(Cite as: 48 FR 24159, *24176)
to non-Canadian persons and/or companies doing business in British Columbia. However, a non-Canadian company must register
in British Columbia before acquiring the license.
The tenure agreements are described in detail below:
1. Tree Farm License. A tree farm license shall:
(a) Be for a term of 25 years, and can be revised at each succeeding ten-year anniversary under an "evergreen arrangement" which
initiates a new 25-year replacement license with revised conditions;
(b) Describe a tree farm license area composed of Crown land and private tenures;
(c) Require its holder to pay to the Crown stumpage or royalty, in additon to a bonus bid (which is fully paid when the license is
issued);
(d) Require its holder to submit for the approval of the Chief Forester, once every five years, a management and working plan
prepared by a registered professional forester;
(e) Grant to its holder the exclusive right to harvest timber (chosen by the licensee) from the tree farm license area during the
term of the license;
(f) Provide for cutting permits to be issued by the Crown to its holder authorizing the AAC (determined by the Chief Forester) to
be harvested from specific areas in the tree farm license area within plus or minus 50 percent on a yearly basis and within plus or
minus ten percent on a five-year basis,
(Cite as: 48 FR 24159, *24176)
subject to a penalty assessment;
(g) Require that each year during its term a volume of timber chosen by the licensee shall be harvested by persons under contract
with its holder; and
(h) Reserve to the Crown the right to enter into a free use permit on the tree farm license area with a person other than the holder
of the tree farm license.
A tree farm license cutting permit authorizes timber harvesting operations on a specific portion of the tree farm license area. It
provides for the determination of stumpage rates payable through an appraisal system established under section 84 of the Forest
Act and for periodic rate adjustments based on changes in the average market value of the logs or lumber products. Separate
permits are issued for operations on different geographic parts of the license, where separate stumpage rate determinations are
appropriate or where different cutting permit conditions are needed.
Tree farm licenses account for 28.6 percent of the Province's total AAC.
2. Forest Licenses (formerly Timber Sale Harvesting Licenses). The timber sale harvesting license was a license to harvest timber
within a public sustained yield unit at a stipulated annual rate. These licenses, granted under the former Forest Act, were not
replaced by forest licenses until the latter part of 1982. We verified that the timber sale harvesting licenses in effect during the
period for which we are measuring subsidization are very similar to the forest license explained below.
(Cite as: 48 FR 24159, *24176)
A forest license:
(a) Shall be for a term not exceeding 20 years, and can be revised at each succeeding five-year anniversary under an "evergreen
arrangement," which initiates a new five-year replacement license with revised conditions;
(b) Shall describe a public sustained yield unit of a timber supply area within which timber may be harvested;
(c) Shall specify an AAC (determined by the Chief Forester) that may be harvested under the license from specific areas of land,
subject to annual and five-year cut control provisions;
(d) Shall require its holder to pay to the Crown stumpage and a bonus, if any, in the amount offered in the application;
(e) Shall require its holder to submit, for the approval of the regional manager, a management and working plan prepared by a
professional forester;
(f) Shall require that if the allowable annual cut of the timber supply area declines, the licensees must accept proportional
reduction in harvesting rates without compensation; and
(g) May make provisions for timber to be harvested by persons under contract with its holder.
A forest license cutting permit is indentical to the tree farm license cutting permit.
Forest licenses account for 61 percent of the Province's total AAC.
(Cite as: 48 FR 24159, *24176)
3. Timber Sale Licenses (Major). The timber sale licenses (major) generally have the same requirements as the new "forest
licenses." The award of a new timber sale license (major) is by the appropriate Regional Manager or District Manager. The Forest
Act requires the award be made to the applicant submitting the highest bonus bid.
This license is used in circumstances where an evergreen replacement feature would not be appropriate; for example, a situation
where an ongoing supply of timber is not expected (because of a flood, a fire, or an insect infestation), but where the volume
comprises part of the approved AAC and a limit is therefore imposed on the rate of harvesting.
