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November 2005  - The Logging and Sawmilling Journal



Demanding a Forest Audit

Facing predicted fibre shortfalls, Ontario’s forest industry and the industry’s main union are demanding an immediate audit of the province’s forest resource as part of an effort to establish the long-term future of the industry.

By Tony Kryzanowski

Both the Ontario forest industry and its largest forest industry union are calling upon the government to appoint a chief provincial forester to conduct an immediate audit of the forest resource. They view this audit as a vital step to establishing the long-term future of the industry, which at present is struggling under heavy energy and fibre delivery costs.

Lack of fibre is frequently quoted these days as a major reason for sawmills taking downtime, closing altogether, or companies reorganizing assets. Yet no one seems able to speak with reasonable certainty as to the volume of merchantable fibre that is available in Ontario, given recent initiatives such as Lands for Life, which took 12 per cent of the forest resource out of commercial production in the province.

The best estimate comes from Ontario’s Ministry of Natural Resources (MNR), which in the summer of 2004 indicated that the spruce-pine-fir (SPF) supply will fall below demand in about 15 years and not recover for 80 years. The forecast for poplar is for supply to fall below demand in about 10 years, with recovery also not predicted for 80 years.Yet given the experience in neighbouring Quebec, where a provincial audit discovered 20 per cent less fibre than was estimated, there is skepticism whether MNR’s predictions can be trusted.

“A lot has happened over the past five or six years such as Lands for Life,” says Ontario Forest Industry Association (OFIA) president and chief operating officer, Jamie Lim. “We knew there was a shortfall coming. It has been predicted for years. However, it wasn’t predicted to come so soon.” The OFIA has 29 member companies responsible for stewardship of 90 per cent of the fibre on Ontario’s Crown lands.

Given the experience in Quebec and the lack of an official audit, the Communications, Energy, and Paperworkers (CEP) union, representing 11,000 forestry workers in the province, suspects there may be more at play than the government is letting on, given the number of mill closures, downtime, and restructuring taking place in all forestry sectors across the entire northern half of the province. “If I was really going to go out on a limb, I would say that the government has recognized that there is a fibre shortage,” says CEP Ontario region vice-president, Cecil Makowski, “and they are letting the mills shut down to be able to say that there is less consumption now, we don’t have a fibre shortage any more, and that will solve the problem.”

The tragic end result of that, he says, is that hundreds of families are losing the ability to support themselves and communities’ tax bases are being completely eroded to the point where some are withering and dying. The CEP estimates that as many as 40 Ontario communities rely on the forest industry solely for their support. The OFIA says over 50 communities across Northern Ontario are largely dependent on the forestry sector and across Ontario over 500 wood product manufacturers in more than 200 communities could be impacted by what it terms as a crisis in Ontario’s forestry sector due to its apparent uncompetitive environment.

The question at the moment, given the current state of Ontario’s forest industry, is whether there is in fact a fibre shortage, or whether fibre delivery costs are so high that companies can’t afford to harvest the fibre and deliver it to their mills.

MNR Minister David Ramsay recently said that in some forests in northwestern Ontario, only 73 per cent of the allowable cut was harvested, yet some companies say they need more wood. The job of maintaining a forest inventory was handed to the forest industry by the previous (Conservative) government, and Ramsay acknowledged that perhaps a third-party audit would be beneficial, as no one seems to trust the companies or the ministry.

Such is the murky environment that the Ontario forest industry finds itself in these days, with some communities losing and others winning. The leftover cinders from a burnt effigy of David Ramsay were barely cold in front of the closed Opasatika, Ontario sawmill, when an announcement was made that a new value-added mill was going to be built in Hallebourg, about 65 kilometres west of the community. The sawmill will build bed frames and shelving components for IKEA.

Ontario’s forestry sector is currently going through restructuring, rationalizing, or plummeting down a spiral, depending on whom you talk to. What’s certain—based upon the findings of the Minister’s Council on Forest Sector Competitiveness Report, released in May—is that Ontario is much less competitive today than it was three years ago. Some blame a shortage of fibre, but of more immediate concern is that Ontario’s forest industry faces some of the highest energy costs of any competing jurisdiction in North America and the second highest delivered fibre cost of any jurisdiction in the world.

