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SENATE SUBCOMMITTEE ON THE BOREAL FOREST

COMPETING REALITIES: The Boreal Forest at Risk

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CHAPTER 4

THE ECONOMIC REALITY
Table 3: TOTAL FOREST INDUSTRY EMPLOYMENT
Table 4: VALUE OF FOREST INDUSTRY SALES
Table 5: FOREST HARVEST
Table 6: Canadian Forest Industry Sales and Exports (1993-1997)
Table 7: Payments to Government by Forestry Sector
RECOMMENDATIONS

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THE ECONOMIC REALITY

In reviewing policies affecting Canada’s boreal forests and examining their impact on the sustainable management of those forests, it is essential to recognize and acknowledge the important role that forestry plays in the Canadian economy. The economic reality is as compelling as any other, and touches the lives of thousands of Canadians from coast to coast.

The statistics quoted below refer to all forestry operations in Canada, and not just those of the boreal forest. They are presented to highlight the national situation. The Subcommittee would like to recommend that in future, forestry statistics should be collected and presented on an ecosystem basis, rather than just on a provincial and a national basis. In the absence of ecosystem based data the Subcommittee has, where possible, used data from those provinces and territories in which the boreal forest predominates, notably Quebec, Ontario, Manitoba, Saskatchewan, Alberta, Yukon and the Northwest Territories. For ease of reference they will be called the ‘boreal provinces.’

In her appearance before the Subcommittee, a representative of the Canadian pulp and paper industry provided one interpretation of the value of the total forest industry to the Canadian economy.

"The forest product industry is, without a doubt, the largest employer in Canada, employing 1 million people, directly and indirectly, across the country. We calculate that a quarter-million of those jobs are what we call direct jobs. Using a multiplier of 3, we calculate that there are 750,000 indirect jobs. This implies that one out of every 12 employed Canadians is employed by the forest products industry.

Annually, the industry harvests about 190 million cubic metres out of a total allowable annual cut of 230 million cubic metres. From this, about $55 billion worth of product is produced, composed of 61 million cubic metres of lumber, 8 million cubic metres of wood-based panels, and 30 million tonnes of pulp and paper.

It is important to note that most of the industry's annual harvest goes directly into the production of lumber and panels. Close to two-thirds of the fibre for pulp and paper is sawmill waste.

Given the sheer size of the industry's output and the relatively small size of the Canadian market, it is no surprise that the industry depends to a large extent on international markets. About 70 per cent of the industry's output is exported with about 50 per cent of that going to the United States.

Last year, the forest products industry brought in no less than $31 billion worth of foreign exchange to the Canadian economy. That is an impressive figure, as it should be for an industry that has been the world's largest exporter of forest products for over 75 years. We are not the world's largest producer of forest products, but we are the world's largest exporter."(217)

"The industry, therefore, drives the economy through its international trade. No less than 350 rural communities throughout the country depend on the industry and its ability to trade in world markets.

The numbers tell a clear story. The forest products industry is a key contributor to the socio-economic fabric of Canada." (218)

In 1997, there were just over 13,000 separate establishments involved in the forest industry in Canada. Of that number, 9,636 were involved in logging, 2,872 in the wood insutry, and 686 establishments were paper and allied mills(219). British Columbia accounts for over 4,000 of these establishments, while the boreal provinces have 7,050. In addition, a small fraction of New Brunswick’s 1,238 establishments handle wood from that province’s small boreal forest area(220). In the ‘boreal provinces’, employment in logging and forestry services, wood industries and paper and allied industries, totalled approximately 395,000 in 1997, out of a Canadian total of 830,000.(221)

Over the last two decades, the mechanization of logging operations and advances in processing technologies have combined to gradually decrease the number of jobs per unit of production. This is particularly evident in the pulp and paper sector where the jobs/1000 tonnes of pulp and paper dropped from about 3.4 in 1975 to about 1.6 by 1993. In lumber production the drop was less dramatic, going from 1.8 to 1.0 jobs/1000 cubic metres produced over the same time frame. The smallest change was seen in the harvesting sector, where the jobs/1000 m³ harvested fell from 0.5 to about 0.3.(222) As shown in Table 3 since 1989, employment in the forestry industry has decreased from representing 9.3 per cent of total Canadian employment to 7.3 per cent, while in absolute terms, there has been only a slight decline. This situation was made possible by a significant expansion of industrial capacity reflected indirectly in the value of sales by the industry and by an increase in the amount of timber harvested. These factors are illustrated in Tables 4 and 5 respectively. 