A timber sale license (major):
(a) Shall be for a term not exceeding ten years; there is no provision for replacement, but rights are renewable pursuant to section
18(5);
(b) Shall describe an area of land within which Crown timber may be harvested;
(c) May specify an AAC (determined by the Forest Service) that its holder is eligible to harvest, subject to annual and five-year cut
control provisions;
(d) May provide for cutting permits to be issued by the Crown to its holder to authorize an AAC to be harvested, within the limits
provided in the license;
(e) Shall require its holder to pay to the Crown stumpage and a bonus, if any, in the amount bid; and
(f) Shall require its holder to submit, for the approval of the Chief
(Cite as: 48 FR 24159, *24176)
Forester, a management and working plan prepared by a registered professional forester.
Timber sale licenses (major) account for 1.3 percent of the Province's total AAC.
*24177
(Cite as: 48 FR 24159, *24177)
4. Timber Sale Licenses (Minor). The award of a timber sale license (minor) is made by the appropriate Regional or District
Manager of the Forest Service to the highest bidder.
This license is used for sales of timber under the small business enterprise program and in other instances where the volume of
timber is not sufficient to warrant delegation of major forest management responsibilities for investments.
A timber sale license (minor):
(a) Shall be granted through a competitive bid process which determines the total amount of stumpage dues payable (although the
appraisal system determines the base rate of stumpage due, adjusted monthly and subject to annual reappraisal);
(b) Shall be for a term from one to three years, without provision for replacement;
(c) Shall allow the license to cut the timber, within site-specific areas, at any rate within the terms of the license and the periodic
cut control requirements; and
(d) Requires small business enterprises without timber processing facilities
(Cite as: 48 FR 24159, *24177)
to sell all harvested logs, and small business enterprises with timber processing facilities to process a pre-specified portion of the
logs harvested.
Timber sale licenses (minor) account for 7.2 percent of the province's total AAC.
5. A pulpwood agreement shall:
(a) Be for a term not exceeding 25 years, with "evergreen replacement" at ten- year intervals;
(b) Describe an area of land as a pulpwood area; and
(c) Require its holder to construct, expand or continue a timber processing facility in accordance with his application.
In 1981 and 1982 there were no mills which acquired stumpage rights under a pulpwood agreement.
6. A woodlot license shall:
(a) Be for a term not exceeding 15 years, with an "evergreen replacement" at five-year intervals with satisfactory performance;
(b) Describe a woodlot license area determined by the regional manager or district manager to be composed of private land and
not more than 400 hectares of Crown land;
(c) Give to its holder the exclusive right to harvest timber on the Crown land for its term subject to five-year cut control
provisions (determined by the Forest Service);
(Cite as: 48 FR 24159, *24177)
(d) Require its holder to pay to the Crown stumpage in respect of timber harvested from land and a bonus bid, if any, in the
amount tendered; and
(e) Provide for cutting permits to be issued to its holder to authorize timber to be harvested from specific areas in the woodlot
license area.
Woodlot licenses account for 0.7 percent of the province's total AAC; however, there have been no woodlot licenses offered to
date.
7. A timber license shall:
(a) Describe an area of Crown land over which it is to apply;
(b) (When in a tree farm license area) be for a term that expires with the tree farm license, and (when not in a tree farm license
area) be for terms based on a required schedule for the continued orderly logging of all the timber licenses held by the licensee;
(c) Grant to its holder the exclusive right during its term to harvest all merchantable timber in the area of Crown land;
(d) Where the timber license is in a tree farm license area, require its holder to harvest timber in accordance with the tree farm
license and the management and working plan approved under it;
(e) Where a timber license is not in a tree farm license area, require its holder to submit an operating plan prepared by a
professional forester, which is used by the Forest Service to determine the AAC;
(f) Provide for cutting permits to be issued by the Crown to its holder
(Cite as: 48 FR 24159, *24177)
authorizing timber to be harvested from specific areas of land described in the timber license;
(g) Require its holder to pay to the Crown stumpage or royalty; and
(h) Requires its holder to carry out reforestation or other treatment for the re-establishment of the forest on the land described in
the timber license.
