Rethinking Northern Ontario! Northern Ontario Forestry: without radical change we shall destroy our birthright.

In this our third edition of "Rethinking Northern Ontario" we zero in on Forestry. We have so many riches and yet we are trapped in a commodity infrastructure that leaves us vulnerable and exposed to currency fluctuations, and price pressures that are rapidly making us uncompetitive. Our primary response is to artificially cap energy prices, which is only one of the inputs. This might be a reasonable short-term strategy, but it is not sustainable over the long haul. We need to rethink what we do.

Despite the ongoing travails of the forestry crisis, there is one unavoidable fact about the future of Northern Ontario: it will continue to feature wood. A large fraction of the income flowing into Northern Ontario will be a result of the wood and wood products we send out.

How much we get for that wood will increasingly depend on how much we add value to it. It is no longer enough to be "hewers of wood". The number of people that live in Northern Ontario will ultimately depend on how much value we add to the wood we grow.

Moreover, the concept of value-added must be extended to everything we do in the North. How do we become a "value-added society," not only with respect to forestry, but also health, education, services, mining and retail.

The Mystery of Value-added

Understand value-added properly and you have the key to economic development. Value-added is really just human labour. A tree in the forest has no value. It may have monetary value, for example, someone may be willing to pay for it. It may have social value in that it provides oxygen to a choking planet, but it has no value added in economic terms unless you have been fertilizing it, pruning it, or building roads to reach it.

Strange as it seems, if you cut down that tree, you add value. From the point of view of the trucker that carries it away, that tree is worth more lying on the ground limbless and ready to be transported than standing majestically in the sun. Move it to a mill and you have added more value. Saw it into two-by-fours or chip it and you have added value yet again.

The absolute minimum value we can add to a tree is to cut it down and ship it to Quebec or the United States.

When America imposed the Dingley tariff on lumber in 1887, Ontario responded with a "manufacturing condition" that required logs to be milled in Ontario. That was the last really effective legislative initiative that Ontario has promulagated to demand higher value from our forests. We were settled as a resource extraction colony and continue to be mired in its aftermath.

Most of the northern Ontario forest industry is still producing commodities that come close to the minimum feasible value-added. Pulp paper and saw-lumber have to compete with similar low value products from around the world.

On the other hand, Finland provides an alternative model--the Finn's have been moving into products with more and more value added since the 1980s. Quebec, too, has learned the lesson. While only 10 per cent of Quebec's wood goes to the value added sector, that 10 percent earns as much for the province as the 90 per cent exported as basic commodities.* (Dr. Luc Bouthillier, Universite de Quebec a Laval)

We have no choice. We smarten up or we perish.

The most striking feature of Ontario's forest management system today is that it has failed to generate progressive and sustainable, forest-based economic development in Northern Ontario. Instead of using the resource wealth to build the base for a new economy in the North, we ship our resources, jobs and thus our children beyond the region for others to benefit from.

Wood-based value-added industry is concentrated in southern Ontario and outside of Canada. Forestry firms report many of their mills are outdated and unprofitable. The North started with an enormous resource base, yet somehow we have ended up getting poorer, not richer.

We've never stopped to see what it would take to change our assumptions, our habits and our vision from a traditional resource extraction economy to a proactive, innovative solutions-oriented society

The forest is not owned by Northerners, so the profits don't stay in the North. The farms of southern Ontario are owned by farmers who live in the south and the value created by the sun falling on corn plants--the value of the natural resources goes to the farm owners. They invested in equipment, houses and businesses in the south. They developed an industry producing farm machinery. In fact, farm machinery production laid the basis for the auto industry.

Over the course of the 20th century, the rents and returns from Northern resources funded the growth of Toronto, built southern universities, and helped create the Toronto Stock Exchange. Little of this wealth stayed in the North. After a century of business as usual, the major mines are now owned by foreign firms, and the financial sector is pushing to privatize the forests. Before long there will be no way to capture a fair share of the resource wealth for the North.

Canadians are not likely to accept privatizing the forests. Even if the forests could be privatized, foreign interests could soon acquire them. Is there another way to get local control and make sure that profits are recycled in the North? The community forest movement provides one promising avenue.

There is no exit from the under-development trap without shifting to a land tenure system that will support economic development. Of the three obvious candidates, corporate ownership, small holding, and community forests, only the community forest approach is likely to both support development and be politically acceptable.

A community forest is essentially a forest operation that is managed by a local or regional government, a community group or First Nation with the goal of re-investing revenue back into the community managing the operation. It is time to diversify the land tenure system in Northern Ontario by creating some community forests and give them the opportunity to add value and do better.