 

Table 3: TOTAL FOREST INDUSTRY EMPLOYMENT

YEAR	DIRECT	INDIRECT/ INDUCED (1)	TOTAL	AS % OF CANADIAN EMPLOYMENT
1989	305,000	915,000	1,220,000	9.3 %
1990	280,000	840,000	1,120,000	8.5 %
1991	250,000	750,000	1,000,000	7.7 %
1992	241,000	725,000	966,000	7.5 %
1993	239,000	717,000	956,000	7.3 %
1994	242,000	728,000	970,000	7.3 %
1995	247,000	741,000	988,000	7.4 %
1996	252,000	755,000	1,007,000	7.3 %
1997	254,000	760,000	1,014,000	7.3 %

(1) There is considerable variation in assumptions and methods of calculating indirect employment from one study to another, so these figures should be used with caution.
Source: Canadian Pulp and Paper Association, 1998 Reference Tables, p.5

 

Table 4: VALUE OF FOREST INDUSTRY SALES
($ Millions)

YEAR	PULP AND PAPER	OTHERS*	TOTAL	AS %OF CANADIAN MANUFACTURING
1989	19,791	10,659	38,514	13.7 %
1990	18,047	10,501	35,766	12.2 %
1991	15,791	9246	31,945	11.6 %
1992	14,929	9752	33,281	11.7 %
1993	15,394	9906	37,573	12.2 %
1994	19,307	10,387	44,329	12.7 %
1995	29,396	11,120	53,959	13.9 %
1996	21,935	11,077	49,058	12.1 %
1997	21,068	14,272	53,340	12.0 %

* Includes fibreboard, particleboard, shakes, shingles and chips etc.
Source: Canadian Pulp and Paper Association, 1998 Reference Tables, p.4

It is obvious from the above data that the economic health of the forestry sector is vitally important to the overall economic well being of the Canadian economy and therefore of interest and concern to all Canadians. In 1997, Price-Waterhouse-Coopers produced a detailed report on the financial condition of the Canadian forestry sector(223). Table 6, which is extracted from that report, shows that sales of Canadian forest products reached $52.3 billion in 1997 . This represents an increase of 2.3 per cent over 1996 sales. Over the same time period net exports of forest products rose slightly to $31.6 billion, making the forest industry the largest net export industry in the country. Provinces and territories deriving most of their wood supplies from the boreal forest account for about one half of this total.(224)

According to the Price-Waterhouse-Coopers study, while sales and exports were both up, net earnings for the industry as a whole dropped from $804 million in 1996 to $460 million in 1997. This is a smaller drop than reported in the previous year when net earnings went from a high of nearly $6 billion in 1995 to $804 million in 1996, a dramatic drop based primarily on the collapse of earnings in the wood pulp and newsprint sectors. These figures highlight the boom-and-bust cycle typical of many resource industries. They also indicate that some sectors of the forest industry have done much better than others in recent years.

Attracting investors into some sector of the forest product industry is becoming harder as the return on capital remains very low, at just 2.9 per cent for 1997, compared to 8 per cent in 1994. Investors can earn better returns on their money elsewhere in the economy.

Table 7 clearly shows that governments across the country have a vested interest in promoting and sustaining the health of the forestry sector, with the industry providing significant tax revenues, both directly and through employment related taxes. There were, however, some witnesses who argued that this benefit was minimal. As Table 7 shows, payments to government from the total Canadian forest industry and the people it employs totalled over $9 billion in 1997, up from $6.6 billion in 1993. The table provides a break down of direct industry payments to governments through the various federal, provincial and municipal taxes, fees and royalties. Once again, it must be noted that these figures are for the entire Canadian forest industry and not just the boreal forest-based industry. They also include income tax and other tax payments. For the ‘boreal provinces’ income from direct industry payments of stumpage, rent, licence fees, protection fees, etc. totalled $419 million in 1996. (225)

 

Table 5: FOREST HARVEST

YEAR	AREA HARVESTED (000s HA)	VOLUME HARVESTED (000s m3)	AREA HARVESTED % CHANGE FROM PREVIOUS YEAR	VOLUME HARVESTED PER HA (m3/ha)
1975	569	111.7		0.192
1980	767	150.7	34.8 (5 yrs)	0.196
1990	807	156.0	5.2	0.193
1991	760	153.5	(5.8)	0.202
1992	796	163.5	4.7	0.205
1993	839	169.8	5.4	0.202
1994	857	177.3	2.2	0.207
1995	866	183.1	1.0	0.211
1996	868	177.6	0.2	0.204

