Sawmill and paper mill closures: How can a community prepare?

November 8, 2016

During the last decade, the Canadian forestry industry has been in steady decline with sawmills and paper mills having borne the brunt of recent closures. With the recent announcement that the Tolko paper mill will cease operations on December 2, 2016, again we’re faced with the age-old question: How can a community prepare for the potential loss of its primary employer? This post discusses potential options how a community can prepare for economic instability by being proactive and developing contingency plans to help them withstand any future shocks. 

 

Background

 

In 2009, I wrote a Master’s thesis focusing on the relationship between reduced forest activity in The Pas and the prevailing attitudes towards long-term sustainability.

 

My interest was sparked while employed as a summer student at the paper mill. During this time, I witnessed first-hand a gnawing sense of despondency about the state of the industry; anxiety over an ever-present threat of closure was never far away.

 

When a mill closes, the repercussions for a small northern Manitoba town can be nothing short of disastrous. The closure not only affects mill employees but the ensuing trickle-down effect has an impact on the entire community with far-reaching ramifications for contractors, secondary and tertiary workers.

 

With the recent announcement that the Tolko paper mill will cease operations on December 2, 2016, again we’re faced with the age-old question: How can a community prepare for the potential loss of its primary employer?

 

Community preparedness

 

A community can prepare for economic instability by being proactive and developing contingency plans to help them withstand any future shocks. In my thesis, I identified several options:

 

Incentives: A blueprint for reducing operating costs and encouraging businesses to remain open during a depressed or volatile economy. Economic inducements may include tax incentives or cutting back on expenditure through reduced wages or compressed work schedules. Such strategies can be beneficial for both the company and local community providing they’re able to work together to find common solutions.

 

Diversification: Revitalizing the local economy to look beyond the primary employer and develop financial incentives such as business grants, loans, tax incentives, educational and entrepreneurial programs. Adopting an official growth strategy allows a community to prepare for the future: When companies expand, the surrounding infrastructure does too, in areas such as housing, healthcare, roads, bridges, transit systems or hospitals.

 

A realistic economic diversification development plan with clearly defined objectives will not only help foster an entrepreneurial mindset but could also encourage new business development. The best time to build this framework is during good economic times when the major employers are still operating and there is steady population growth, rather than scrambling to adjust during a sudden downturn.

 

• Response plan: Preparing for population decline by adopting a flexible structure that can quickly adapt to challenges such as a changing demographic, decreased population or reduced tax base. The response plan should include well defined social programs to deal with the sudden aftermath of a loss of employment.

 

Advance foresight is critical. Cognizant of the possibility of a future with reduced tax revenues, prior planning could include the establishment of an emergency fund to cover major infrastructure renewal costs—such as the upgrading of a water treatment plant or road repair—or at least making a start on this work rather than waiting until it becomes an intractable issue.

 

Can these approaches be successful?

 

During the course of my research, several temporary sawmill closures in The Pas have been announced. To incentivize business to remain open, negotiation between the provincial government, the Town of The Pas, Tolko Industries and the union representing the plant’s workers lead to creation of a Financial Stabilization Agreement. The plan agreed to approximately $19 million in concessions, including $11 million from the provincial government to subsidize seedlings, winter road maintenance, fire suppression costs and reduced off-road fuel taxes. The province also worked with Manitoba Hydro and Tolko Industries to upgrade the mill’s boiler system to burn waste and sell any surplus electricity back to the grid. Furthermore, the town council reduced Tolko Industries’ property and business taxes and the mill’s unions agreed to a three-year wage reduction.

 

Although these measures were effective in the short-term, in March, 2008 Tolko announced the number of shifts would be cut in half from two shifts to one shift —a measure affecting 75 employees.  (A further announcement in January, 2009 advised that the mill would be closing indefinitely.)

 

The paper mill appeared to be financially viable until August when the company announced that in December, 2016 the plant would be closing permanently, resulting in the loss of 332 direct and 250 subcontracting positions.