Timber licenses comprise approximately five percent of harvest, but are not subject to any allowable cut restrictions. There have
been no new timber licenses offered, and the Forest Act does not provide for any to be offered in the future.
Stumpage prices for all forest tenure agreements in the six forest regions of British Columbia are based on the residual value
method. This method takes into account three components: The selling price of the end product (logs), allowances for production
and operating costs, and allowances for profit and risk. The stumpage price is subject to monthly adjustments based on selling
price fluctuations and an annual reappraisal. Licensees pay at the adjusted rate in effect for each species during the month the
timber was scaled. Charges due are payable upon receipt, with interest due after 30 days, at prime plus one percent. The Ministry
of Forests of the British Columbia provincial government is responsible for fee collection.
Due to the type and quality of trees in British Columbia, there are two appraisal systems in operation. The coastal appraisal system
emphasizes
(Cite as: 48 FR 24159, *24177)
quality and the interior appraisal system emphasizes quantity.
A. Coastal British Columbia Appraisal System.--Sales Value of End Products. Coastal appraisals are based on log prices.
Three-month rolling average prices for each species are established monthly by log grades from a monthly survey of domestic log
sales representing arm's length transactions. Coastal appraisals are based on log prices, which vary by species and grade within
each species.
Production and Operating Costs. Logging costs account for all costs of development, harvesting, transportation, contractual
obligations, administration and tenure agreement responsibilities. The "average efficient operator" concept is used by the Ministry
for appraisal purposes. Costs are derived from industry experience (as determined from annual surveys) to estimate what costs
would be incurred by an efficient operator in harvesting timber and the expected recovery value of that timber in terms of
revenue. In the appraisal, logs are assumed to be transported to the point which would result in the highest total stumpage price.
No consideration is given to the location of the purchaser's mill.
Profit and Risk. The six risk factors included in the stumpage appraisal are: market, defect, investment, pioneering, incentive and
chance. The ranges of values assigned to each of the risk factors are incorporated in the appraisal manuals. The values assigned
differ from year-to-year depending on changing market, log quality and logging difficulty.
(Cite as: 48 FR 24159, *24177)
Minimum Stumpage Prices. This is the lowest price at which the government would sell its timber resource. The minimum rate is
used whenever the appraised rate falls below the minimum rate, and there is no compensation provision.
"Timber quality is determined at the time of the timber cruise, by a determination of percentage of log grades for each species."
Log quality influences the logging cost estimate in the appraisal.
B. Interior British Columbia Appraisal System for Lumber.--Sales Value of End Products. In the interior, the appraisal system is
based on the end value of lumber and by-product pulp chips. Three-month rolling averages are established monthly from lumber
sales in the five interior selling price zones, based on sales f.o.b. mill, consummated in each of these zones. Approximately 80
mills report monthly lumber sales transactions, which are audited by the Ministry of Forests. These prices are single averages for
each of the species by zone.
Lumber selling prices are in dollars per thousand board feet and standing timber is cruised (measured) for appraisal purposes in
cubic meters. A "lumber recovery factor" is used to convert cubic measures of timber into the value of the end product.
By-product pulp chip prices are set around $10 per bone-dry unit. The government contends that the introduction of an actual
chip value would not have a significant effect on stumpage fees.
Stud producers and small operators (those having annual production less
(Cite as: 48 FR 24159, *24177)
than 3775 cubic meters) are separately classed. Although the appraisal system is identical in structure for all categories, product
prices, operating practices and costs which are pertinent to these groups are taken into consideration in the appraisal.
Production and Operating Costs. Manufacturing costs are required for interior appraisals, where lumber and by-product chips are
the appraisal products, rather than logs, as is the case on the coast. The manufacturing costs are obtained from an annual survey
of about 55 sawmills deemed to represent the efficient segment of the industry. Separate zonal milling costs have been established
for the Prince George-Quesnel and Ft. Nelson areas (two isolated milling centers north of Ft. Saint James) and the remainder of the
interior of the province. A second survey is made for stud-producing mills.
Profit and Risk. The same method is used as in the coastal appraisal system, supra.