Source: Canadian Pulp and Paper Association, 1998 Reference Tables, p.6

 

Table 6: Canadian Forest Industry Sales and Exports (1993-1997)
($ Millions)

	1997	1996	1995	1994	1993
Total Sales	52,340	51,170	53,959	44,329	37,573
Export Sales	38,883	38,178	41,227	32,530	26,661
%of total Can. Exports	13.9	14.8	16.6	15.3	15.0
Net Contribution to trade surplus	31,600	31,200	34,400	27,200	22,200

Source: Price Waterhouse Coopers, The Forest Industry in Canada – 1997, p.3

 

 Table 7: Payments to Government by Forestry Sector
($ Millions)

	1997	1996	1995	1994	1993
By Industry
Federal
Current income tax	411	478	854	836	267
Other federal payments	18	22	37	33	28
Total federal	429	500	891	869	295
Provincial and Municipal
Current Income Tax	274	319	570	558	155
Provincial Sales Tax	371	333	415	290	250
Stumpage,royalties,rent	2,485	2,357	2,320	1,822	1,100
Property Tax	385	401	380	375	365
Gas and Fuel Tax	38	35	33	31	31
Electricity Tax	179	177	172	163	166
Logging Tax	23	27	170	166	26
Softwood Lumber Export Fee1	87	__	__	__	__
Corporation Capital Tax	155	145	138	135	111
Total prov./mun.	3,997	3,794	4,198	3,540	2,204
Total paid by industry directlya	4,426	4,294	5,089	4,409	2,499
Employment Related Payments
Employee Income Tax Deductions	3,914	3,806	3,658	3,447	3,306
Canada Pension Plan2	406	370	354	331	301
Employment Insurance2	536	513	546	547	505
Total Employment Relatedb	4,856	4,689	4,558	4,325	4,112
Total Paid (a+b)	$9,282	$8,983	$9,647	$8,734	$6,611

Source: Price-Waterhouse-Coopers, The Forest Industry in Canada – 1997, p. 3

1. Since April 1, 1996 the federal government has collected penalty payments on any lumber exports to the US that exceed duty-free quotas under the Canada-US Softwood Lumber Agreement. After deducting administration fees, the rest of the money is remitted to the province of origin of the lumber.
2. CPP and Employment Insurance includes both employee and employer payments.

 

Provincial governments receive the majority of these payments because the Canadian constitution gives them jurisdiction over forestry. Employment related payments are also listed separately and totals are provided for the years 1993 to 1997. Of course, governments also incur expenses related to forestry management, with forest fire protection and control representing the largest single expenditure. Since forest fires are extremely variable in both their location and extent, these expenditures also vary widely. For example, Manitoba spent nearly $20 million on forest fire protection and control in 1994, and only $1.5 million in 1995. Saskatchewan, on the other hand, spent about $26 million in 1994. A bad fire year saw this figure skyrocket to over $90 million in 1995.(226)

Even if the income data from non-boreal areas (from British Columbia and the Atlantic Provinces) are removed it is not difficult to see why governments, especially provincial governments, are cautious when considering policy changes that could affect the bottom line of companies in the forest industry. Government income from other forest uses such as tourism, wildlife and carbon sinks is much harder to quantify, but could grow significantly in the future if the boreal forest is managed sustainably.

While the aggregate numbers given above demonstrate the overall importance of the forest industry to Canada, they do not address the even greater role it plays on a regional basis. As already noted, more than 300 communities in Canada, many of them in the boreal forest, depend on the forest industry, and for many of those communities there are few alternative employment opportunities. The Subcommittee heard this fact repeated by numerous witnesses in boreal forest communities across the country.

