispute over marketing boards.
SNB has spent well over $100,000 on legal fees in 2016 and 2017 defending the marketing board system against JDI before the Forest Products Commission and in the courts.
The Federation of Woodlot Owners had to launch a GoFundMe campaign to continue the fight.
"What is upsetting is the province is not standing by the woodlot owners and defending their own legislation," Coon said.
"The governments don't have the courage, whether they're Liberal or Conservative, to stand with the woodlot owners in this case, to stand with the people."
Graham, the former natural resources minister, has called for formal discussions about the future of private wood sales.
“I'm not calling for a royal commission or anything like that, but I think there should be, really, an overall look at access to wood and the marketing of wood going into the 2020s and beyond."
PC natural resources critic Ross Wetmore also called for talks, preferably with fresh faces.
"I believe today that there's so much bad blood between both groups, or all groups, I'm going to say, that we're just at an impasse," Wetmore said.
He would not commit, however, to the marketing board system as it was originally set up.
Rick Doucet, the Liberal minister of energy and resource development, said department staff regularly meet with all sides and he’ll talk anytime.
“We really should have some good conversations,” said Doucet, who wouldn’t discuss the SNB case because it’s before the commission.
To the U.S., an ‘oligopsony’
Looming over the entire debate is the U.S. Commerce Department’s recent decision to slap anti-dumping duties on New Brunswick softwood lumber products, suggesting it leans more to McCrea and Coon’s analysis.
In a preliminary decision last April, the department described the New Brunswick market as an “oligopsony,” where a few companies dominate and have considerable power to control prices.
A department memo pointed to the 2014 decision that allowed more harvesting of Crown trees as a problem for the private wood market, saying the big mills were using private wood merely as a secondary option.
“Since the mills had access to additional Crown origin standing timber, private woodlot owners could not expect to charge more than Crown stumpage prices because the private woodlot owners were only a supplemental source of supply to the large mills.”
J.D. Irving has been steadfast in the claim that its private wood purchases are unaffected by the harvesting of Crown timber.
“We’ve had a vibrant market with the private woodlot owners in New Brunswick,” said another JDI vice-president, Jerome Pelletier.
“There’s a very large volume being harvested every year. It’s a free market.”
JDI recently approached the York-Sunbury-Charlotte Marketing Board, offering to go through the board to buy “ancillary” wood, or 15 per cent of the company’s total wood purchases in that area.
The contract proposed by JDI included language legitimizing its practice of using direct contracts for the rest of its wood purchases in the territory,
The board agreed, believing, as one board official put it, that 15 per cent is better than nothing.
Similar offers have been made to boards in Victoria, Carleton and Madawaska but negotiations there are not going as well. The company has not approached SNB.
Back to the beginning
The changes the big companies are wresting from marketing boards and landowners have undone much of what Jim McCrea ’s father fought for decades ago.
Any notion of a free market is not possible in southern New Brunswick, where distance makes it uneconomical to sell to mills that aren’t owned by Irving, McCrea said.
For years, McCrea acted as negotiator for the SNB, a role that brought him face to face with Jim Irving of JDI.
“We've chatted many times over many years,” McCrea said. “J.K. Irving was a friend of Lawrence McCrea. When my dad passed away there was three generations of Irvings attended the funeral.
“I don't feel it should be a personal issue. I think it is a business. The Irvings are good business people, I don't have any problem with that.
“To demand direct contracts from everyone — I have a problem with that.”
Writing and Reporting: Connell Smith
Videography: Brian Chisholm
Photography: Maria Jose Burgos
Video Editing: Megan Goddard
Graphics: Earl Cabuhat
Packaging: Paul Hantiuk
Producer: Elaine Bateman