As Shanda DeGagne-Begin tells it, mind-numbing government regulations are helping to topple Canada’s forest industry.
Ms. DeGagne-Begin is secretary treasurer of Leon DeGagne Ltd., a company her father, Leon, founded in 1968, which got into the logging business six years later.
She points to an Ontario Workplace and Safety Information course the company’s loggers must pass, called mechanized harvesting for equipment operators, as an example of the proliferation of red tape.
“We don’t want to minimize safety,” she says, “but it’s hundreds of pages of ‘you have to tie your boots up, your have to have hearing protection.’”
Making sure employees are aware of such rudimentary rules costs the company thousands of dollars in training and represents thousands of hours in the classroom for employees, many of whom have already spent decades in the bush operating heavy equipment.
“We would never put somebody who is not competent working a $500,000 machine or a $250,000 machine,” she says.
As Canada’s forest sector battles to get back on its feet after a decade of widespread shutdowns and shrinking markets that wiped out more than 100,000 jobs, the common cry across the industry is the need for it to work together with governments to reduce costs and improve competitiveness, if Canada is going to compete in new products in international markets. And the starting point, many say, is to address the red tape that pushes up costs and constrains access to some of the country’s best wood, the basis of the entire business.
“The key is access, not [just] to fibre, but to low-cost fibre,” says Frank Dottori, the founder of forest products heavyweight Tembec Inc., who recently came out of retirement to buy a small sawmill in White River, Ont.
Just last week, when Resolute Forest Products Ltd. announced it would permanently close its newsprint mill in Iroquois Falls, Ont., it blamed, in part, a lack of availability and high cost of wood fibre.
A key issue, which is nearing a boiling point in Ontario, is access to, and use of, long-term licences that grant companies the rights to tracts of forest for up to 20 years, called Sustainable Forest Licences. In many areas where pulp and paper mills have closed, companies continue to cling to the SFLs. A recent report from the Ontario Auditor-General said that companies that had licences for timber allocated to them were only using a small portion of their allowable harvest – even through there was evidence that there were other companies that lacked access to the wood and could have found a market for it.
That supply constraint is a serious barrier, not only to access to high-quality, low-cost wood, but also to new investment in struggling mill towns.
Officials in Fort Frances, Ont., where Resolute closed a mill earlier this year, believe Expera Specialty Solutions LLC of Kaukauna, Wis., was prepared to buy that mill but couldn’t obtain access to low-cost financing. The suspicion is that Expera was offered wood from east of Thunder Bay, Ont., instead of from the forest close to Fort Frances, which about 350 kilometres west of Thunder Bay.
“When you start looking at those kinds of distances and the [Canadian] Shield gets more and more dramatic as you get closer and closer to Thunder Bay, and as the Shield gets more dramatic so do the costs of fibre access,” said Tannis Drysdale, a consultant with Rainy River Future Development Corp., in Fort Frances.
Seth Kursman, Resolute’s vice-president of corporate communications, said discussions with any of the entities that examined the mill are confidential.
All potential buyers were offered similar terms, he noted.
Without commitments on a source of wood, “it’s very difficult to get financing,” Mr. Dottori said. “There’s some pretty basic fundamental economics here that sometimes escape politicians. If you don’t have a secure wood supply, you’re not going to build anything.”
The Ontario Auditor-General report noted that in 2009, a re-allocation of Ontario licences attracted investment in new mills in the province, with the lure of access to a reliable long-term supply of wood. But the province hasn’t done a significant re-allocation of timber licences since then, despite the closure of numerous mills. The government has been looking at ways to free up unused supplies and is in discussions with industry on a “use-it-or-make-it-available-for-others-to-use” regulation for forest licences, but there’s no timetable for rewriting the rules.
The government has been in discussions with industry on a use-it-or-lose-it regulation for forest licenses, but there’s no timetable for rewriting the rules.
Lowering the cost of accessing wood supplies is critical for Canadian producers that are increasingly competing in foreign markets beyond North America – many of which enjoy significant labour cost advantages.
“There are other places in the world that are producing pulp and paper at a fraction of the cost of production here in Canada. You can import paper from low-cost producers abroad,” said Brian Downie, a former manager with the B.C. Forest Service who is now a councillor in the northwestern B.C. community of Terrace.
Yet, with North American demand for newsprint and other papers in irreversible decline, tapping those foreign markets is critical to the Canadian forest industry’s future. Demand for wood and paper products, as well as other uses for wood pulp such as in the making of synthetic fibres for clothing, remains strong and growing in emerging markets, as those countries modernize and urbanize.
The United States is still by far the biggest foreign market for Canada’s forest products, accounting for nearly two-thirds of all exports last year. But non-U.S. markets have increased their share of Canada’s forest-product exports significantly in the past decade, from 22 per cent in 2003 to 36 per cent in 2013. Canadian producers have increasingly tapped the Chinese market, which now makes up 16 per cent of all Canadian forest product exports, up from just 2.5 per cent a decade ago.
“We have grown our exports to China ridiculously,” said Catherine Cobden, executive vice president of the Forest Products Association of Canada, noting that China is now the biggest foreign market for Canadian-made pulp.
But that relationship has hit its own snag: China has accused Canada of “dumping” pulp (selling it in China at prices below its normal value in the Canadian domestic market) and slapped anti-dumping duties on Canadian shipments, causing Canada to file a complaint against China with the World Trade Organization.
Meanwhile, sales to India’s massive market have only scratched the surface. Canada’s forest-products exports to the country have nearly doubled in the past decade, but they are still only 1.5 per cent of the industry’s total exports.
“In India, we’re where we were 10 years ago in China,” says Ms. Cobden.
“We’ve got some room to be cautiously optimistic,” she said. “We hope we can inspire these communities and governments to look to forest products with a future.”Report Typo/Error
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