September 2002 - Logging and Sawmilling Journal

A study assessing the potential of the value-added sector of Ontario’s forest industry has some thought provoking value of its own to add.

The term value-added has beena buzzword in the Canadian forest industry for years, but a report recently produced for Ontario’s Living Legacy Trust organization should be required reading for anyone in Canada who is interested in launching a value-added wood product enterprise or creating jobs.

The Ontario study confirmed the additional jobs—per unit of fibre manufactured—the value-added wood products sector generates, compared with the commodity wood products sector.

The report has a mouthful of a title: An Assessment of the Status and Future Opportunities of Ontario’s Solid Wood Value-Added Sector. But it contains extremely valuable baseline data related to the most recent information available on the current state of Ontario’s solid wood value-added sector. The report comes at a time when there is a ravenous demand for manufacturing and market intelligence related to value-added wood products.

It also provides a data platform, allowing the current information to be replaced with updated information over time. What should be of particular interest to readers in business outside Ontario is how the study benchmarks Ontario’s sector with BC and Alberta, as well as Germany and Denmark, which, despite having little or no primary forest industry, still have highly successful solid wood value-added industries.

Furthermore, it hits the proverbial nail on the head by not only looking at quantitative factors such as the value of exports, market demand and employment levels, but also qualitative factors such as management capability, skill level, clustering, policy environment, industry and market structure and accessibility, technology, and raw material. In terms of Ontario, “It was good to see how well Ontario is doing relative to other provinces,” says Living Legacy Trust executive director Karan Aquino. “But there were also some pretty strong messages in there that we could actually be doing more to diversify and strengthen the sector.”

The assessment study is part one of a two-part project. The next phase takes a much more focussed approach, treats northern and southern Ontario’s forest industries as two separate entities, largely based upon the entirely different forest resource each is dealing with, and aims to focus and define future opportunities in the value-added wood sector in Ontario. A ‘Request for Proposals’ has been issued for phase two, which could take anywhere from four to 10 months to complete.

Jaako Poyry Consulting (JPC) was selected by the Living Legacy Trust to prepare the assessment study through a competitive bidding process. Living Legacy Trust staff members have been making the rounds with JPC’s report, holding public information meetings throughout the province. According to Aquino, meetings have been well attended, with people very actively engaged in the discussions, asking questions and participating in breakout sessions afterwards. “We have tapped into a real interest in value-added,” she says.

Aquino comes to the Living Legacy position naturally. She worked for 18 years in senior management with Ontario’s Ministry of Natural Resources (MNR) before leaving the department in 1996 to accept a position overseas. Aquino returned to Canada to take on executive director duties with the Living Legacy Trust. The Trust was established as a component of Ontario’s Living Legacy Strategy. Its lofty objective is to provide the opportunity to expand Ontario’s capacity to improve the management of natural resources through the formation of strong partnerships among governments, environmentalists, communities and resource industries.

As opposed to other government reports aimed at identifying the current state and potential of the province’s solid wood value-added sector, Aquino says her goal with this report is to ensure it reaches as wide a public audience as possible. “We think that if we broadly disseminate the report, then we will have that many more fingers to pull the trigger to get some coalescing and action,” she says.

What should come as no surprise is that municipal representatives from northern communities are among the most interested people in the study’s findings. Declining populations—in part due to a greater degree of automation in primary resource industries such as forestry, resulting in reduced job opportunities—are having a severe impact on the tax base of some northern communities.

When stacked up against the financial and job benefits of primary wood industries, the assessment study’s findings simply validate what many municipal leaders already suspected. “When measured against commodity volume output, Ontario’s value-added wood products sector generates 181 per cent more sales, 186 per cent more exports and 271 per cent more jobs per unit of fibre manufactured than … the commodity wood products sector,” says the study. Using the most current data available, the study says that employment in Ontario’s value-added wood products sector totalled almost 37,000 in 1997.

That’s 50 per cent more jobs than value-added paper products and almost three times the employment in primary wood products. At the current rate of growth in southern Ontario’s furniture manufacturing industry, the study predicted that shipments of value-added wood products would likely soon exceed shipments of value-added paper products in Ontario. Given the potential for job creation, Aquino says it’s no wonder northern municipalities are leading the value-added marching band. “There is a high degree of interest in the north, where people really do see that adding value to resources is one way to strengthen, grow and stimulate the economy of the north,” she says.

This focus on value added not only relates to the forest industry, but other industries such as mining and tourism. Furthermore, the feedback from northern Ontario communities plus the study’s findings also make it clear that the challenges being faced by these communities are much more similar to BC and Alberta, than to the challenges of southern Ontario.

In southern Ontario, solid wood value-added business clusters are already taking shape and have more in common with manufacturers in the American Great Lakes States. For example, the assessment study noted the significant 50 per cent growth in southern Ontario’s furniture manufacturing sector in just three years. That is one reason why the phase two study will take specific aim at the challenges and opportunities available separately to northern and southern Ontario.

Despite the presence of significantly more activity in solid wood value-added production in southern Ontario, the assessment study indicated that there is still plenty of growth potential. There is a high degree of interest in the Ontario government and elsewhere in encouraging the natural growth of solid wood value-added business clusters. There are inherent advantages to this type of business development as demonstrated in European countries and the Great Lakes States.

Communities like Thunder Bay, Sault Ste Marie, and the Kitchener/Waterloo area of Ontario already have developing clusters. While several government administrations have taken the necessary steps to create an attractive business environment, the addressing of the qualitative factors —as presented in the assessment study—needs better coordination. That stands to reason because if there is more labour involved in the value-added manufacturing process, there will be greater demand for management and employee skill development. “If you look at governments, for example,” explains Aquino, “within the provincial government structure we have the Ministry of Natural Resources.

We have a Ministry of Northern Development and Mines that looks after economic development in the north. We also have a Ministry of Economic Development and Trade that has been recently reorganized to something called the Ministry of Enterprise, Opportunity and Innovation that looks at the overall Ontario picture. “Education and training is a big part of value added and we’ve got the Ministry of Colleges and Universities as well as the Ministry of Skills Development and Training, plus a Ministry of Science and Technology.

All these segments have a role to play, but nobody’s in a clear lead. You really need a catalyst and co-ordination.” Greater co-operation and co-ordination among primaries, secondaries and re-manufacturers—as well as among government departments—will likely make up a significant portion of Ontario’s phase two study. However, if these studies are going to stimulate activity, rather than simply be placed on a shelf somewhere to gather dust, someone or some group will ultimately have to take the initiative.

The Ontario government has shown its willingness to instigate major change in forest management over the past decade. Perhaps that boldness will carry forward in the form of a more co-ordinated approach on value-added solid wood business development in the future.

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