borealforest.org

Choose a Destination Return to...  
Economic Contribution of the Primary Forest Products Industry to Northwestern Ontario


Please allow complete page to download.


EXECUTIVE SUMMARY  |  REPORT

BACK TO TITLE PAGE


Table of Contents

Appendices





















The Northwest Forest Network

The Northwest Forest Network is a non-profit association of Northwestern Ontario forest workers and companies representing the full range of timber harvesting, transportation, processing, manufacturing, and reforestation and tending activities carried out within the region. The Network also includes supporting companies, labour organizations, community representatives and groups, and other interested individuals.

The Network's main objective is to promote understanding of the industry's role in the regional economy and of the underlying issues and trends affecting its viability.  It does this by coordinating  the  collection  and dissemination  of    factual  and  relevant  information to the industry, government, educational authorities, and the public.

In 1997 the Northwest Forest Network commissioned William L. Lees and Associates to prepare the first report defining The Economic Contribution of the Primary Forest Products Industry to Northwestern Ontario.  This report represented the first time that a comprehensive analysis was done on the economic contribution of the forest industry in the Northwest (defined as the Territorial Districts of Kenora, Rainy River and Thunder Bay). 

The initial report was released in February of 1998 during the Lands for Life process and provided factual, relevant, and current information for businesses, regional organizations, communities, government, and the forest industry to use not only with regards to the Lands for Life process but for a variety of other purposes.  Two years later the Network still receives requests for this report.

The implementation of Ontario's Living Legacy and the establishment of the Ontario Forest Accord were outcomes of the Lands for Life process initiated over the second half of 1999. 

During this period the Network, recognizing the value of the first report and the opportunity to provide baseline economic data to the Province's commitment for no net job losses in the forest sector, commissioned William L. Lees and Associates to once again prepare a 1999/2000 edition of the The Economic Contribution of the Primary Forest Products Industry to Northwestern Ontario.  This document once again enables the Network to meet its mandate of providing factual and relevant information to the people, businesses, and communities of Northwestern Ontario. 

The underlying survey and analysis confirm  the stable, healthy state of the pulp and paper sector, and indicate growth in the solid wood and panel board industries in the Northwest. The industry's economic contribution to the Northwest  has been sustained over the last two years despite a period of uncertainty during the Lands for Life process.

Northwest MapThe members of the Northwest Forest Network are pleased to have been able to facilitate this update of the regional industry's contribution to our economic and social welfare, and trust that it will be useful as both an educational tool and as a source of general information.













Return to Top of Page



Basis of Analysis/Employment Definitions

The findings presented in this document are based on the most current data available from government representatives and reports, industry association and consultant publications    and   reports,   and  a    recent Northwest Forest Network survey of  the lumber, pulp and paper, and panelboard mills operating in the Northwestern Ontario region.

The text and appendices make reference to the principal data sources.  This analysis and report is believed to be the most comprehensive and current available dealing with the current economic impact of the forest products industry in the Northwestern Ontario region.

Employment Definitions

Direct Employment

Includes all those industry, industry-contracted and government employees,  involved in:

  • protection of the commercial forest resource
  • harvesting
  • reforestation and tending
  • transportation of roundwood and chips
  • mill processing/manufacturing
  • administration
  • transportation of products

Indirect Employment

Includes all those involved in the provision of goods and services necessary to support the ongoing operations of the industry, and its direct employees as defined above, such as:

    Forest Photo
  • equipment and parts suppliers
  • electrical power, fuels, and chemicals suppliers
  • equipment maintenance shops
  • professional consultants (engineering, legal, accounting, environmental)
  • food, transportation, and accommodation suppliers

Induced Employment

All those involved in the provision of goods and services purchased by those directly and indirectly employed and contracted by the industry.

Note: All employment figures are expressed in full-time equivalent job terms.



Return to Top of Page



Regional Industry: An Overview

The industry in the region currently consists of the following basic components:
  • log harvesting and bush chipping operations
  • transportation of raw fibre from bush to mill
  • reforestation, tending and protection activities
  • sixteen permanent sawmills and related facilities (including a hardwood product remanufacturing plant), producing softwood and hardwood treated and untreated  lumber, and byproduct pulp chips
  • transportation of pulp chips from sawmill to pulp mill
  • ten major pulp/paper mills, producing pulp, newsprint, specialty papers, and linerboard.
  • four panelboard plants, producing waferboard, oriented strandboard, particleboard, and plywood and veneer products
  • transportation of products to distributors or end consumers
  • forestry-related government administration and resource protection sectors

A new engineered wood plant is reported to be in the planning stage, to be built in the western part of the region.