*24178
(Cite as: 48 FR 24159, *24178)
Minimum Stumpage Prices. Interior statutory minimum stumpage rates are established for each species at three percent of the
selling price of lumber and by-product pulp chips. The statutory minimum rate may be reduced to 0.75 percent for salvage
timber. Timber is cruised and classified according to species, size, and visual defect.
Adjustments to Stumpage
(Cite as: 48 FR 24159, *24178)
A. Stumpage Price Adjustment Method. The stumpage price of any species will change at the beginning of each month: provided
the selling price of lumber (interior) of that species departs $5.00 per MBF (thousand board feet) or more from the selling price
last used to determine the existing stumpage price; or, whenever the selling price of logs (coast) of that species departs by $1.00
per cubic meter or more from the selling price last used to determine the existing stumpage price. The entire difference in the
selling price is used in the recalculation of the stumpage price adjustment.
B. Annual Stumpage Price Reappraisal. A full reappraisal, allowing for changes to product prices, logging costs, milling costs and
profit ratio, is made annually at the anniversary date of the contract or cutting permit. Again, the entire difference in the selling
price is used in the recalculation of the stumpage price adjustment.
C. Credits to Stumpage. Section 88 of the Forest Act stipulates that licensee expenditures for the construction of a logging access
road, or the application of reforestation or other silvicultural treatment on Crown land, not considered in the stumpage appraisal
system, shall be credited against total stumpage payable. The stumpage appraisal system makes allowances for estimated costs for
the construction of roads essential to the actual cutting and removal of timber from the licensed cutting permit area, and for the
performance of basic
(Cite as: 48 FR 24159, *24178)
silviculture treatments required under the license agreement. These cost components (estimated cost allowances in the appraisal)
are considered to be normal operating costs of an efficient logger and any costs exceeding the allowance given in the stumpage
appraisal must be absorbed by the permittee. The work must be agreed upon, approved in advance, and completed to the
satisfaction of the BC regional forest manager.
Manitoba
Background
Manitoba is a farm-oriented province with its timber resources in the north. Most of its timber (89 percent) is not very large (10''
or less in diameter). Forest harvesting operations are small and include a fair proportion of part- time operators.
Stumpage Rights and Payments
Prior to 1965, timber rights were allocated through a competitive process, by auction or sealed tender, for one to five years. In
1965, the Timber Quota System was introduced. This system provided long-term (15 years) fixed
(Cite as: 48 FR 24159, *24178)
allocations to established operators at set (regulation) stumpage rates. Surplus timber was advertised and sold competitively.
The Timber Quota System was revised in 1980 to continue for another ten years. Stumpage rates were increased and set to be
revised annually thereafter according to the national forest product price indices for lumber and paper and pulp companies,
weighted as they are produced in Manitoba.
Uncommitted surplus timber is either offered for sale at established stumpage rates plus a lump sum bid, or available for
development and allocation on a negotiable basis for companies with sufficient capital to undertake the commitments involved.
Cutting rights for Manitoba Crown timber are allocated by the Forestry Branch, and are classified as "major" or "minor." "Minor"
allocations are based on volume and area where mature timber is ready for harvest. They run for a 10- year period, renewable
depending on performance of the licensee. Prices are based on regulation rates (mentioned above), reviewed and indexed
annually to reflect product price increases. Prices also reflect location of timber relative to mill and distance of mill from market.
For "major" licenses an initial rate is negotiated at the start of the contract (contracts run for 20 years with a renew option). The
initial rate takes into account geography, timber supply and demand, and basic (regulation) stumpage rates. Prices are adjusted
according to dates and indices specified
(Cite as: 48 FR 24159, *24178)
in each contract.
The province of Manitoba is responsible for timberland management and silviculture. One Forest Management License company
does its own silviculture but is reimbursed for its expenditures. All licensees use public roads, but are responsible for all cost of
timber extraction roads. Manitoba is responsible for forest fire protection, but licensees must have a fire protection plan for initial
fire suppression within their area. Additionally, licensees are held responsible for the cost of fire suppression in instances where it
is demonstrated that a fire resulted from company negligence.
