Budget- Ofc Submission 2009 - Final

Introduction Mr. Chair, Members of the Standing Committee. Thank you for once again holding pre-budget consultations here in Northwestern Ontario. The Ontario Forestry Coalition is representative of a broad range of organizations directly concerned with the survival and sustainability of Ontario’s Forest Industry. We are not just Northwestern Ontario centred as we have members from FONOM from Northeastern Ontario, and the Ontario Forest Industries Association and the Ontario Lumber Manufacturers Association both of which have members across this province.. We do represent labour, through CEP, business through the Northwestern Ontario Associated Chambers of Commerce, First Nations, through the Nishnawbe Aski Development Fund Corporation , Municipalities through the Northwestern Ontario Municipal Association and FONOM and of course industry. The Forest Industry has been in an economic crisis well before the mortgage collapse in the United States triggered the one that all of Ontario is now in. In the Northwest we have seen over 6,000 forest industry jobs disappear from our communities in the last three years. For many communities they have lost their only industrial employer and the majority of their tax base. Today there are only 4,236 people working in the Northwest in the forest industry. It is important to emphasis the degree to which the forestry industry has impacted the regional economy of the Northwest. In the 2006 An Economic Impact Analysis of the Northwestern Ontario Forest Sector the following facts were identified: •

The value of direct forest sector salaries in Northwestern Ontario was $624 million per year - 1.27 times higher than those in health care and social services, 2.29 times higher than education, 4.31 times higher than mining and more than 5.22 times higher than tourism-related industries. (p. 80)

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The overall average annual wages and salaries in the forestry industry was 54% higher than the overall average earnings in Northwestern Ontario. (p.78) Many Northwestern Ontario communities depend on the forest industry for large percentage of their community income (p. 82): o Red Lake sub-region 21.23% o Kenora sub-region 25.47% o Fort Frances sub-region 66.80% o Sioux Lookout sub-region 27.58% o Dryden sub-region 72.24% o Thunder Bay sub-region 23.46% o Nipigon North sub-region 70.58% o Nipigon South sub-region 87.33% The overall % dependency on forest industry income (Northwest region) is 35.14% (p.82)

Just three years ago, there were nearly 200 communities in southern Ontario having a stake in the economic viability of Ontario’s forest sector. The economic impacts of the forestry sector extend well beyond the mills which process wood fibre into lumber, paper and other manufactured products. Southern Ontario companies provide equipment, supplies and services utilized throughout all aspects of the production process from management and planning services, to harvesting, right through to the processing of end products. The economic footprint of the forest industry in Ontario is second only to the auto industry. It had $19 billion in total sales with a $8.5 billion contribution to the balance of trade and $ 4.8 billion salaries and benefits to the 85,000 direct employees. There were an additional 190,000 people employed indirectly by the forest industry while taxes amount to $2.3 billion a year. All of Ontario’s forest companies and processing facilities are deeply integrated in the provincial economy through the numerous businesses that provide equipment, supplies and services to the industry. In Southern Ontario 107 communities were the home of 177 mills or processing facilities. An additional 332 businesses located in 75 southern Ontario communities provided equipment and services to the pulp and paper sector, and nearly 100 businesses in 68 southern communities are directly involved, provided equipment and services to the forestry and wood products sectors. We have provided you with three maps to show you the impacts on our region. Map A shows the communities where the forest industry was based only a few years ago. Map B shows what is left operating and Map C shows what this Christmas will look like. As you can see we have gone from 19 communities contributing to the Ontario economy through the harvesting and processing of our

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~ 3 ~  forests to just 8 today. Over Christmas there will only be 6 communities still processing wood. Mr. Chairman, now you understand better why we say that Forestry is our auto industry and should receive the same if not better recognition than what has historically been received by that sector. Now that Ontario and Canada have reached an agreement on how to proceed to assist the Auto industry in Ontario, it is time, much needed in fact, that those same two governments give the forest industry the same attention and support.

The forest industry and the towns that rely on it need action now. We need action so that when the economy and markets turn around that we have mills that can resume operation. We need action now to ensure that the remaining mills – whether they be saw, pulp or paper can afford to stay in operation. And we need action now to support the laid off workers their families & their communities so that they can weather this storm. Mr. Chairman, members of the Standing Committee in our written brief we have outlined a number of additional steps that are important to the survival of the industry. The key points of those recommendations are: 1. Maintenance of the Industrial Fibre Basket In 2002, in the “Final Report of the Ontario Forest Accord Advisory Board on the Implementation of the Accord”, representatives of the forest industry, the Government of Ontario, and the environmental sector recognized the long-term supply of wood necessary for industrial processing is 24 million cubic metres per year (m3/yr). We need that allocation to be protected for our future use! Endangered Species Act The Ontario Forestry Coalition continues to be very concerned that additional reduction of fibre supply will occur through implementation of the Endangered Species Act (ESA). The government needs to recognize that the current forest management planning process addresses the objectives of the ESA in order to ensure that the implementation of the new Endangered Species Act does not result in a withdrawal of the land base or a reduction in fibre supply. 2. Maintain Competitive Measures Put in Place Since 2005 Since 2005 the Government of Ontario has implemented several key measures/strategies that were designed to help restore the competitiveness of Ontario’s forest sector. These include:

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~ 4 ~  1. 2. 3. 4. 5. 6.