Secondary regional industry supported by output from primary  producers includes roof truss, hardwood flooring, drill core sample box and door and window component manufacturers.

The cyclical nature of the primary industry is well known, with product demand, and prices, often influenced by  factors far beyond the control of individual producers.

According to the Ontario Forest Industries Association and PriceWaterhouseCoopers, 1997, the Ontario industry as a  whole has been operating profitably for the past five years, after losses experienced in the early 1990's.

The Ontario industry operates in a highly competitive international marketplace, and is under continuous pressure to improve product quality and production efficiency.

Considerable progress has been made over the past 10 to 15 years in utilizing formerly wasted raw wood fibre, by introduction of full tree harvesting, bush chipping of harvested wood, and  the use of computerized sawmill equipment that maximizes the lumber output from a given  raw log and which can utilize smaller diameter wood.  MNR estimates that within the past 10 to 15 years, raw timber  utilization rates have improved by between 4% and about 20%, depending on the species.

The industry has faced considerable cost increases over the past 10 years, notably in stumpage  and other fees paid to government which directly affect delivered wood costs. While wood supplies are adequate, in some cases haul distances are becoming extremely long and therefore more expensive, as more readily accessible timber stands are harvested.

The cost of delivered wood represents a sizable proportion of the industry's total cost of production.  Increases of 36% in average delivered wood cost have been experienced  between 1992 and 1996 (from $42.46 to $57.70 per cubic metre).

In 1996 crown dues taxes and forest renewal charges amounted to 21% of Ontario average total delivered wood costs. (source: OFIA Member Survey, 1997, Price Waterhouse 1993).  

The industry thus faces a serious challenge. On the one hand, competition from producers in other jurisdictions is increasing, which puts downward pressure on commodity prices during periods when demand softens. 

On the other hand, production costs including the cost of electrical power from the grid, government fees, and delivered wood costs have been increasing, albeit at a lower rate in recent years.  However, most industry observers believe that demand for raw wood will continue to increase worldwide over the foreseeable future. Roundwood demand has been estimated to be increasing at 1.5% annually (Aspey and Reed, 1995).

Major primary and related product lines include the following:
  • Bleached kraft pulp
  • Newsprint (virgin and recycled content)
  • Uncoated and coated fine paper (virgin and recycled fibre content)
  • Groundwood specialty papers
  • Linerboard and paperboard (virgin and recycled fibre content)
  • Dimension lumber (untreated, treated, kiln-dried, softwood, hardwood)
  • Stud lumber (kiln-dried)
  • Oriented strandboard and waferboard
  • Plywood and veneers


Return to Top of Page



The Industry as a Major Regional Employer

1. Direct Employment

Presently the regional industry directly employs approximately 14,900 people, on a full-time equivalent basis.

Mill operations:

9 600

Wood harvesting and delivery:

4 300

Reforestation and  tending:

600

Pulp chip and product transportation:

400

Total

14 900


(sources: Network Industry Survey 1997, Ministry of Natural Resources, W. L. Lees and Associates Ltd. estimate)

In addition, government agencies involved in the administration and protection of the forest resource within the region directly employ, on average, about 400 people on a full-time equivalent basis. A major portion of the efforts of this government workforce contributes directly to the sustainability of the forest resource and thus also the forest products industry, and may therefore be counted in the forestry-related regional direct employment total.

Altogether, the industry and government currently directly employ a total of about 15,300 people, on a full time equivalency basis. Because some of these direct  jobs are seasonal in nature, the actual total number of individuals employed may exceed the full-time equivalency number by a considerable margin.

By the year 2000, if additional mill capacity comes on stream as planned, the total direct workforce will be around 15,600.

2. Indirect & Induced Employment

In addition to its large direct employment impact, the regional industry is a major purchaser of regional goods and services. These range from such operational items as electrical power, fuels for plant and equipment, plant and equipment maintenance services, to office supplies and local hotel accommodation for staff seminars, and consultant services.

