Support needed to keep forest industry afloat

Mac Olsen
South Peace News

The Alberta forest industry is in a downturn just like in other parts of the country, and this has an impact on communities like High Prairie that rely on it for employment. However, the Alberta Forest Products Association wants the provincial government to reduce government red tape, the development of new technologies and products, and the cost competitiveness of the industry increased. Neil Shelly, the executive director of the AFPA in Edmonton, highlighted these issues during a presentation to the High Prairie Chamber of Commerce on Sept. 13. He explained that forestry is the third largest primary industry in Alberta, employing 48,000 people. In 2006, Alberta had $1.75 billion in pulp product sales, $1.05 billion in lumber sales, and $660 million in panel board sales. All told, the provincial forest industry generated $3.4 billion in revenues last year. Locally, Buchanan Lumber and Tolko Industries Ltd. employ 660 people, with a payroll of $32.1 million per year. In addition, when the contributions to the local economy are factored in, those two companies alone spend $65 million per year here. “So if we looked at the effects of a shutdown, temporary or permanent, it would ripple through the whole community,” says Shelly. He also says that the Alberta forestry sector now has a cost disadvantage compared to British Columbia and other provinces. A study called the Operating Advantage that his organization conducted in 2004 compared the overall operating costs with revenues. Alberta used to enjoy about a $20 cost advantage per thousand board feet over B.C. in lumber production. But that has turned into a $25 disadvantage. Shelly says this is partly due to the inflationary pressures in Alberta, such as increases in electricity, labour, construction and fuel costs. The AFPA would like the government to recognize the situation that the industry is in, and address some of the concerns it has, says Shelly. “We’re not asking for any direct handouts or subsidies from the government. What we’re looking for is things like a more streamlined regulatory system, a balancing of costs and shared responsibilities on operations, and addressing . . . issues such as rail transportation.” He would also like to see research and incentives for new products, new markets and new opportunities. As for streamlining of the regulatory process, Shelly notes that 95 per cent of the wood fibres utilized by the forestry companies come from the green zone, which is owned by the provincial government. He says there are some very strict rules and regulations to protect those lands, and the AFPA believes there could be better ways of doing things. “We’re not talking about the lowering of the standards. It’s just removing some of the red tape and bureaucracy, to help streamline the process. That would give companies more flexibility in how to achieve the same standards.” Shelly also emphasizes that the Alberta forest industry is at a crossroads. It has been indicated to him that panel board and lumber sectors are in the lowest part of the cycle that traders have seen in the last 30 years. This has been caused by the virtual collapse of the U.S. housing industry. There were two million housing starts in the U.S. in 2006, but only 1.5 million units are expected in 2007. In addition, lumber prices are down 20 per cent from 2006, and the price of panel board (oriented strand board) is down 33 per cent, according to statistics provided by Shelly. The rise in the Canadian dollar has hurt the industry as well. Revenues are down 10 per cent due to the escalating dollar in 2007 alone, falling from just over $350 million in January to just under $320 million in July. He adds that the annual cost to the industry will be $400 million. The Canada-U.S. Softwood Lumber Agreement, which came into effect in October 2006, sets a 15 per cent tax rate. Shelly says this limits the ability of governments to help the industry in tough economic times. The net effect will be a 34 per cent decrease in lumber revenue, and a 39 per cent decrease in panel board revenue. Shelly also says that rationalization of the industry on a North American scale has begun. With the proper policy, Alberta can emerge from the cyclical downturn, he adds. He provided a forecast for some of the forestry sector in the next few years. For instance, a recovery in the U.S. housing market in 2009 would result in increased demand. However, there could be a slowdown in the B.C. forest industry due to the Mountain Pine Beatle infestation. In addition, there could be a return to reasonable price levels in lumber and, to a lesser degree, panel products. Finally, the pressure from new pulp capacity coming up in South America in the next few years would put downward pressure on pulp prices. Parker Snyder, the plant manager for Tolko Industries Ltd. in High Prairie, shares Shelly’s concerns about the Alberta forest industry. “It’s really important that communities are aware of what’s going on in the forest products industry. I think it’s important that there is some level of proactive response that comes from the community as well.” Snyder also comments that Tolko Industries Ltd. employs a lot of people directly and indirectly, but the company has had to curtail production and lay off some staff with the market downturn. The company is really focusing on the value-added/margin-added type of product mix, he adds. Another issue, the Mountain Pine Beatle, has not hurt Tolko locally. But it will become a factor in the company’s operations over the long term, says Snyder. In addition, he says it’s important for the government to recognize the importance of the industry to the provincial economy. “The key, as Neil said, is to make sure that the forestry industry isn’t going to the back of the line or being forgotten in the shuffle. We need to make sure that we’re in the right place in the queue. Communities’ support is really important in that regard.” South Peace News sought comments from Greg Buchanan of Buchanan Lumber, but he could not be reached by press deadline.

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