Road maintenance and construction funding Forest Resource Inventory (FRI) funding Wood promotion funding The creation of a Forest Sector Prosperity Fund A loan guarantee program Northern Pulp and Paper Electricity Program

Mr. Chairman it is essential that these be maintained and their life extended where appropriate. 3. Poplar and White Birch Stumpage Dues The OFC requests that the government maintain the Crown dues rate for poplar and birch at a rate no greater than $1.07/m3 for the next three years. 4. Industrial Electricity Rate To assist in restoring competitiveness to the province’s manufacturing sector, the Government of Ontario needs to implement a temporary industrial electricity rate that is competitive with other jurisdictions in Canada and the United States. Mr. Chairman there are more details on each of these points found at the end of our presentation. We leave you to review them as you fly to your next hearing location, but we would ask that you give them every consideration. Conclusion We ask that the Ontario Government continue to support the programs that the.industry critically needs. We also ask that all orders of government work with us in the future to find new solutions that will get our forest industry back on its feet - not just for the short term but the long term - so we can put those 6,000 people back doing what they know best! .

Mr Chairman as we said at the outset the Forest Industry is our Auto Industry! The forest industry’s importance to the Northwest’s economy is proportionally greater than the auto industry is to southern Ontario. We have already seen more than two thirds of our forest work force laid off. Please keep that in mind as you advising the Government on the contents of the 2009 budget.

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Backgrounder: Specific Recommendations Maintenance of the Industrial Fibre Basket Access to a predictable, continuous supply of fibre is a fundamental component of a healthy forest industry and is a necessity to ensure continued investment in existing primary and secondary products as well as new wood products, like biofuel pellets. As Ontario continues to move toward the implementation of a green economy, we need to ensure that the appropriate level of resources is made available to the forest sector. For every 1,000 m3 reduction in harvest levels 3.1 jobs are lost. This translates into approximately 3.1 jobs lost for every 625 hectares of productive Crown forest taken out of production in the current planning area. Numerous environmental groups have suggested that forest operations should not be permitted within woodland caribou range, a position that if acted upon would result in a withdrawal of almost 8 million hectares of productive forest within the current planning area. Estimating conservatively, this would result in over 20,000 job losses to the forest sector alone. In 2002, in the “Final Report of the Ontario Forest Accord Advisory Board on the Implementation of the Accord”, representatives of the forest industry, the Government of Ontario, and the environmental sector recognized the long-term supply of wood necessary for industrial processing is 24 million cubic metres per year (m3/yr). In March 2008 this vision was re-confirmed by Ontario’s Minister of Natural Resources, Donna Cansfield, in a letter to the OFIA which stated, “I support the concept of a secure long-term fibre supply for the forest industry. I also recognize the relevance of the 24 million m3/yr for the forest industry as a benchmark”. As the forest sector looks toward better economic times, maintaining our sector’s access to 24 million m3 will be essential, not only to ensure the continued operation and associated benefits (e.g. good paying jobs) of existing mills, but to attract additional, new investment to Ontario to capitalize on expanding and newly emerging markets and to create new jobs. A long-term, predictable and secure fibre supply is integral to the government’s vision of growing our green economy. We cannot afford to forego these opportunities by eroding our resource base. This recommendation will not cost the Ontario Government one cent and therefore will have no impact on the Government’s budget except for ensuring

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~ 6 ~  that once the industry recovers taxes, stumpage and other fees will begin to flow back to the Ontario treasury.

Endangered Species Act The Ontario Forestry Coalition continues to be very concerned that additional reduction of fibre supply will occur through implementation of the Endangered Species Act (ESA). Those concerns are further exacerbated by the government’s public statement that it would “implement the Endangered Species Act, beginning with a plan to protect large scale areas for caribou habitat in the Boreal Forest”. This statement alone creates uncertainty for our sector. The forest sector of Ontario, through the implementation of our world class, platinum standard Crown Forest Sustainability Act (CFSA), currently provides for the protection and recovery of species at risk, including woodland caribou. In the government’s own words, “The Crown Forest Sustainability Act requires that Forest Management Plans (FMP) identify threatened and endangered species as “featured species” and provide for their protection within the area covered by the plan.” And we have the track record to prove it. Forest management in Ontario has directly contributed to the recovery of numerous species including southern flying squirrel, red-shouldered hawk, and the bald eagle. The government needs to recognize that the current forest management planning process addresses the objectives of the ESA in order to ensure that the implementation of the new Endangered Species Act does not result in a withdrawal of the landbase or a reduction in fibre supply.

