Monday, January 16, 2006

Some people don't understand the cyclical nature of many businesses

Canadian Beetle Infestation Worries U.S.

GRANGEVILLE, Idaho - Northwest loggers are worried British Columbia may be forced to harvest as much as 21 million acres of forests to stop the mountain pine beetle, flooding the market and driving down timber prices.

The infected forests in British Columbia make up an area roughly 40 percent the size of Idaho. To combat the beetles, the province is increasing allowable timber cuts 78 percent; big trouble for mills throughout the Northwest.

"They're going to bury us in the sand," said Dick Bennett, owner of Bennett Forest Industries in Grangeville.

Bennett said the timber industry won't be as hot as it was in recent years because of an expected decline in the housing and building markets.

"If you're not strong, you're out of business," he said.

The beetles are native to British Columbia and the Inland Northwest, but warm winters and an abundance of lodgepole pine are helping the insects flourish, according to a 2005 report from the University of British Columbia's Forest Resources Management Department.

Officials say the beetle outbreak is the worst natural disaster to ever befall British Columbia and a researcher at the University of British Columbia says the province has little choice but to salvage what it can....
I'm sure they weren't complaining when the housing markets were hotter, garnering lumber companies nice profits. This is just another of life's lessons: don't count on constant income. Something is bound to happen that will confound your best safeguards and contingency plans.

Does my aunt complain that business at her wine store is so seasonal? If it weren't for the last six weeks or so of the year, revenues (at the rate during the rest of the year) wouldn't be sufficient to keep the store open, and she'd have to go into a different business. How about toy stores that see most of their business at year's end, or retail brokerage firms that generally see a dip in summertime? None of them complain. They instead project cyclical monthly revenue, using the excess of good times to make up for leaner times, like Joseph advised Pharaoh.

What I'm afraid of, however, is that the companies involved will seek government subsidies to compensate them for having to sell lumber for less, or that American companies will seek tariffs on "cheaper Canadian lumber." The latter is especially pernicious: when Canadians receive less income from exports, that's less money to circulate through their economy in both spending and saving. That then spills over to the American economy as Canadians cut back on importing American-made goods, which reduces Americans' income from exports, and so on. This is the death spiral of protectionist economics.

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