Pulp and paper woes reach far and wide

A perfect storm.

It's not often they agree, but that's the term both industry and labour groups have been using to describe the woes befalling the pulp and paper industry.

Theforestry sector has been pummelled from three directions: international economic trends, provincial policies and changing technology. Any onewould have been disruptive enough; together, they are remaking an industry responsible for as much as three per cent of the Canadian economy.

Not to mention the resource communities that rely on mill jobs.

Towns and cities across northern Canada, from Port Alberni, B.C., to Grand Falls, N.L., are reeling from the job losses as mills shut down, partly close or demand concessions from workers.

It's not just the actual forest sector jobs, although there have been more than 40,000 of those lost in five years; it's also the impact from the disappearance of the best-paid workon a small community. That affects people who sell cars, vacations and restaurant meals.

A consultant's study estimated that more than two indirect jobs depend on each of the country's 285,000 direct forestry jobs, so every loss of a job at a mill has a ripple effect on the community.

Then there are the suppliers. In 2006, the closing of Weyerhaeuser's pulp and paper mill in Prince Albert, Sask., put 700 people (in a city of 41,000) out of work. The impact of the shutdown, however,reached more than 250 kilometres down the road toMeadow Lake, Sask.,where a sawmill supplies wood chips to the pulp mill.

Still other small corporations, such as log haulers Malenfant Enterprises,were hurt, because 80 per cent ofMalenfant's work at the timecame from the Prince Albert mill.

In smaller communities like Stephenville, N.L., and Terrace Bay, Ont., cuts at the localmills threatened the future of the community. Some resource towns only exist because of the mill, and the community's reason for being dies if it closes.

"When you look at all these faces at the Stephenville Dome tonight, we have a lot of scared people, including myself," a resident said as 2,000 people a quarter of the town's population turned out to hear the government's take on the July 2005 announcement that Abitibi Consolidated would close the mill.

Evenin larger centres such asThunder Bay, Ont. with apopulation of some120,000 disappearing mill jobsmade a dent in the city.

Governments step in

When the dreaded announcement comes, there's usually a strong political reaction. People feel threatened in a way that isn't felt in Canada's bigger cities, where the loss of any one employer is usually a much smaller deal.

Governments step in totry to save the mill. In June 2009, Ottawa pumped more than $1 billion into the industry under the Green Transformation Program. The money would be aimed at helping companiesmakeproduction upgrades that would make their mills less dependent on traditional energy sources, Natural Resources Minister Lisa Raitt said at the time.

Sometimes governments go even further.

In late 2008, when AbitibiBowater announced plans to close the Grand Falls-Windsor, N.L.,mill and throw hundreds out of work,the provincial government of said it was expropriating all assets belonging to AbitibiBowater in the province.

"It simply makes sense if Abitibi are not going to continue the operation of the pulp and paper mill and renege on their commitment to our province, they will no longer have access to our natural resources," Premier Danny Williams said at the time.

Governments can sometimes save plants, as New Brunswickdid with the mill in Nackawic, near Fredericton, but it was already financially backing the mill.

More often than not, governments are powerless to change companies' minds about closures, if the companyclaims it has to stop the bleeding after years of losses. The macroeconomic forces driving the shutdowns are often beyond the control of any municipality, province or country.

Among the factors:

• The higher-valued dollar. As the loonie appreciates against the U.S. dollar, Canadian products become more expensive for American buyers.
• Shifting production patterns. Manufacturing is moving to low-cost countries such as China, and the demand for packaging, a major part of the paper industry, has followed.
• High gasoline and diesel-fuelprices. This is a huge problem, especially in Ontario, where wood is often trucked long distances to mills.
• Competition from low-cost regions in Russia, China and South America with their cheap trees and labour. On the opposite end of the scale, huge, advanced European mills are more efficient.
• Falling demand for key products. Newspapers, squeezed by the internet, are shrinking. Newsprint exports, once the centrepiece of the industry, have been falling by an average ofnearlyfiveper cent a year forthe pastdecade.

And there's yet more. On top of the issues seemingly beyond Canada's control, local decisions have made the problem worse. Two stand out:

• High electricity costs. Mills use large amounts of electricity, and in many jurisdictions, prices have been shooting up. In Ontario, the increase has been as much as 30 per cent over the past four years as discounts for manufacturers were phased out.
• Inadequate wood supplies. Moves to reduce unsustainable forest "harvests" so there will be trees to cut in the future, or for environmental reasons or competing uses such as tourism, have squeezed mills in Eastern Canada. Most dramatically, Quebec decided in early 2005 to slash allowable cuts by 20 per cent over three years.

Starting in 2005, Quebec spent$450 million over three years to ease the industry's pain. In September, 2007, Ontario promised $330 million over five years.

Yet here we are, in 2009, and the problems remain. Red ink covers the forestry companies' balance sheets (the major Canadianloggers lost$600 million between April and June, 2009, PricewaterhouseCoopers estimates)and mill closures continue.

Ultimately, some say the best solution is the most painful one close more mills and reduce supply to bring prices back up. "Production capacity is still too high relative to the declining consumption of newsprint in North America, and more plant closures can be expected in the near future,"Ottawa said as far back as 2005.

It didn't take long for mill closures to snowball after that. On Oct. 10, 2006, Abitibi-Consolidated announced it would shut down four mills in Quebec, costing 700 workers their jobs. The following day, Domtar announced the indefinite closure of four more mills in Quebec and Ontario, throwing 900 out of work. Since April 2005, more than 7,000 permanent and temporary jobs in the forestry sector have disappeared in Quebec alone.

The crisis in the industry prompted several companies to consolidate to better compete in their increasingly difficult marketplace. In August 2006, Domtar announced it would merge with the fine paper business of U.S. forest products company Weyerhaeuser in a $3.3-billion US cash-and-stock deal.

In January 2007, Abitibi-Consolidated and South Carolina-based Bowater Inc. merged. "We will be better positioned for success than either company will be on its own," Abitibi CEO John Weaver said at the time. After years of announcing mill shutdowns in Newfoundland, Quebec and Ontario, Abitibi had decided that joining forces with a competitor was the best way to survive.

A little over two years later, the new AbitibiBowater filed for protection from its creditors.