New Brunswick
Background
The three categories of ownership of timberland in New Brunswick are: the province (Crown lands--48.5 percent), the "forest
industry" (industrial holdings--21.0 percent), and individual (non-industrial--30.5 percent).
The products under investigation are all manufactured from the primary product, softwood logs. Over half of these logs have
come from the private sector during the past five years. The actual breakdown is: Crown lands, 46.6 percent; company-owned
lands, 30.4 percent; and private lands, 23.0 percent.
(Cite as: 48 FR 24159, *24178)
New Brunswick has no surplus timber to allocate to new plants or for expansion. The current annual supply of softwood species is
7.6 million cubic meters. This accounts for 80 percent of the industrial timber requirement for softwood species. Of the 7.6
million cubic meters harvested, only 5.5 million cubic meters are reforested naturally. The deficiency is made up by silviculture
inputs.
The province has undergone a major restructuring of its forest management policy. The change was instituted in March 1982. The
purpose of the change was to effect the organizational structure of the licensing system. The previous 85 licensees were divided
into 6 licensees and 79 sub-licensees which were issued 10 licenses and 105 sub-licenses, respectively.
Stumpage Allocation under Old System
Stumpage rights were allocated by area-based licenses under the old system. The issuance varied from 1 to 50 years and 250 to
450,000 hectares. The licenses were renewable upon satisfactory review. The differences in the licenses were a result of
fluctuating supply and applicant's demand.
The licensee was responsible for operational costs, including operational cruising, inventories, and some management planning.
The province retained overall responsibility for forest management, including silviculture and
(Cite as: 48 FR 24159, *24178)
reforestation. Areas of dual responsibility were pest control and, through the application of a fee, fire protection. Road
construction and maintenance were the responsibility of the licensee.
Stumpage Allocation under New System
Under the new system, there is a license and sub-license classification. The license is area-based and conveys responsibility for
many of the duties previously carried out by the province. The sub-license is volume-based, and is issued to parties either not
wanting to carry out, or incapable of carrying out, the forest management duties.
The license is a 25-year renewable license, with five-year reviews. The licensee must submit a 25-year forest management plan
and is responsible for forest management. This includes: Road construction and maintenance planning; inventory and records;
specified silviculture; boundary lines maintenance; management activities, including sub-license obligations; fire protection of
harvest operation; submission of management plans for private lands; and payment of stumpage royalties.
The sub-license is issued for five years and is renewable depending upon satisfactory performance. The sub-licensee must submit
a ten-year operating plan and must maintain and operate a processing plant as specified in the
(Cite as: 48 FR 24159, *24178)
plan. Other responsibilities include submission of a plan for private lands, cooperation with the licensee and payment for his
services, and payment of royalty on stumpage harvested.
Newfoundland
Background
The sawmill industry in Newfoundland is very small and the great majority of sawmills is not mechanized. Newfoundland's only
lumber exports are approximately 100 MBF/yr. of dunnage, which is rough-sawn softwood lumber used for blocking (i.e., as
packing material) in shipments of rolls of newsprint. This production is only about 0.19 percent of the total harvest or two percent
of the total lumber production.
Stumpage Rights and Payments
Stumpage rights are allocated on the basis of an annual permit, which is renewable. A sawmill permit costs $20, and a cutting
permit *24179
(Cite as: 48 FR 24159, *24179)
costs $10. A sawmill applies to the Province for stumpage rights, specifying the volume and location of timber required (in
accordance with established
(Cite as: 48 FR 24159, *24179)
regulations). Rights are granted depending on availability of timber and previous performance of the applicant. Anyone is eligible
to apply.
Stumpage fees are paid to the Department of Forest Resources and Lands on the basis of harvested volume, currently $7 per MBF.
The price is set legislatively and, as of January 1983, is indexed annually to the implicit price index of government goods and
services and selling price index of lumber. The price is lower in designated salvage areas, or higher where government-built roads
are used for harvesting sawlogs (see below). No stumpage is sold through competitive sale.
