Onerous stumpage fees are being blamed for the indefinite shutdown of a Sault Ste. Marie hardwood mill.
Boniferro Mill Works issued layoff notices to 41 employees, April 27.
“We’ve had four years of very little downtime, so this came as quite a shock to the employees,” says president Jim Boniferro, a former Domtar manager who resurrected the once-antiquated mill when the Montreal paper giant wanted to close it in 2002.
Boniferro says his operation has weathered the usual industry challenges of high- energy costs and a strong Canadian dollar, but the province’s residual value charge, attached to stumpage fees, has hit his mill particularly hard.
In the mill’s first four years of operation under new company, Boniferro says his company has paid $1.1 million in residual charges, including $459,000 in 2004-2005. He says his operation has barely broke even financially, adding he would rather have invested his value charges in new production equipment.
“As a small, independent company that’s been devastating, and we’ve telling the Ministry (of Natural Resources) that for years.”
The one-shift operation produces 15-million board feet of lumber annually, exporting mainly to the U.S. for flooring, kitchen cabinetry, furniture and some low-end industrial products such as pallet board components.
“I’ve been dealing with the ministry for three years and it just came to a point where you ..can’t take away a million over four years, which is really our start-up (period), and expect it to continue on.
“We just decided we had to do something to preserve cash or I won’t be able to pay my bills.”
The residual value charge is one of four charges in Ontario’s Crown Timber Pricing System -- also known as ‘stumpage’ charges -- paid by forest product companies for harvesting on Crown lands.
Stumpage fluctuates according to market prices of lumber, panels, paper and pulp. It ensures the Crown reaps some financial rewards from strong forestry product markets.
Boniferro doesn’t dispute the principle of stumpage but questions the MNR’s formula to determine the value charge. He’s been asking for a review from the MNR, but to no avail.
“One of the challenges is we can’t get a clear definition of how they actually calculate it.”
The Ministry of Natural Resources’ website indicates how the residual value charge formula is arrived at on a dollars per cubic metre charge. But the calculation posted is for softwood lumber only, not hardwood.
Ironically, Boniferro says, the value charge for hardwood mills dropped from a September 2004 high of $14.55 cubic metre to 75 cents in early May, but he’s at a loss to explain that was arrived at. “We don’t know if it’s fixed or how it’s happened.
“I’m a little suspicious that there’s not sound data to support these assessments.”
Boniferro says he met with Ontario Natural Resources Minister David Ramsay in late April, who assured him the MNR would review the charge. “That gives me a level of confidence moving forward.”
But he isn’t anticipating a speedy resolution any time soon.
Boniferro says his U. S. business partner, Tom Fox, is not happy.
The mill is a 50/50 partnership with Fox Lumber Sales of Montana, their exclusive sales agent in the U.S.
With Fox strongly pushing Boniferro’s inventory, customers are becoming upset with the disruption and the onset of the home building season.
To make matters worse, a Canadian National Railway country-wide safety blitz shut down Boniferro’s rail siding in May.
Deficiencies in the rail spur, which also serves as a reload centre for Algoma Steel and Anthony-Domtar Engineered Products, meant no product could be shipped out. Until a contractor can be hired to make repairs, there were three loaded rail cars waiting for export.
The City of Sault Ste. Marie helped out Boniferro with a $60,000 interest-free loan to repair the spur.
Boniferro says with a promising order book this year and encouraging markets, his challenge is not to lose customers.
“We’ve made so many successes here. This mill can operate very successful based on our fixed costs and based on our adjustment to management of energy.
After making more than $2 million in capital improvements to upgrade their production line, future expansion plans, such as installing a new band saw and buy an energy efficient kiln, are on hold.
“We have to keep investing to keep the place up to date and efficient, and we intend to do that. We really believe the ministry holds the key to get us over this hump and we’re not asking for grant or free money, we’re asking for money back that was improperly assessed over the first four years of our life.”
MNR spokesperson Jolanta Kowalski says there’s no flaw in their formula for residual charges. It’s reflective of forest product markets. “If the market conditions change, so will the formula.”
She says the issue is collecting reliable production figures from Ontario hardwood mills. A provincial review is underway to review this data problem. “It’s not a flaw in the formula, it’s the data we’re getting.”
Kowalski attributes Boniferro’s problems to the mill’s vulnerability to the high Canadian dollar because of their U.S. exports, which, when combined with a weak U.S. housing market and global competition “has posed some huge challenges for this company.”
“They have a much bigger problem than the price they pay for Crown lumber.”
She encourages the company to work with federal and provincial agencies to make their mill more cost-efficient.
On the web: www.ontariosforests.mnr.gov.on.ca