The balancing act, between addressing ecological and economic realities was a recurrent theme. For example, in Timmins, Ontario, an official from Abitibi-Consolidated told the Subcommittee that in its worldwide operations, the company employs some 12,000 people. With regard to northern Ontario he went on to say:

"Of the four Ontario locations, three are single-industry towns. Our industry is the principal reason those communities exist. We have contributed widely to their well-being over the years."(227)

Forest-based industries bring much needed capital spending into small northern communities. As the witness noted further:

"Our business is capital-intensive and labour-intensive. To thrive, we depend on certainty of supply, allowing us to reinvest in our facilities. The dollar figure before you now is the total amount of money that has been spent. In Iroquois Falls, in particular, we have spent in excess of $200 million over the last four years. We have put in a state-of-the-art thermal mechanical pulping process. We have installed environmental control measures in the mill; as well, we have built a new wood room, to better utilize, diameter-wise and species-wise, the wood coming into the mill."(228)

This reality is repeated in small, forest-industry dependent communities across the country. The necessity, and the challenge of balancing ecological and economic needs was highlighted again by another witness who said:

"Our overriding objective and foundation is that we manage the ecosystem for integrity and health while sustaining our dependent industries and communities. Hence, it is a balance of sustainability not only for the forests and resources but also for the people and communities that are based on that."(229)

A representative of the Ontario Ministry of Natural Resources also addressed this important issue in testimony before the Subcommittee.

"In general, communities in the boreal forest have less diverse economies than southern communities and dependence on the forest industry is significant. In Northern Ontario, almost two-thirds of the population live in a community where the forest industry is a factor of some importance in the economy. In nearly 50 Northern Ontario communities, there is no other basic industry. Many residents of northern forest-based communities have a strong attachment to the communities, in which they live and work. The loss of employment opportunities in the forest industry in these communities can have very significant social effects."(230)

As the forest industry has modernized there has been a change in the in the skills needed for participation in the industry. The need to ensure retraining opportunities for those people in small forest-dependent communities whose traditional jobs are disappearing is an important issue. The issue was addressed in the drafting of the National Forest Strategy in which it is noted that:

"Rapid developments in technology and heightened competition are reducing the demand for some traditional skills. This situation has led to a decline in the need for traditional forest-related jobs, which in turn has affected the stability of some of the workforce and communities. However, opportunities for supplying other forest products and in technology development are increasing. As new technology appears, a gap – or perceived gap – is created between the traditional skills and those required for the new applications. There is a need to identify potential gaps in technological knowledge and skills of the workforce, to retrain workers displaced by the new technoilogy and to provide the next generation with the required skills. It is also important to transfer the knowledge, skills and experience of the older workforce, so that they are not lost in the transition." (231)

Mindful of criticism from various quarters that the number of jobs in the forestry sector is declining while the volume of timber harvested has continued to rise, the witness pointed out that the jobs offered by the forest industry are relatively high-paying, good quality jobs. These jobs are especially important in regions where few equivalent alternatives are available. The witness also addressed the suggestion that Ontario should move away from forestry towards resource-based tourism as a basis for creating jobs for northern communities. He expressed the following views:

"You will notice that the critics of the forest industry are quick to bring up the argument of jobs and seldom bring forward the argument of wages and quality investment. Earlier this week, I was in Iroquois Falls. I met with a company up there, Abitibi Consolidated. The average wage in that mill is about $80,000 for a paper worker, and is probably another 20 per cent higher, let us say $100,000 in total, with wages and benefits. These are high-skilled, full-time, high-paying jobs.

Many of the critics will say that we should be converting our northern economy to a resource-based tourism economy. A recent study in north-western Ontario showed that those jobs are seasonal in nature and pay much lower wages, roughly on a ratio of three to one. That is an important point when you get into the jobs-counting game."(232)

The Subcommittee heard similar testimony from other witnesses attesting to the importance of the forest industry to their province, region or community. For example, a representative of the Conservation Council of New Brunswick told the Subcommittee emphatically how important the forest industry is in that province.

"Of course -- forestry is the backbone of the New Brunswick economy. It is the lifeblood of our communities. There is absolutely no doubt about that."(233)

The forest products industry is New Brunswick’s leading international exporter and provides one out of every 15 jobs in the province. The industry provides direct employment for 17,000 workers directly and another 10,000 indirectly.(234)

In Quebec, officials estimate that, in this province which is second only to British Columbia in terms of the size of its forest product industry, and first among the ‘boreal provinces’ that:

"Year in and year out this sector generates approximately 80,000 direct jobs and a payroll of $2.8 billion. The forest industry thus plays a key role in the socio-economic development of Quebec and its regions. In fact, more than 250 municipalities are thought to depend directly on the forest."(235)