The industry also makes major capital investments in upgrading existing plant, or in new or expanded facilities. Regional industry is currently investing about $250 million annually in  capital improvements. These capital expenditures resulted in improved production efficiency and quality and enhanced environmental protection.

The effect of these large industry expenditures on goods and services, coupled with the purchases of goods and services by those directly employed, is to create additional jobs within the regional community, and beyond. Some analysts have estimated that each direct job creates over three additional indirect and induced jobs within the country as a whole. (Dr. Jock Dobie 1988). For Ontario, PriceWaterhouse- Coopers has estimated two indirect and induced jobs for each direct job in its recent industry reports.

skidder The degree to which indirect and induced jobs are created in a particular area or community depends upon the availability of goods and services in that community: thus the multiplier is likely to be higher in larger and more diversified centres than in smaller ones.  In the case of Northwestern Ontario, within which the well-diversified City of Thunder Bay is a major centre for the supply of goods and services to forest-related industry, and the seat of academic training, education and research related to the industry, the overall indirect and induced employment generated is probably between 1.2 and 1.4 indirect and induced jobs for each person directly employed on a full time equivalent basis.

A region-wide average figure of 1.25 indirect and induced jobs for each direct job has been assumed in this analysis.

On that basis, the industry would generate indirect and induced employment totaling 19,100 jobs, for a regional direct, indirect and induced total of 34,400.

If the additional planned new facilities come into production as planned, by the year 2,001 the total direct, indirect and induced regional workforce will total around 35,000.

To place these figures in perspective, the total number of people currently employed (full-time equivalent) in all economic sectors in  the Northwestern Ontario region is approximately 100,000 (based on 1996 Revenue Canada taxfiler data, adjusted for part-time component).

The forest products industry, therefore, sustains over one-third of all regional employment.

chart 1Analysis of the Regional Industry Survey results indicates that the level of employment dependency  on the industry is much higher than this in specific communities. In Terrace Bay-Schreiber, Dryden, Beardmore-Geraldton- Longlac-Nakina, Atikokan, Red Rock-Nipigon- Dorion, Sioux Lookout-Hudson, the industry generates, directly, indirectly and by induced demand, between about 50% and 85% of the total available employment.  In Fort Frances -Emo -Barwick-Rainy River, Kenora-Keewatin-Jaffray Melick and Ignace, the comparable range is approximately 35% to 50%.  (See Appendix B)

Two thirds of the companies responding to the 1999 regional industry survey conducted by the Northwest Forest Network again indicated that they have difficulty recruiting qualified technical staff.  Employment opportunity exists for those with the appropriate skills and qualifications.



Return to Top of Page



Regional Economic Contribution

In addition to the direct and spin-off employment created, the regional economic  contribution of the industry can also be looked at in terms of the capital and operational spending which finds its way into the local economy. The regional component is, of course, only part of the total picture: the industry brings in goods and services from outside the region and pays income and payroll taxes and other levies to federal and provincial governments in Ottawa and Toronto, and thus provides benefits to the provincial, national and international economies as well.

PriceWaterhouseCoopers estimates that in 1997 the Canadian industry generated export sales of $38.8 billion, of which Ontario's share would have been around 18%.

Value of Wages and Benefits

The wages and salaries paid by the industry to employees are amongst the highest of all industry groups. Currently average salary levels for mill  workers are around $69,000 per annum (including benefits).

Including benefits, the  employment  remuneration of  regionally-based direct employees currently totals about  $1,004 million.

Equipment

The indirect and induced payroll at an assumed $47,000 annual  remuneration per equivalent full-time position (including  benefits) would amount to an additional  $900 million, for a regional income total of some  $1.9 billion. This represents about 44% of all employment income currently generated within the Northwest region. Much of this income (after federal and provincial taxes are paid) is spent in the region.

Other Operational Expenditures

In addition to expenditures on direct employment, the regionally-based industry makes major purchases of goods and services in support of production operations from regional suppliers.

Detailed data are not available, but a rough estimate based on a typical breakdown of industry costs of production  suggests that these regional expenditures are probably now in the order of $800 million per year.

Capital Expenditures

The regional industry has been expending close to $250 million annually (1996-1998) on capital improvements to existing plants, and new facilities. Upgrading work frequently includes improved environmental protection features, as well as measures designed to improve production quality, efficiency and/or mill capacity. While much of the specialized equipment purchased is sourced outside the region, local skilled tradesmen are employed, and the capital project workforce makes significant use of community hotels, motels, restaurants and entertainment facilities.