According to the report, Ontario’s hauling and road construction costs are second in the world only to northwest Russia, at $80 (US) per metric board foot of lumber compared to $36 (US) in the Prairies. Harvesting costs are $87 (US) per thousand board feet compared to $62 in the Prairies and $34 in Brazil. The province’s pulp and paper producers are paying between 40 and 50 per cent more for electricity compared to direct competitors in the southern United States.

A lack of fibre is frequently cited as a major reason for Ontario sawmills taking downtime, closing altogether or reorganizing assets. The province’s forest industry is also facing high electrical costs, compared to competitors.

This has led to a string of solid wood, veneer, particleboard and pulp mill closures and significant job loss. According to Makowski, the CEP union in Ontario has lost about 2,000 members in the past 18 months, representing about 15 per cent of their total membership.“Our members are distressed,” says Makowski. “They are looking for some solutions from their elected officials.”

He adds that he doesn’t know why the government is waiting to implement any of the 26 recommendations made in the Minister’s report. “Jobs are being lost,” says Makowski. “Families are losing the ability to support themselves. We’re not talking about Toronto or Chicago here. We’re talking about communities that cannot afford to lose the main employer in their community, and they’re dying a death by a thousand cuts. The viability of whole communities is being decimated here.”

Within weeks of the release of the Minister’s report, the Ontario government announced that it was providing up to $350 million in loan guarantees to stimulate new investment in value-added manufacturing, improve energy efficiency and make better use of wood fibre. This response wasn’t the sort of intervention expected or supported by either industry or labour.

“We need the government to change the climate in which Ontario’s forest industries operate,” says Lim. “After this announcement, the weather is the same—our industry still can’t compete, and, under current conditions, there is no incentive to invest in the forest sector.”

Makowski says the forest industry is already carrying a heavy debt load, and they don’t need to take on more debt.

Conducting a forest audit would help to get industry back on track. “Assets in Ontario are technologically dated,” he says. “So the industry has to put some money into them. However, before industry is going to put any money into them, they want to make sure that there are going to be trees to harvest.”

In addition to requesting a forest audit, a coalition of forest industry representatives,
the Chamber of Commerce, the Ontario Lumber Manufacturers Association and northern municipalities have picked four priorities they’d like the Ontario government to implement immediately from the Minister’s Council report. These are: a 50 per cent reduction in fuel taxes for trucks hauling logs to mills; a return to provincial responsibility for construction and maintenance of primary roads and 50 per cent of the cost of secondary forestry roads; an industry competitiveness fund similar to what has been offered to the province’s auto, film and agricultural sectors; and an energy plan that will provide reliable and competitively priced electricity.

During meetings with Minister Ramsay, coalition members were assured that the $350 million in loan guarantees was only a first step and that an announcement to address the issue of Ontario’s uncompetitive forest industry would be made this fall. The government has already signaled that an investment in an industry competitiveness fund is something that is being considered, however, there are limits to what it can do.

Ontario’s spring budget forecast a $2.8 billion deficit this fiscal year, a figure that would bring the province’s accumulated debt to $130 billion.

So far, it has made no commitment on conducting an audit of the province’s forest resource.


Ontario government announces
further support for forest industry

In September, the Ontario government announced support to improve the competitiveness of the province’s forest sector through efforts to create new capital investments in the industry and reduce delivered wood costs.

“The forest industry provides good jobs for northerners and supports the prosperity of the entire province, but the sector is facing some tough challenges, including the adjustment to a higher Canadian dollar,” says Ontario Premier Dalton McGuinty. The Ontario government is committing $330 million over the next five years by:

- Investing $150 million over the next three years through a Forest Sector Prosperity Fund to leverage new capital investments in a variety of areas.

- Investing $28 million annually to maintain primary forest access roads to reduce delivered wood costs.

- Investing $10 million annually by 2007/08 to enhance the Forest Resource Inventory to ensure the long-term sustainability of the wood supply.

- Investing $1 million per year, beginning in 2006/07, in an Ontario Wood Promotion program to enhance value-added manufacturing.

The measures build on several initiatives announced in June, including a five-year, $350 million loan guarantee program.



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