It is possible we economists don’t really know anything about the future of Northern Ontario. Maybe, as the old joke puts it, we are just “trained professionals paid to guess wrong about the economy.”
But if you ask me “How can anyone, economist or not, know about the future?” I’ll tell you that economists have invented at least one useful trick. We think about prices. We assume that people respond to prices. Good guesses about certain key prices allows us make good guesses about what is likely to happen to northern communities.
There are four key product streams coming out of Ontario’s forests, and there are for key prices. Ranked, from lowest to highest value, the streams are energy, pulp, wood, and non-timber forest products. Streams with rising prices will do well and the streams with falling prices will shrink.
Since we know pulp prices are falling and will continue to fall, we predict that the Ontario’s pulp industry is doomed to shrink. The decline of the pulp industry will mean huge disruption for the northern economy.
The price of solid wood has been rising for centuries. No one uses solid oak to make charcoal anymore. Even poplar is getting expensive. Lumber production has been growing relative to pulp production since 1950.
The price shift in favour of wood has implications for northern communities. If you are producing wood products instead of wood paste, big trees are a lot more valuable than small trees. To get bigger and better trees we have to start adding value to the trees before we harvest them. The next northern economy will have fewer jobs for pulp-mill workers and more jobs for professional foresters.
The third stream of forest products has always been energy. The firewood industry has almost vanished, but now we hear talks about new ways to harvest energy from the forest. The basic idea is that there is a lot of wasted biomass lying around. Can we replace the pulp industry with one that turns trees into power?
There are two big problems with the bio-energy strategy. The first is that energy is cheap. Petroleum prices may be high at the moment, but the price of energy will continue to fall. It is economic suicide to pin our hopes on another low-value commodity. The second problem is that converting biomass to ethanol takes energy. It is actually more efficient to just burn wood or to produce wood pellets. Pellet plants can suck up much of the waste wood that will be freed by pulp mills. They can provide renewable electric power for the electricity-starved south. Like all the other bio-energy schemes, pellets can replace fossil fuels and reduce total carbon emissions.
The final stream is the hundreds of so-called “non-timber” forest products - everything from mushrooms and blueberries to occult chemical from the needles of pine trees. These can be very high value products, but they are also low volume. In the very long run they may support a lot of northerners, but wood will remain the main source of jobs.
The crucial decision right now is whether Northern Ontario adds value before the wood is shipped. This is the one absolutely central economic policy question for Northern Ontario. Our region has no price advantage in value added industries. Wood can be processed here, in Alabama, or even in China. We have to make a decision about where the value will be added.
We have made that decision before: in 1898 Ontario outlawed the export of whole logs taken from Crown lands. The restriction led to value-added production in Northern Ontario. Sawmills were built in the districts of Sudbury, Georgian Bay, Rainy River and Kenora-Keewatin. Ironically, restrictions on log exports were a major reason for the recent American duties on Canadian softwood lumber. If we want more value-added production in Northern Ontario with free trade, we may have to come up with new tricks.
We also have to come up with value to add. Our own talents are the real value in value added. We are going to have to put more of ourselves into what we take from the forests. We have to develop the design skills of northerners and we will have to provide the training they need to produce wood products that the world wants.
There are decisions to make. Do our northern politicians understand prices and value added well enough to make the right decisions? This economist doesn‘t think so.
Dave Robinson is a professor of economics at Laurentian University. He can be reached atdrobinson@laurentian.ca
