The full economic impact of the ongoing forestry crisis has yet to hit northwestern Ontario, says a Lakehead University economics professor who anticipates the worst is yet to come for places such as Thunder Bay.
Livio Di Matteo estimates there has been up to a 20 per cent drop in manufacturing employment in the local forestry sector. The slowing down of purchase orders to mills, the limited lumber supply, compounded by the high energy rates and the Canadian dollar has pushed the knife much deeper for an industry already licking its wounds. This has caused a gradual decrease in housing starts and growing increase in business bankruptcies in the Thunder Bay area.
As grim as the number may be, they do not represent the full impact of the many mill closures.
“In the last year, over 1,000 jobs were lost in various mills in the Thunder Bay area, but those are going to have various severance packages, employment insurance, and such which will tide them over for the next few months,” says Di Matteo.
“Then you’ll start to have more of an impact on consumer spending, retail spending and the like. It’s begun, but nonetheless, there’s going to be an even bigger impact.”
The last 12 months have proven to be difficult for a number of industries in Ontario, but for none so much as the forestry industry, according to an official with the Union of Communications, Energy and Paperworkers.
“The forestry industry is in the deepest crisis in its history in this province,” says Cecil Makowski, provincial director, Ontario division.
“There’s been more Ontario mill closures in the last year alone than in the previous 10 years combined.”
Makowski places much of the blame on energy policies that have allowed a faltering industry to plummet into chaos as Ontario costs swell to double what they are in Manitoba and Quebec. Northwestern Ontario generates a surplus of power but is unable to transfer it to southern Ontario due to the limited grid infrastructure. The lack of supply creates bottlenecks, in turn driving up prices.
“This is why many people have been calling for a regional power authority,” he says. “In northwestern Ontario in particular, we produce power for about a cent-and-a-half per kilowatt, and we have to pay on average about seven-and-a-half cents a kilowatt, even if that power is 20 or 30 kilometres down the road from a mill operation. They’re tied into a one-size-fits-all pricing mechanism.”
The provincial government’s recently announced three-year plan to reduce energy prices by 15 per cent for northern pulp and paper mills who annually purchase a minimum of 50,000 megawatt hours is insufficient to halt the industry’s downturn, he says. Its limited timeframe and narrow criteria are troublesome, he says, and fail to provide substantial assistance to an industry desperately in need of broadly applied regional pricing.
“It’s not going to provide the needed stability to attract the investment that’s required in this industry. It doesn’t in any way come close to providing competitiveness with other jurisdictions. The government has flirted with solutions but not stepped up to the plate and done anything substantive.”
Another factor in the industry’s Ontario-area struggle is the lack of government oversight, which has allowed certain industry players to use their Ontario-area profits to invest in their American and Asian facilities. While he says that this must be rectified, Makowski says reinvestment alone is insufficient, and the topic should not be used to avoid the subject of high energy pricing. The Weyerhaeuser mills in Dryden, Ear Falls, and Kenora are modern, highly efficient plants in North America, he says.
“All three of those are losing money, and if they were outside of Ontario, they’d be making money.”
Makowski compares the high dollar to heights seen in the 1970s and early 1990s, when the forestry industry was able to weather the economic storm as a result of cheaper energy and low delivered fibre costs.
“Today, we have the most expensive on both counts, and that’s the difference,” he says, though he concedes certain governmental bodies are said to be working at reducing Ontario’s delivered fibre costs.
Not all forestry-driven companies have had a negative year: Norampac, which closed a mill in Red Rock, has seen solid profits throughout 2006, and Buchanan Forest Products recently took over an idled mill in Terrace Bay belonging to Georgia-based Neenah Paper company. The plant is ramping up operations with fibre from Buchanan mills in northwestern Ontario.
Forestry giant Domtar signed a definitive agreement to merge with Weyerhaeuser Co.’s fine paper business and related assets. The deal, which is still awaiting Canadian regulatory approval, creates the largest manufacturers and marketer of uncoated freshseet paper in North America.
While Makowski remains tentatively cautious about the move, he says that such efforts are generally worrisome for employees, as such buy-outs encourage companies to downsize and consolidate manufacturies, resulting in job loss.
However, representatives from Weyerhaeuser say these mergers are likely to be expected in an industry struggling to survive.
"It’s the way of the world, what with companies changing names and refocusing,” says Sarah Goodman, Weyerhaeuser spokesperson.
“The fine paper business has been a challenging business to be in of late. We see some electronic substitution and whatnot, so we clearly needed to put together a strong set of assets to compete from a position of strength.”