The government assumes responsibility for the construction of main roads, as well as for forest management, silviculture, fire and
disease protection, etc. The roads become public upon their completion with unrestricted access. Where these roads are used for
harvesting sawlogs, the stumpage rate is 40 percent higher than in areas where the operator provides his own access.
Stumpage and tenure rights differ for pulpwood, but the same formula is used for setting stumpage rates for both pulpwood and
lumber.
Nova Scotia
Background
(Cite as: 48 FR 24159, *24179)
Nova Scotia is the second smallest province in Canada. About 25 percent of all forested area is Crown land. Average annual
harvest for the province over the last five years has been slightly in excess of 3.3 million cubic meters of softwood timber. The
sawmilling industry is of the small, local variety. About 73 percent of the annual harvest is used in the production of pulp and
paper; 27 percent is used for sawlogs.
Stumpage Rights and Payments
Prior to 1970, Crown timber was allocated by means of long-term licenses (40 years or more). Under such licenses, mills have the
right to harvest standing timber within certain defined areas, up to annual allowable limits set by the provincial government. Pulp
and paper companies were the only applicants for these licenses. Although no long-term licenses have been issued since 1970, the
province may issue new ones.
Under these licenses, the province is responsible for fire prevention and suppression, as well as insect and disease protection
(although licensees share the cost of the latter). Licensees perform silviculture, regeneration, and reforestation, and build roads.
They are reimbursed for forest management work at rates set by the province, based on known industry and past departmental
costs for such work. Stumpage rates are negotiated between the province and
(Cite as: 48 FR 24159, *24179)
the licensee, and reflect the quality and accessibility of the timber involved. The timber harvested must be used in the mill(s)
operated by the licensee, unless otherwise approved by the Ministry.
Durign the 1970's, the province inaugurated shorter-term licenses to harvest Crown timber. These licenses run for ten years (with
an option to renew for ten years), and the province retains forest management responsibilities. the licensees pay for road
construction and maintenance, and for the preparation of management plans.
Base softwood stumpage rates are determined by the province when the license is issued, taking into account tender sales prices
in the area and the rate accorded under similar agreements elsewhere in the province. Provisions for regular review and
adjustment are included in the agreements; adjustments are based on an indexing mechanism which relates to the market price
for softwood lumber of various sizes. The Nova Scotia government responds to applications for license agreements on a
"first-come first-served" basis. One agreement was awarded in 1981, and one in 1982. All stumpage fees are collected by the Nova
Scotia Department of Lands and Forests.
In addition to long-and shorter-term licenses, the province disposes of small lots of sawlogs by public tender, either as standing
timber or as logs piled at road side. These sales involve a small amount of timber, with the volume and location set by the
province. Prices are established under a competitive
(Cite as: 48 FR 24159, *24179)
bidding system, with an upset price based on the knowledge of prevailing rates in the area.
Ontario
Licensing System
The primary type of timber cutting license in Ontario traditionally has been the Order-in-Council License (OCL). OCL's were
introduced in the 1920's to accommodate the timber needs of scattered pulp and paper mills in northern Ontario. During the
1940's and 1950's, sawmill operators began using the system, first for salvage operations and then increasingly for undamaged
timber. Technological advances during the 1960's and 1970's led to higher volume demand by sawmill operators, until most of the
available yield in the province's forest land was alloted.
OCL's are being replaced gradually by Forest Management Agreements (FMA), which cover large areas and convey many forest
management responsibilities to the licensee. Other types of licenses in Ontario are Salvage Licenses, which permit expedient
harvesting of damaged timber; District Cutting Licenses, which are issued primarily to individuals; and a few competitively bid
Sale Licenses, which are awarded to the highest tendered bidder in small areas of
(Cite as: 48 FR 24159, *24179)
high demand.
To acquire stumpage rights on Crown lands in Ontario, an applicant must be incorporated to carry on timber harvesting activities
in the province, or own and operate a mill, or have a contract to supply wood to a mill. Stumpage licenses are managed by the
Ministry of Natural Resources of Ontario.