 

Faced with this impending closure, the community and trade unions mobilized yet again with a preventative strategy of tax incentives and wage reductions to encourage Tolko Industries to remain in the community. Unfortunately, these measures were not enough. In an effort to encourage a new buyer, the unions are in the process of voting on whether to ratify an agreement to accept further wage reductions and a restructured pension plan.

 

Even if the options currently under consideration are successful, I would still recommend the development of a community action plan with clearly defined objectives for growth, development, diversification and retention of the local population.

 

The Pas is a community with considerable potential. Known as the “Gateway to the North” it boasts a university, health care complex and correctional facility. Expansion in these areas could create local employment and encourage relocation. A social/environmental consultancy* could conduct assessments in order to uncover compelling solutions, which in turn would empower The Pas to make informed decisions. Impact Resolutions would be keen to assist in this transitional period by offering a customized approach for further developing these and other ideas.

 

Having a solid strategy to prepare for a possible declining population and the resulting decreased tax base is essential for communities where a single business supports a significant proportion of the workforce. Shortly after the news of Tolko mill’s impending closure, residents of The Pas were dealt another bombshell as it was announced that a nearby casino and grocery store would also be closing.  With the July announcement of mass layoffs at the Port of Churchill, as well as the upcoming 2020 closure of two mines in Flin Flon and a 2018 shutdown of Thompson’s nickel smelter, it’s clear that Northern Manitoba’s economy has taken an economic battering of late.

With significant job losses, people would have limited options for alternative employment, which may lead to many families relocating. If this were to happen, the significance for communities, such as The Pas, could be disastrous including effects to local real estate, infrastructure projects, business viability, as well as a range of social problems.

 

Is there another solution?

 

Government subsidies; tax incentives; shorter working hours; reduced wages: Approaches that have all been tried in the past. Yet still, the town of The Pas finds itself in a desperate situation where its largest employer is facing permanent closure.

 

To date, Tolko Industries has declined to accept a three-year tax stimulus stating it was insufficient for the mill to avoid closure. Nevertheless, the same incentives are still on the table for the new potential buyer. This raises a fundamental question: If Tolko Industries—a leading player in the Canadian forestry industry—is unable to take advantage of these incentives, then who else can? And would they for the right reasons?

 

Given that the preventative measures I’ve discussed have been tried before, is there a guarantee that anything would be any different the next time? To achieve a different outcome, perhaps it’s necessary to try another approach. To quote Albert Einstein,

“The definition of insanity is doing the same thing over and over again, but expecting different results.”

 

What if, instead of giving a three year tax break worth approximately $1.5 million to the owners of the paper mill, the money is invested in small to medium sized businesses to expand and grow their operations. Or to promote other forest-based business to relocate, such as a pellet plant to sell to European markets. Instead of turning to “tried and failed” options, this moment should be an opportunity to try something new, to explore new markets, new businesses and new opportunities to help the community continue to thrive.

 

*Disclaimer: I work for a social/environmental consulting firm called Impact Resolutions which offers customized approaches and innovative ideas specifically designed to meet  client needs.

 

 

Crista Gladstone is  Human Environment Specialist at Impact Resolutions Ltd, with an Advanced Bachelor of Arts in Geography followed by a Masters in Natural Resource Management from the University of Manitoba. The focus of her thesis research was understanding the socio-economic baseline of The Pas, Manitoba, Canada, anticipated impacts associated with a potential decline in the forest industry and current initiatives to strengthen the economy. Research on successful strategies used to other forest industry communities was used to propose additional strategies to incorporate into community response plans.

 

Since completing her Master’s thesis, Crista has worked on numerous socio-economic baseline reports and assessments, has been integral in identifying key stakeholders and performing qualitative and quantitative data analysis.

 

Crista loves the outdoors and loves to snowboard, quad, wake board and water ski. She is always up for the next adventure life has to offer!

 

This article was previously published in  The Forest Monitor  on November 7, 2016.

 

 

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