Softwood agreement: already penalizing Canadian producers

According to the terms and schedules which make up the Softwood Lumber Agreement (PDF) between Canada and the United States, Canadian producers shall be liable to pay export charges (a different term for a penalty) if the average price of lumber as calculated by Random Lengths, a U.S. industry data compilation firm, drops below $355.00 U.S. / thousand board feet.

In addition to export charges being levied, there is a complex system of export quota reductions that is tied to price as well. Both export charges and quota reductions are calculated using the monthly average price as determined by Random Lengths.

Readers may recall that Canadian industry opponents to the deal were concerned about these provisions, in part due to the volatile nature of softwood lumber pricing which has both seasonal as well as economic cyclic influences. More lumber is used when weather makes building easier; more homes are built when housing markets are on the upswing. The price of lumber naturally climbs when both these cycles are pointed in the right direction.

Canadian producers, thanks to sharply declining U.S. housing starts, and the natural seasonality of lumber, are already on the hook for export charges, as the following table shows:

Of the 152 months covered in the summary table showing monthly prices from 1995 to 2006, average selling prices were over $355/thousand board feet in just 71 of those months – less than half the time (46.71%).

What Canada has signed onto is a system designed, deliberately, to shrink Canada’s forest products industry, and British Columbia, which alone provides lumber accounting for almost 19% of U.S. consumption, is the biggest loser.