No reliable data are available, but it might be reasonably assumed that at least 20% of the total capital expenditures finds its way into the local/regional economy ($50 million annually).

Northwestern Ontario Forest Product Industry
Total Regional Economic Contribution
(approximate annual industry expenditures)

Direct employment (wages+benefits)    

Purchases of goods & services

Capital Projects

Total

$1,004 million

$796 million

$50 million

$1.85 billion

Source/derivation: as noted in text


chart 2

Payments to Governments

The forest products industry makes substantial payments to federal, provincial and municipal governments.

In Ontario in 1996 these payments were approximately as follows:

Federal Governement

Taxes and employment-related deductions paid directly to the federal government by the Ontario industry in 1998 totaled about $747 million. This included corporate income tax, federal sales and non-resident withholding taxes, employee income tax, Canada Pension Plan and Employment Insurance deductions.

Ontario Government

Provincial taxes and levies paid by the Ontario industry in 1998 totaled about $530 million. This included current corporate income, sales, gas and fuel, electricity and capital taxes, and stumpage, royalties and crown land harvesting and use.

EquipmentMunicipal Government

The Ontario industry as a whole paid $124 million in property taxes in 1997.
Source: Price Waterhouse: The Primary Forest Products
Industry in Ontario in 1997 & 1998 - Report Tables, August 1997.

Regional Contribution

No precise estimate of the regional proportion of the above totals is available. A reasonable estimate based on the size of the regional industry relative to the provincial total would be about 43%. On that basis regional industry payments would be approximately as follows:

1996 Regional Industry Payments to Governments:

Federal Government

$ 320 million

Provincial Government

$ 230 million

Municipal Government

$ 50 million

Total

$ 600 million


The municipal contribution is, of course, made to municipalities within the region, and thus finds its way directly into the regional economy.

chart 3

Community Donations

The industry presently contributes over $650,000 annually incash and staff time to a wide range of community projects and programs.


Return to Top of Page



Other Major Natural Resource-Based Industries

Other major regional industries which utilize the crown land resource base include the mining industry and the tourism industry.

The mining industry is localized around the ore bodies. 

chart 4

Comparative salary levels (including benefits) in these three sectors are currently approximately:

Forest Products (mill)

$ 69,000

Mining

$ 88,000

Resource Based Tourism

$ 22,000

Total

$ 179,000


New Growth There are currently 9 metal-producing mines and 20 industrial mineral and amethyst/agate producers in the region.  According to Ernst and Young, October 1998, the regional industry directly employed about 3,200 persons.

The crown land-based tourism industry currently directly employs about 2,500 persons in this region.


chart 5

Return to Top of Page



"Value Added" Observations

Ministry of Natural Resources data indicates that the regional industry utilizes, on average, about 11 million cubic metres of wood fibre annually, of which about 90% is harvested from regional crown lands, the remainder coming from private lands and from beyond the regional boundaries. 

As noted above, this quantity of wood throughput generates about 34,400 direct, indirect and induced person years of employment, and results in the injection of about $1.8 billion in annual industry expenditures for labour, goods and services into the regional economy.  A significant proportion of the region's communities are more than half dependent in employment and employment income terms on the continued viability of the industry.

These numbers are absolutely and relatively very large, and it is perhaps useful to try to express them in more easily recognizable terms.   

Consider, for example, the average effect on the regional economy of harvesting, and processing 1,000 cubic metres (about 400 cords) of wood in a regional mill. One thousand cubic metres is the amount of round wood that would be harvested from between 5 and 8 hectares (12 to 20 acres) of typical production forest. It is the amount that would be transported by 15 to 18 typical logging trucks.

Each 1,000 cubic metres of wood thus utilized regionally generates within the region about:
  • 3.1 person-years of employment
  • $164,000 in industry expenditures for labour, goods, and services
  • $55,000 in industry contributions to government


Return to Top of Page



Home | Forest Capital of Canada | About Our Website |
Ontario's North (West) Forest | Boreal Forests of the World | North (West) Forest Industry |
World Links and Resources | "Forest Finder" Search Engine | Educational Resources |
What's Happening | Contacts | Site Map |