Duane Hicks
While there’s no doubt the forest industry is suffering, it’s possible the emerging bioeconomy could be an integral part of Northwestern Ontario’s economy in the future—albeit only if the primary industry can get the support it needs to survive.
That’s the message local AbitibiBowater mill manager John Harrison offered Friday to delegates attending the Northwestern Ontario Associated Chambers of Commerce fall meeting here.
“As residents of Northwestern Ontario, all of us have grown up with the forest products industry being a major presence in our life,” Harrison noted. “If it wasn’t our direct employer or the employer of our parents, chances are that someone in our extended family worked in the mill or in the bush. . . .
“But in the course of just one generation, that picture’s been drastically altered,” he said.
Across Northwestern Ontario, from Marathon to Kenora, pulp mills, kraft mills, paper mills, and sawmills either have closed entirely or have idled lines.
Just 30 years ago, there were more than 20 paper machines in operation and five pulp mills in the region. Today, that number has been reduced to three paper machines and three pulp mills—with the lumber side of the business looking even bleaker.
Harrison said the decline can be attributed to a decreasing market demand and loss of competitive position in the last 10-15 years.
The four key components that make up the roughly 80 percent of the cost of delivering products to customers are fibre, fuel, folks, and freight.
Harrison explained that advances made over the years in pulping technologies have taken away the region’s position as the finest fibre basket in the world.
The quality of the slow-growing fine fibre in the north has been overcome by the application of new technologies to fast-growing species in the southern U.S. and South America, opening up a new region of pulp and paper-making where costs are roughly half of what they are in Northwestern Ontario.
The south has warmer climates and shorter regeneration cycles, lower transportation costs to get the wood to the mills, and can do year-round operations.
Fuel, including electricity and thermal energy (steam), is another factor. The latter is made by burning natural gas or biomass.
The increased price of natural gas from $3/gigajoule to
$14/gigajoule prompted the Fort Frances mill to build the biomass boiler. While that price has since dipped to $4/gigajoule, no one expects it to stay that low forever, noted Harrison.
But the higher cost is on the power side of the equation, he continued, saying the only other AbitibiBowater mill in a jurisdiction with higher electricity costs than Ontario is one in the U.S. that has been idled since last year.
Harrison said a paper mill consumes between two and three megawatt hours for every time paper is produced, meaning a $10/megawatt difference in pricing could have an impact of as much as $10 million a year to a large mill.
The spread between the highest and lowest electricity costs competing paper mills are paying is about $30/megawatt—or about a $30 million impact.
As for folks (or labour), Harrison said the company has worked to improve productivity over the years, with machine speed-ups, efficiency improvements, flexibility agreements, and manning reductions.
And while the mill has managed to move the bar from four man hours per ton to 2.5 man hours per ton, “that’s still a far cry from the 1.5 man hours a ton that can be achieved in more recent vintage mills where they have larger scale size.”
As well, most mills in Northwestern Ontario have a legacy of labour agreements and benefit plans that are “radically different from those with whom we compete,” Harrison said.
And as for freight, Harrison said that in the pulp and paper business, the company pays for everything that comes into and out of their operations. Thirty years ago, that wasn’t such a big deal for a Northwestern Ontario paper mill if the biggest concentration of commercial printers existed in the U.S. Midwest.
But over the last 30 years, these printers have moved their operations to the southwest and southeastern U.S.—doubling the “logistic footprint” of a mill like Fort Frances’ and more than doubling the cost of shipping as the cost of fuel has gone up, too.
Other factors hurting the forest industry include the declining demand for newsprint, which Harrison said is down 30 percent from last year, but has been steadily dropping for the past nine years in North America.
In 2000, for instance, there was a 13 million ton market for newsprint in North America. This year it’s fallen to about seven million tons.
The drop has been driven by a reduction in newspaper readership, Harrison noted, adding circulation numbers are down, as is the size and weight of newspapers publishers are putting out.
A drastic reduction in advertising dollars has further cut page counts of publications.
Commercial printing also is down—a fact clearly visible in the number and size of flyers, catalogues, and coupon books people get delivered to their home.
Consumer confidence has waned, people have quit buying products, and less money is being spent on advertising, Harrison told the delegates.
Harrison outlined what it will take to survive in a forest-based economy, noting that first and foremost is the industry needs to have a reliable future source of fibre resources.
He added the Ontario forest tenure system is under review by the government and probably is going to change.
But it’s not the government’s intent to give up rights to allocate fibre to mills and current Sustainable Forest Licence holders like AbitibiBowater is supporting the review with the understanding that it will deliver what is promised—a competitive long-term supply at an affordable cost without more bureaucracy or restrictions on what the companies can do.
At the same time, there are serious concerns about the Endangered Species Act.
“Our current management practices take wildlife requirements very seriously, and we support protecting endangered species based upon the best available sciences,” Harrison said.
“We’re quite proud of the environmental record we have and the work we have done in the past with the Ministry of Natural Resources to provide for endangered species within the current framework of the forest management planning process.
“But we view the new legislation as opening up the door for frivolous legal challenges that are simply going to add cost and burden to business . . . ,” he warned.
He added forest companies are slammed by environmentalists but, in fact, forests are a renewable resource which has been sustained by the industry through generations of use. And the only significant deforestation that has occurred in Canada is as a result of urbanization and agriculture.
Another threat is power pricing. The region has an abundance of electricity, but the government refuses to put region-appropriate pricing in place.
Regional mills pay the same as those in southern Ontario even though there’s excess, low-cost power available.
They also pay for uplifts for transmission, peak setting, Ontario Hydro debt, and global adjustment.
Harrison stressed there needs to be a firmly-established rate for Northwestern Ontario, adding that an “all in” price for power at $45/megawatt hour would take the uncertainty out of making business decisions and make mills competitive.
Looking to the future, Harrison said while there is potential for the development of forest bioproducts, like biodiesel, bioethanol, biochemicals, and electricity generation from burning wood resources, these are in the developmental stages and have a long ways to go.
He said that since the raw materials needed for these new bioproducts are byproducts of the existing, primary forest industry, and without the infrastructure (i.e., forest management, road system, harvesting operations, support services) in place, it’s doubtful the emerging bioeconomy will develop.
“I don’t think we can afford to cut off our future potential as a forest products region by failing to support our primary industry so that these secondary industries can grow up around us,” he remarked.
“There’s a potential for us in the future, but we’re not going to get to the future if we don’t have what we have today and these key mills go away,” he argued.
“I know the picture I paint is not a cheery one, but it’s not a cheery business these days,” Harrison admitted. “The reality is we’re going through structural change in our industry. The demand for our products is lessened, input cost pressures have marginalized a lot of mills in the region.
“There are, however, mills left in the region that if properly supported by the owners, by the communities, by government, can be viable going forward,” he stressed.
“If we can keep the nucleus of these integrated mills in place, and we have the infrastructure in place, they will go off and pursue a new economy of the forest for the future.”