Ontario identifies 12 criteria used by the Ministry to evaluate license applications. These fall under three paramount factors,
which are timber and land characteristics, viability of the applicant, and impact on the provincial economy. The province usually
re-issues licenses to companies already operating mills in a given area.
In Ontario, the Crown approves management and operating plans which specify the volume to be cut annually on each license.
These plans also allow provincial direction of all forest management activities. The extent to which the province also performs
these activities depends on the license type or the amount of area which has been licensed to one company within a management
unit. The Ministry has divided the provincially owned forest into Crown or Company Management Units to administer its forest
management policies.
Stumpage rights in Ontario are granted under equal terms to Canadian and non- Canadian companies, although exports of logs are
banned by the province. A study in 1972 indicated that approximately 40 percent of the total area under license was granted to
non-Canadian controlled companies, and the province
(Cite as: 48 FR 24159, *24179)
estimates that this percentage is still accurate.
Payment for Stumpage
The payment system for stumpage in Ontario is also managed by the Ministry of Natural Resources, which maintains procedures
for wood measurement and financial services. Stumpage fees consist of an area charge, Crown dues, a bonus price, and, in the case
of sale licenses, a tendered bid. Interest is charged at one percent per month for all overdue stumpage payments.
The area charge in Ontario is rent for ground used and is not related to the volume of timber cut. It is designed to cover fire
protection and other management costs. The charge is uniform and increases by 10 percent a year; it is currently $60.60 per
square mile.
Crown dues cover most of the total stumpage fees. They are calculated pursuant to the regulations of the Crown Timber Act of
1980, broken down into major species and product categories, which take into account differences in species and products
manufacturered from the timber. Ontario states that the dues are designed to provide a fair return to the province and are based
on past provincial costs to maintain, improve, and regenerate the resource.
The Crown Timber Act specifies two sets of Crown dues. The first set, with a bonus price added on, is used as a minimum price for
the competitively bid sale
(Cite as: 48 FR 24159, *24179)
licenses and also applies to district cutting licenses. The second set applies to OCL's and FMA's.
Regulation 234 of the Crown Timber Act sets out the schedule for the two sets of Crown dues. The second set of dues consists of a
base rate which is adjusted in proportion to one of four six-month, rolling-average Commodity Selling Price Indices produced by
Statistics Canada, a federal agency. The base rate for non-integrated producers is set at 90 percent of the base rate for
integrated producers. The rates were set in July, 1978 based on the old Crown dues, which were also set administratively. The
rolling average is updated quarterly, so the second set of Crown dues change with it on a quarterly basis. The first set of Crown
dues is not indexed and is reset by the province on an annual basis.
The bonus price is a negotiated payment in addition to Crown dues. It is expected to take *24180
(Cite as: 48 FR 24159, *24180)
into account material differences in the location and quality of stumpage obtained by a firm. It is updated much less frequently
than Crown dues, ranging in review period from one to five years depending on the license type.
Order-in-Council Licenses
Order-in-Council Licenses, originating in the 1920's, are still the most
(Cite as: 48 FR 24159, *24180)
widespread vehicle for stumpage allocation in Ontario. OCL's currently cover 74 percent of timber area under license and
represent 83 percent of licenses in issuance. 398 OCL's are outstanding, but most are expected to be phased out in favor of Forest
Management Agreements during the 1980's.
The duration and the area of coverage of OCL's vary widely and are at the discretion of the Ministry of Natural Resources. Other
terms and conditions of OCL's are negotiated, but they tend to be consistent from one license to the next. Renewals are permitted
on OCL's only to complete the harvesting intended for the original term. OCL's may be transferred, but not for the profit of the
original licensee.
Forest management activities under OCL's are managed by the Crown through the negotiation of long-term and annual operating
and management plans, paid for by the companies. Normally, the province supervises the harvesting and is responsible for the
renewal and improvement of the forest. Fire prevention and insect and disease protection are also largely performed by the
Crown. Some forest management activities may be performed by the company, with reimbursement by the Crown at
administrative rates based on past provincial costs. All roads are constructed and maintained by the companies at their expense.
