Forestry in New Brunswick – A Major Force in the Provincial Economy

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By Angus Gillespie

For decades one of the most significant employment sectors for the province of New Brunswick has been the forestry and lumber industry. In many ways, the sector has been forced to reinvent itself after being extremely hard hit by tough economic times starting in 2005 and an ever-changing business and technological landscape.

Since 1959, the New Brunswick Forest Products Association (NBFPA) has served as the provincial voice for the industry, representing pulp and paper mills, sawmills as well as business and academic endeavours. It’s a non-profit, non-governmental organization with a focus on bringing people and ideas together while also promoting the sustainable development of forest resources. The organization’s slogan is: “Healthy forests, quality products”.

Mark Arsenault is President and CEO of the NBFPA and will be starting his eighth year in the position this coming November. He had a lengthy and diversified career in media relations and communications and advertising prior to making the move over to the forestry industry. He also spent time working for various cabinet ministers at the provincial and federal levels of government.

Arsenault is a native of New Brunswick but before to moving back home he lived in Toronto where he was part of the team working on Toronto’s Olympic bid, serving as director of communications. But he had always thought it would be nice to return home.

“There was an opening here in New Brunswick I heard about so I looked into it,” Arsenault says. “There was somewhat of a disconnect because I wasn’t from the industry but I had the skillsets they were looking for and have been here ever since.”

The Association’s Role

The NBFPA assumes the all-important role of keeping the industry working together as a cohesive unit and reaching the maximum potential for companies and workers throughout the province, representing just over 40 member companies.

“Collectively our members manage the sustainable harvest and the replanting of Crown lands and lots of work with the private sector as well,” Arsenault reveals. “The association doesn’t do that work, it’s our members that do.”

There have been rocky times for the Atlantic region forestry industry over the past seven to eight years, as evidenced by the substantial decrease in membership. Companies were forced to shut down due to a major slowdown within the industry – a direct ripple effect of the overall global economy.

“We lost half our pulp mills and half our sawmills in a decade,” Arsenault notes. “It was a very big, dramatic shock and I saw the bulk of them during my term as president.”

Arsenault went on to say that many of the surviving companies have readjusted their business approach and trying new strategies in a changing market, a necessity for many in order to remain solvent.

“New Brunswick has been very smart, especially on the pulp and paper side,” Arsenault continues. “We moved out of Kraft pulp and newsprint a long time before the dramatic hit so our pulp mills – those who were remaining – converted into higher value pulp products.”

Kraft pulp, also known as sulphate, or chemical pulping, uses sulphur to get fibre out of trees.

Such movements included dissolving pulp, which is used to make rayon and fabrics to make clothing such as ties and dresses.

“Our paper mills moved into a higher creative coated papers and medical-grade type of papers,” notes Arsenault. The result is better quality return and that leads to enhanced stability than the newsprint, which was competing with South America. With the advent of the Internet and online content development amongst publishers, the demand for newsprint has declined dramatically over the past 10 years or so.

In our ever-changing world it has become essential for the forestry industry to keep up with the times and recognize where their products are going to be best utilized now and in the future, and that often means specialization.

“Our sawmills had to deal with the loss of the housing starts in the U.S.,” Arsenault remarks. “We export 70 to 80 per cent of our goods into the U.S. – our finished products, our softwood lumber and so with the housing market collapse that posed some significant challenges for our sawmills.”

A lot of effort has been made to running efficiently and limiting the products being cut to capitalize more on the popular, profitable ones. Finding strategic alliances also requires a lot of time and effort, but once again is necessary in order to maximize potential in a very competitive marketplace.

“With the disappearance of a lot of the smaller mills, some of the larger ones were able to capture that wood supply and build in some efficiencies and economy of scale with their manufacturing.”

“The downfall began in 2005 and 2009 was our worst year when our exports decreased – not just in New Brunswick but all of Atlantic Canada – by 70 per cent.”

Arsenault confirms. Once again, the mitigating factor was the drop-off in housing starts south of the border.

Expanding the Marketplace

As with all other industries, when one customer backs off on the amount of goods purchased, it’s time to venture out and find alternative solutions.

“There are some members that are sending value-added products over to England so there has been some interest and some smaller volume going out to China with regard to veneer products and some hardwood lumber.”

There’s been a forced transformation of the industry, but one that will likely make the New Brunswick forestry industry that much stronger in the long run – at least for those who’ve been able to adapt and make the necessary business transformations. It’s also not nearly as easy to export goods with the Canadian dollar now hovering at around par with the U.S. greenback, as opposed to a time when it fell to as low as 68 cents.

“Because we lost so many pulp mills there’s definitely a surplus of pulp right now that we’re having a hard time moving and so we’re looking for alternatives, which is the challenge of the day.”

Arsenault also confirmed that there has been some preliminary exploration to see if any European nations would be interested in Atlantic region lumber products, much the same way B.C. has managed to capitalize on the burgeoning Chinese market on the Pacific side.

