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Canadian Politics and the Paper Industry
We are in the midst of the longest election campaign in modern Canadian history as I write. Most voters are fed up with its 11 week length.

Canadian politicians are cheap dates relative to many countries. They have to live on well under US$100 million total income for all parties from contributions. US-style political action committee and other "outside the party" funding is not allowed. Much of the political party income is derived from a government (i.e. taxpayer) subsidy based on the number of votes gained. Corporations are largely prohibited from donating to politicians and personal contributions are limited.

In addition to the length of the current election campaign, and its relatively high cost to taxpayers, I am also fed up with the lack of attention paid to the pulp and paper industry by the three major political parties and their leaders. Perhaps one reason is the above-mentioned constraint on corporate donations to political parties and politicians.

The pulp and paper industry used to be the largest in Canada in terms of total wages and investment. Today it is still a major employer, but has been by-passed by oil and gas, as well as by many government organizations.

The major reason for the multiple mill closures we have seen in the past decade is decline in demand for newsprint and other communication grades of papers, but weakening government support has exacerbated the decline. Canadian mills have had to watch their US competition receive massive amounts of money in the (now defunct) black liquor tax credits, while US lumber mills and some fine paper producers have been "protected" (effectively subsidized) by tariff barriers. Canadian government reaction to these blows to the Canadian forest products industry has been weak and of little help to the pulp and paper mills.

Pulp mills in British Columbia are complaining that about 2/3 of the log harvest is exported without any further processing, causing a shortage of residual sawmill chips in the region. This is partly driven by subsidized use of wood as fuel in Europe, to reduce carbon dioxide emission from coal-burning electricity generators. The science and economics are questionable, at best, but the decisions taken by politicians and bureaucrats have made matters worse.

Despite the gloom and doom, there has been some good news in Canada, too.

The Canadian government just announced agreement on the Trans Pacific Partnership (TPP), which is supposed to include reductions of tariff barriers to Canadian products in a dozen countries around the Pacific. Let's hope this is not merely election campaign bluster.

The TPP will reportedly remove duties as high as 40% currently imposed on Canadian pulp, paper and lumber in several Asian countries. This will obviously boost the already significant level of sales in these areas.

Irving of Saint John, New Brunswick, is currently completing a $450 million upgrade at their bleached kraft mill. This is the largest single capital investment in the Canadian pulp and paper industry in 20 years. When Irving, a private, family-owned, company invests so much in this old and space-restricted mill site, it is a demonstration of long-term optimism. It is encouraging to notice the youth of the staff involved, and the advanced level of technology being installed. The last new mill in Canada that I am closely familiar with was built in the 80s, with far too much 1970s technology. On a visit to the Irving mill a few years ago, I was struck by the preference for the latest in equipment.

Kruger, another family company, is investing $250 million in converting a newsprint machine to produce 360,000 tons/year of recycled lightweight linerboard in Trois Rivières, Quebec.

Both these investments are in very old mill sites, demonstrating that characteristics such as good quality, established, labor forces and management with a long-term vision are key factors in industry prosperity. The Trois Rivières mill was once the largest mill in the world. It is far from that today, but its 1,000-plus tons/day linerboard machine is still a respectable size by modern standards.

We have seen recent announcements of a few major modernization projects in the US pulp and paper industry, too, including a new continuous digester at Clearwater Paper`s mill in Lewiston, ID.

None of this North American investment is on the scale of the current South American projects. However, it is good so see a future for some of our old mills. Of course, as the CEO of Canfor said in a recent presentation, we can expect also to see more mill closures in Canada and the US in the next year or two.

The 19th of October will reveal who will run Canada for the next few years, but given the silence on pulp and paper issues during the election campaign, it is not clear which party will do best for the industry.

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