Maintain Competitive Measures Put in Place Since 2005 Since 2005 the Government of Ontario has implemented several key measures/strategies that were designed to help restore the competitiveness of Ontario’s forest sector. These include: 7. Road maintenance and construction funding 8. Forest Resource Inventory (FRI) funding 9. Wood promotion funding 10. The creation of a Forest Sector Prosperity Fund 11. A loan guarantee program 12. Northern Pulp and Paper Electricity Program

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~ 7 ~  Mr Chairman, while those initiatives were important, the sad reality is that we have few mills left operating today. If we are to see the few mills left remain open and if we are ever to have the closed ones resume operation, these initiatives must remain in place. In the words of Premier McGuinty, the objective of the various competitive measures is “to help the sector meet the challenges it currently faces and become more competitive in the global marketplace." As many of the challenges currently facing the forest sector are not anticipated to recede until at least 2010, continuation of these programs will be vital in achieving the Premier’s vision. The OFC requests that the Government of Ontario maintain all existing competitiveness measures and initiatives that have been put in place since 2005. Poplar and White Birch Stumpage Dues Over the past two and a half years the Government of Ontario has adjusted the Crown charges associated with white birch and poplar. These adjustments were premised on the following government objectives: • • •

To work with the forest sector “to help control its costs and achieve its vision of a more innovative, competitive and sustainable future”; To “help Ontario companies secure and create jobs by reducing the cost of delivering wood to processing facilities”; To “…encourage new investment and greater use of the underutilized poplar species”, and to “support existing users”.

These adjustments, which resulted in Crown dues rates of $1.07/m3, have had a significant material benefit for both the hardwood sector and integrated forest companies, and, in many cases, have played a large role in keeping those mills that are still running as viable businesses through this extremely challenging time. However, the Province of Ontario, and the forest sector specifically, continues to face significant financial challenges. According to most analysts, many of these challenges are anticipated to continue through to 2010. Adjustments to poplar and white birch have also been instrumental in making Ontario a more competitive jurisdiction. Prior to these adjustments, Ontario dues were 800% higher than other competing jurisdictions in Canada. This represented a huge competitive disadvantage for Ontario. A return to previous Crown dues rates will offset many of the competitive gains that have been made in Ontario in recent years. Alternatively, a continuation of the current Crown dues pricing for poplar and white birch will help the government meet its stated objectives, will help keep mills open, and will help maintain a competitive environment that will attract investment to the province of

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~ 8 ~  Ontario (e.g. new mills, modernization, new jobs). Continuation of this program will provide a clear win-win for the government and the forest sector. Due to provincial utilization standards, companies cannot harvest the softwood species (e.g. spruce) from mixed wood stands (forests with a mixture of hardwood and softwood) unless the hardwood component is also being utilized. This often results in companies having to go further away from mills to access pure softwood stands, thereby increasing costs. The integration of the forest sector also means that all sectors (e.g. hardwood, softwood) share road maintenance and harvest costs. When one sector is not operating, the costs fall entirely to the other sectors, resulting in increased costs. The OFC requests that the government maintain the Crown dues rate for poplar and birch at a rate no greater than $1.07/m3 for the next three years. Industrial Electricity Rate Ontario’s economy is heavily dependent on manufacturing which has been hard hit by the global market crises. A significant factor in determining operation and investment of many manufacturing facilities is competitive industrial electricity costs. The August 2008 report “Economic Impacts on the Ontario Economy of Different Price Scenario’s of Natural Gas and Electricity,” prepared for the Centre of Spatial Economics, concluded that high prices for electricity increase production costs leading to reductions of exports, increases in imports, lower investment and lower employment. Ontario’s manufacturing sector has shed well in excess of 200,000 jobs in the past two years. To assist in restoring competitiveness to the province’s manufacturing sector, the Government of Ontario needs to implement a temporary industrial electricity rate that is competitive with other jurisdictions in Canada and the United States. Industrial electricity rates are used in the majority of industrialized nations as an economic development tool. In Ontario, industrial rates should serve as a temporary bridging mechanism that improves competitiveness. Further, industrial rates will help manufacturers weather the current economic storm and position themselves to compete after the global economic recovery occurs. This recommendation will help all sectors in the Forest Industry but as importantly will help the auto sector, the parts sector and the steel industry as well. By taking such a broad approach we will avoid any softwood lumber challenges from the United States.

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