“There have been some companies who have gone on exploratory missions; the value-added products that have a higher return seem to be moving well,” he says. “Right now the price of lumber is quite low so it could make the shipping costs work with a bit more margin to play with. The federal trade deal that’s being worked on could also open up some of those barriers as well on the other end.”

“In Atlantic Canada we are exempt from countervailing duties on our softwood lumber and it’s because we pay fair market value for our products and our wood isn’t subsidized of a Crown and we have a substantial private market, which is different from the rest of the country from Quebec all the way to B.C., where the majority of it is Crown wood and a lot of that is subsidized and lower rates.

Those differences allow New Brunswick not to have to pay countervailing duties, which is a trade advantage. In many instances relating to softwood they will forgo any type of assistance in order to maintain that special exemption.

“We guard that pretty carefully because we pay fair market value for our wood,” Arsenault remarks. “We pay the same on Crown as private and that’s determined by a survey every couple of years.”

It boils down to paying more for source products – the fibre going into the system, so there’s a disadvantage there. But there’s an advantage for New Brunswick when close to market and the New England states so it balances itself out.

Forestry products in New Brunswick account for 5.1 per cent of the gross domestic product, which ranks as the highest GDP of any province or territory. Other than oil and gas, it is the largest manufacturer and exporter of any sector in New Brunswick – accounting for 30 per cent of the manufacturing base in the province.

“When I started this job eight years ago, forestry accounted for 11 per cent GDP and it dropped to 3.9 in 2009 and we’re back up to 5.1,” Arsenault reveals.

There are 20,000 direct and indirect jobs within the forestry sector and many of them are good-paying jobs in rural areas with the ability to impact significantly on the economy.

Additional good news for the industry is that the provincial government and Premier David Alward have identified forestry as one of the six key sectors they want to put more emphasis on and develop a more detailed strategy for solidifying jobs and future expansion, putting emphasis on the value-added component when it comes to exporting.

Power Costs

In order for the forestry sector to capitalize on many new economic opportunities, competitive electricity rates are crucial with many jobs and communities hanging in the balance. As it stands, industrial electricity rates are already about 40 per cent above the Canadian average. Neighbouring provinces have clearly moved to secure manufacturing jobs with lower rates.

New Brunswick’s forests continue to be a leading catalyst for jobs, good wages, and tax dollars for healthcare, education and other programs that contribute to the quality of life in the Atlantic region. There is no other natural resource that generates the number of jobs and the extensive value chain of forest products.

For New Brunswick, the lumber industry has always played a major economic and cultural role and it looks to remain in that position.

Energy rate freezes have always been a source of concern for the industry and it’s something that will no doubt continue to require continuous close monitoring.

“We’re starting the second year of a three-year freeze, which was a promise brought in by the Alward government in the last election,” states Arsenault. “There has been an extra-large energy user program that helps by purchasing energy from green renewable sources generated by the forestry sector at fair rate, so it’s a higher rate than coal, oil or others. It could be boiler driven or co-generation – the government will purchase that energy back at a high rate.”

With just one year left on the current agreement, it’s never too early to look at what can be done moving beyond that timeline. Energy is a huge component of overall production cost, especially with pulp and paper.

“The pulp and paper mill in St. John for J.D. Irving uses more energy than all of Prince Edward Island,” reveals Arsenault, putting the energy consumption into perspective. He went on to say that all companies have been working closely with Efficiency New Brunswick on finding methods to try and lower their energy costs.

“A couple of our sawmills and one of our OSB (oriented strand board) mills have won national awards on their energy efficiencies, so it’s quite notable.”

Infestations

Out in Alberta there is an ongoing problem with Pine beetle infestation, which has resulted in the destruction of thousands of trees, rendering some essentially useless for the purposes of selling. But in the Atlantic region the main nemesis is the budworm. In fact, Quebec is going through a massive infestation right now.

“It’s not an invasive species in that it’s native to the region but they can do a significant amount of damage,” Arsenault states. One of the offshoots is slowing the growth rate of the trees by as much as 10 years. “We have ways to treat it – unlike the Pine beetle, which burrows under the bark. It’s hard to get to, but in our case we can treat budworm with spray programs.”

The brown spruce longhorn beetle is an invasive species, believed to have been introduced from Europe and is known to have been in the Atlantic region for about a decade and did a fair amount of damage to trees in Point Pleasant Park in Halifax.

“It hasn’t made its way into New Brunswick, but we’re keeping a close eye on it,” Arsenault says.

Looking Ahead

“We’re very proud of the forestry culture that exists in the province and we’ve been working hard to grow it now that these past few years are behind us,” Arsenault says. “There’s no reason to believe that the industry isn’t going to grow. We’re putting a lot of effort and energy into making it happen and I think the future is bright with regards to some really exciting stuff coming around the corner such as additions to pulp & paper plants, bio refinery, use of bio-mass for energy and many interesting elements that can be done in the forestry sector. We always want to be certain we’re growing more wood than we’re using.

We’ve been planting trees longer than anyone else in the country with programs going for over 50 years now.”

Some of those first plantations from 50 years ago will start to come online within the next five to 10 years. It’s the perfect example of a renewable resource. 

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