Stumpage fees for OCL's consist of the basic Crown dues and the negotiated bonus price. The bonus price is reviewed every three
years, unless otherwise
(Cite as: 48 FR 24159, *24180)
specified in the license.
Forest Management Agreements
After all softwood in Ontario became fully committed in the 1960's, the province made plans to intensify forest management. Such
extensive improvements were needed that major responsibilities had to be assigned to timber licensees. Thus, FMA's were
developed to replace existing licenses.
Currently these agreements have been reached primarily with pulp and paper manufacturers, but anyone is eligible to apply for
stumpage rights under an FMA. The province expects to extend FMA coverage to all Crown forest areas over the next 10 years.
FMA holders perform various forest management activities at reimbursement rates identical to those described above, under
OCL's. Unlike OCL holders, these licensees are also reimbursed for the costs of building primary and secondary roads, up to a set
maximum. The province requires public access for these roads and dictates the standards to which they are built. FMA holders
pay for other roads and pay maintenance costs for all their roads, as do OCL holders. FMA holders fund the preparation of four
types of management plans for their operation: a 20-year management plan, a five-year operating plan, annual cutting plans and
annual silvicultural plans.
(Cite as: 48 FR 24159, *24180)
Stumpage fees under FMA's consist of Crown dues and the negotiated bonus price. The bonus price is reviewed at five-year
intervals only.
Other Licenses
Ontario issues Salvage Licenses to hasten harvesting of damaged timber. Fifty Salvage Licenses are outstanding, covering less than
one percent of the total area under license. They are issued normally for one-year periods and generally convey no management
responsibilities to the license. Stumpage fees are negotiated and may be less than the applicable Crown dues.
District Cutting Licenses are issued in Ontario to cover very small areas for one year. Roughly 20,000 of these licenses are issued
annually to individual or small commercial operators. The total area under these licenses is less than one percent of the area
under license.
Forest management responsibilities under District Cutting Licenses are retained by the Crown. Stumpage fees are comprised of the
first set of Crown dues and a bonus price set by the province.
Ontario also issues about 15 competitively bid Sale Licenses per year which cover less than one percent of the total area under
license. These are used for the sale of small areas of timber in locations where demand exceeds available supply, usually in high
quality hardwood stands. Sale Licenses are
(Cite as: 48 FR 24159, *24180)
normally issued for one or two years and convey no forest management responsibility to the licensee.
For Sale Licenses, the Crown dues and a bonus price set by the district office form the starting bid price. Sealed tender offers
above the starting price become the basis for issuance of the license.
Prince Edward Island
Background
There are approximately 20.9 million cubic meters of standing timber in Prince Edward Island, most of which is generally poor
quality. The province owns about 10 percent of the total volume. Many of the 50 small mills comprising the lumber industry are
part-time operations supplementing other sources of income.
Most of the lumber is not graded according to official standards and is of non-exportable quality. The response shows that none of
the lumber produced was exported during 1981 and 1982. No shakes, shingles or fence were exported from Prince Edward Island.
Stumpage Rights and Payments
(Cite as: 48 FR 24159, *24180)
There is no allocation process. Stumpage rights and prices for standing timber on Crown land are determined through a
competitive bid process. The Crown advertises "stump tenders" (offers of blocks of standing timber) once a year. Advertisements
appear in provincial newspapers at least three weeks prior to closing date, and bids are opened at a public meeting. The highest
bidder is normally awarded the contract, except where that bidder's record of past performance is demonstrably poor. Stumpage
prices are in effect for one year; i.e., the duration of the contract.
A minimum base price ("upset price") may be established by the provincial Forest Service to ensure that bids do not come in
below known stumpage rates in the industry. Estimation of expected stumpage values are based on the Forest Service staff
estimations of the volume of logs, pulpwood, etc. which could be removed. The price of finished products, transport costs,
recovery factor, or mill costs are not used in setting stumpage upset prices.
Rights do not differ between millers and pulpwood contractors. The P.E.I. Forest Service establishes the volume of timber allowed
to be cut under the contracts. Once the timber has been paid for and removed, the contractor may dispose of it within any market
at will.
Quebec