Miramichi River

Mike Ferguson, speaking to a legislative committee Tuesday, March 24, 2009, said flaws in the system mean royalties do not reflect fair market value.

The fundamental problem with the design of the system for determining royalty rates is that the timber market is not truly an open market.

Timber royalties are based on a survey of the stumpage prices received by private landowners – a segment of the market that supplied 11.6% of the timber consumed by mills in New Brunswick in the fiscal year ended 31 March 2007. The price that is paid to the private landowners determines the price the mills will pay to the Province for timber harvested from Crown land which represents 41.5% of their source of supply.

This would provide an incentive for the mills to keep the prices paid to private landowners as low as possible since those prices affect the royalties that would have to be paid in the future. Since the mills represent a very large proportion of the buyers for timber harvested in New Brunswick, they also have the market power to keep the prices paid to private landowners low. The result could be a continual spiraling down of prices and therefore royalties.

Timber from marketing boards accounted for 20.8% of timber consumed in New Brunswick in the 2004-05 fiscal year but declined to 11.6% in 2006-07. Timber harvested from Crown forests accounted for 37.4% of timber consumed in 2004-05 and increased to 41.5% in 2006-07. It should also be noted that in many cases the timber imported by New Brunswick mills is from land that they own or lease in other jurisdictions.