Tough Way to Make a Living | Opportunities and Hardships Lie Ahead for Alberta Forestry |
“Alberta’s forest industries have additional challenges in being globally competitive: climate and geography.”
by Paul Marck
I have always considered the forestry business to be a story of great triumph over adversity. Aside from the romantic notion of Canadians as “hewers of wood and drawers of water,” it is simply a tough business, making a living by cutting down trees and processing them into durable goods.
Alberta is Canada’s fourth-largest forestry province, and economically, the sector is the province’s third largest, behind energy and agriculture. More than 25,000 jobs and 32 Alberta communities are dependent on forestry.
First, there is the investment to consider, both capital and human. There are still a few mom-and-pop sawmills around Alberta, but given economies of scale and global markets, nobody could build a new mill for less than about $300 million. It would take an investment of upwards of $750 million to replace one of Alberta’s six pulp mills. And really, given that all of the Crown timberlands are already committed, there is no capacity to warrant a new mill of any kind, aside perhaps from lumber remanufacturing, where tree quota is not an issue.
The good news is that Alberta’s mills are in pretty good shape from a productivity perspective. Since the surge into forestry in the late 1980s – Don Getty’s government really never got the credit it deserved for that success in economic diversification – mills have continually upgraded with new technologies that today provide them with a distinct edge over the industry in Ontario and Quebec.
But primary forestry is also labour intensive. A good-sized sawmill needs staffing of about 200 people, and pulp mills, largely automated, require a similar-size workforce, given that production processes run 24/7.
Alberta’s forest industries have additional challenges, though, in being globally competitive: climate and geography.
In Alberta, it takes a long time for trees to grow to maturity. Sixty to 75 years, or three times what it takes in temperate Indonesia or Brazil, is the norm for those towering conifers that make for such good construction-grade lumber and softwood pulp. Hardwood pulp and panelboard can use quick-growing poplar, but market demand for both is pretty narrow.
Plus, we are a long way from large consumer markets, making transportation costs considerably higher than other jurisdictions.
All the same, traditionally the cycles of boom-bust – being in the money or running in the red – last about two or three years. Then, a new reality evolved. First, there was an unleashing of pent-up market demand for lumber and panelboard between 2002 and 2007. That was a direct result of then-U.S. Fed chairman Allan Greenspan’s attempts to right the economy after the 2001 terrorist attacks on New York.
Subprime mortgages, deregulation that saw bundling of those inferior mortgages to be sold as securities, and the loosening of rules surrounding the sale of corporate commercial paper combined into a witch’s brew of poisoned, worthless financials that sank the American economy. And by unfortunate extension, global economies, including Canada’s, tanked into the worst recession since the 1930s.
Top it off with sliding demand for pulp and paper as circulation for newspapers and periodicals shrank with the ascent of the Internet. Given both, you have disaster writ large for the forest industries. Jobs were lost and plants closed, even in supposedly bulletproof Alberta.
But maybe – just maybe – things are starting to look up. With capacity taken away through reduced demand and mill closures across the country and globally, inventories have tightened in adjusting to new market conditions. And, more often than not, companies left standing are those that are efficient, productive and poised for recovery with gifted and visionary leadership that has steered around the shoals of recession and poor economics. They are embracing new technologies and lean manufacturing and are looking towards new products and markets.
That is the opportunity that lies ahead for Alberta’s forest industries. The question is whether the battered sector can pull up and be healthy enough to grow and sustain itself.