Provinces in western Canada similarly depend on their forest industries for significant economic benefits.(236) Even in Alberta, where the petroleum and petroleum-based chemical products industries are so significant, the wood and paper and allied sectors account for one in every 34 jobs. The forest products sector also provides employment for 23,000 Albertans directly and another 17,000 indirectly. In the wood pulp sector, large expansion projects that came on-stream in 1994-95 resulted in a huge increase in the value of pulp exports from just over $400,000 in 1993 to $1,350,000 in 1995(237). Saskatchewan and Manitoba both earn substantial export income for their forest products. In 1995 Manitoba had a positive trade balance in forest products of $225 million, while Saskatchewan had a similar balance of nearly $400 million.(238)

As the Subcommittee heard repeatedly during the course of its study, timber production and forest products are not the only economic values derived from the boreal forest. This resource also provides economic benefits through tourism, hunting, fishing and trapping. However, unlike the situation with the forest industry in the boreal regions, it is even more difficult to find detailed statistics of the degree to which these activities contribute to the economies of various regions of the country.

The Subcommittee was able to obtain some data on these activities, but they are not complete and should not, therefore be compared directly to the statistics on the forest harvesting and production industries.

As in other parts of the country, the Subcommittee raised questions on the value of boreal forest-related tourism to the provincial economy during its hearings in Quebec. The Subcommittee was told that, generally speaking, these data are not readily available, but that for the province of Quebec as a whole, the tourism industry represents about $5 billion worth of economic spin-offs annually. For the Abitibi region, which the Subcommittee visited, the president of L’association touristique de l’Abitibi-Témiscamingue was able to provide some regional data. He reported that annual economic spin-offs from tourism in the region are estimated to be in the range of $30 to $40 million annually. He further noted that:

"The tourism industry is growing by leaps and bounds in our region, and we believe that in years to come, we will be able to capture a significantly larger market share. … We believe that over the next three years, we will be in a position to double the amount of economic spin-offs tourism is currently bringing into the region.

So, the tourism industry will be a very important industry in future, not a secondary industry as it currently is." (239)

Tourism, especially as related to hunting, is also an important part of the economy of New Brunswick. As in other provinces, the future health and sustainability of forest ecosystems will be vital to its continued well being. The Subcommittee heard that:

"In 1997, there were over 82,000 resident hunters -- and some 5,000 non-resident hunters -- who participating in either big game or small game hunting in New Brunswick. Licence fees alone in 1997 were over $2 million for resident hunters." (240)

The Subcommittee also addressed the economic impact of the tourism industry with witnesses in Ontario. As was the case in many regions, the discussion touched on the conflict between this industry and the forest industry for the same resources. The Subcommittee heard that:

"The Ministry of Tourism also has done some recent estimations which have concluded that direct spending on resource-based tourism in Northern Ontario totals about $482 million a year."(241)

The need to preserve the boreal forest ecosystems on which eco-tourism depends was highlighted to the Subcommittee. The fact that this economic benefit can be derived from the forest without destroying it was also noted.

"There has been strong growth in adventure and eco-tourism, which include, for example, canoeing, kayaking, bird watching and wildlife viewing. Unlike traditional hunting and fishing, these activities do not consume resources but still can generate substantial dollars. The key for all of these, though, is managing the landscape to ensure that the activities and the resources that they and we rely upon will be there in the future. That is often where we have run into difficulties here in Ontario.

Because of its need for a good, forested appearance, quality resources, and limited access in the remote areas, our industry often comes into conflict with other resource users, and most often with forest management. Our concerns include the construction of access roads for forestry in proximity to remote tourism areas and areas used by remote tourism businesses and the impact of new road access on previously remote lakes and other resources."(242)

Although the Subcommittee did not hear from tourism operators in Yukon, data from other sources tell us that the tourism industry in the territory is responsible for $124 million in income annually. Much of the tourism in Yukon also depends on the boreal wilderness to attract visitors.(243)

Another important issue related to the economic reality of Canada’s boreal forests is the vital role that they play in the economic, as well as spiritual, well-being of many of Canada’s aboriginal peoples. Many in this community still live on the land. They depend on the forest to provide them with food and shelter. When their access to an ecologically intact forest is compromised, by large-scale logging, oil, gas or mining exploration and development, urban expansion or any other activity, their economic, as well as cultural survival is threatened. The special role of the First Nations in sustainable forest management is discussed in detail in Chapter 3 of this report.

 

RECOMMENDATIONS

• Government and industry should work together to increase the amount of value-added wood manufacturing taking place in the boreal forest communities with a view to increasing employment in the forestry sector.

• Retraining programs aimed at allowing displaced forestry workers to stay in their communities and involved in the forest industry be strengthened.

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