There are basically two questions that need to be answered. What will we do and who will do it?

We have some proposals.

Value Added Policy Proposal No. 1

Create a Value Added Secretariat tasked with envisioning how we move Northern Ontario's economy from a commodity-based model to an innovation based value added model.

The challenge is to change the culture and invest in the future. It is a long-term orientation and is done by revamping and aligning educational priorities in Northern Ontario. This idea needs to be shaped and sold to the people of Northern Ontario.

Value Added Policy Proposal No. 2

Create a commission to promote community forestry.

We need a commission because in Northern Ontario, we can't see the forest for the trees.

The North is dominated by big companies (most of them losing money) and big government. Neither party is in any mood to think creatively. They are either trying to survive financially or respond politically in crisis mode to layoffs.

They end up only doing what they have always done. For the province they will cap (read subsidize) energy costs to further empower a losing commodity business model and the companies will consolidate, close plants, and lay off people until they get to something that works for them.

The idea of the potential for community forestry as a replacement at least in part for the commodity strategy has to come from a well funded independent voice tasked with the job of researching and evangelizing the idea to a populace that has known nothing, but commodity strategies. This approach worked when power and the Canadian dollar was cheap, and wood plentiful, but it is bankrupt in today's marketplace.

The future means more work, a higher degree of sophistication and creativity and a change in mindset.

The commission needs to set a goal of increasing community forest acreage by one per cent a year for seven years.

Value Added Policy Proposal No. 3

Concentrate provincial research, training and postgraduate programs in forestry and wood research in Northern Ontario.

As part of this process, promote wood-based design and construction throughout Northern Ontario, especially for all municipal and provincial buildings.

We need to move the preponderance of Ontario's intellectual capital related to wood to Northern Ontario. It makes a big difference.

Value Added Policy Proposal No. 4

Develop local management capacity in the North by transferring the Ministry of Natural Resources to Northern Ontario and devolving elements of forestry management to municipalities.

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Wood is our business. In other parts of the province it is less central to the economy. We need to be trained, mentored and taught in the North. Northern resource management and policy development needs to be closer to the resource.

Value Added Policy Proposal No. 5

Shift to a public policy of a value add model and allocate resources accordingly.

Our companies are big commodity brokers.

While there are some advantages to being big, it can also be a deadly combination. Research shows that large resource companies invest more in process innovations, than in product innovations. It is product innovations that adds the most value. Process innovations are usually aimed at reducing costs and they end up reducing employment.

The forest companies are not to blame for this situation. They get rid of workers to increase profits. Their competitors do the same thing. It is a vicious circle.

Forestry companies cannot be expected to provide all the solutions. In fact, pulp and timber companies have reason to be reticent. They need all the forest they can get and giving anything up will not be well received. It is for the province to decide what is best for its citizens and allocating resources to value added initiatives only makes sense.

Northern Ontario needs a high intensity strategy to develop a value added wood-based industry. The most progressive ideas are in Scandinavia.

In Finland, in a recent initiative called Value Added Wood Chain--Increasing the Added Value of Finish Wood Products they established 193 separate projects related to creating wealth in the value add wood chain. One hundred and forty-five were embedded in private enterprise and 48 in government or institutional settings. The success of Norwegian furniture companies that base their products on natural wood and stone etc. is well known.

Our business mentality is holding us back. We need a major change in focus.

Value Added Policy Proposal No. 6

Create a Northern Ontario School of Industrial design to help develop quality value-added products and create a Northern Ontario School of Architecture to attract design talent and help create a design based export sector.

Basic trade theory tells us that regions export surpluses. We have lots of wood to export. Value-added theory tells us that adding value means adding human talent and time. It means adding design and fabrication skills. Northern Ontario does not have a surplus of designers or highly skilled fabricators. In fact, research done for the provincial government shows that Northern Ontario has a serious shortage.

If we want to move up the value chain, Northern Ontario has to develop its own designers and fabricators. We require our own product innovators. We have to get to the point where we have more than our share of creative people working with wood. Our own creative people become the source of new value added innovations. This is a central requirement for northern economic development. The primary job is to align our education system from post secondary to high schools and junior grades with a curriculum that excites the imagination about working with and inventing new products made out of wood that will make real money.

Next month. The question of energy

What do you think? Comment at www.rethinkingnorthernontario.org

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The ideas and themes explored in this series have been discussed and shaped by Livio Di Matteo professor of economics at Lakehead University in Thunder Bay, David Robinson, associate professor of economics at Laurentian University in Sudbury and Michael Atkins President of Northern Ontario Business.