The provincial government is preparing to drop a lifeline to the struggling integrated sawmill industry, but it won't be in the form of handouts that mask the real issues, says Natural Resources Minister Kathy Dunderdale.
"We will not just throw money at the problem," Dunderdale said Friday.
She said the province's $14-million forestry restructuring program, announced in the 2008 budget, will help the industry find new markets, identify inefficiencies in their operations in order to address high energy costs and assist with diversification, including the development of a local wood pellet industry.
She acknowledged that rebuilding the sector will be a challenge.
"We still have confidence in this sector, but the whole industry is in turmoil," she said.
A few years ago, the integrated sawmill industry was being touted by the government as a bright light in the province's forest sector.
Production and values were increasing at a record pace, peaking in 2002 when 145-million board feet of lumber was produced in this province.
Lumber was being exported across Canada and into the United States to meet a construction boom.
But a devastating chain of events has virtually brought the industry to its knees.
Five years ago, there were 11 integrated sawmills in production. That number fell to seven last year, and now only four are operating on a consistent basis.
The "perfect storm," as some in the industry describe it, came in the form of the sub-prime housing crisis in the U.S., an inflated Canadian dollar, an influx of lumber from Western Canada, and high energy costs.
It all led to some of the lowest prices for lumber in nearly two decades, and analysts are predicting more bleak times ahead.
"It's been a tremendously trying year," said Fred Osmond, owner of Burton's Cove Logging and Lumber in Hampden, deep in the heart of White Bay.
It's a stretch to say it, but Osmond is one of the lucky ones. His mill is operating largely because of its close proximity to the paper mill in Corner Brook, it's surrounded by dense forest, has a stable workforce of more than 50 people and building supply stores in place likes Deer Lake have remained loyal customers.
Like all integrated sawmills, Osmond's exchanges pulpwood with the paper mill for sawlogs. It's the best way to maintain a good supply of logs, he explained.
The waste - usually in the form of wood chips and shavings for pulp and sawdust for hog fuel - from processed logs are also shipped to the paper mills in Corner Brook and Grand Falls-Windsor.
But even that relationship has been brought into question because of troubles in the newsprint industry.
The future of the century-old paper mill in Grand Falls-Windsor is very much in doubt, and a proposal by AbitibiBowater to establish a full-tree harvesting system would have seriously compromised the ability of sawmills to access logs.
AbitibiBowater has since shelved its full-tree harvesting plan, and will announce its plans for the Grand Falls-Windsor mill by the end of the year.
In the past, sawmillers usually counted on profits from their lumber to offset lower returns from the sale of pulpwood and residue to the paper mills, but when prices dipped well below US$200 per thousand board feet, it became impossible for many to balance the books.
That was the case for Jamestown Lumber in Jamestown, Bonavista Bay.
The company did about $15 million worth of business last year, but lost $1 million, said Robert Dingwell, one of the owners of Jamestown Lumber.
Dingwell and other mill owners held an emergency meeting with Dunderdale and her officials last January. They were seeking immediate assistance to meet payrolls and cover energy costs.
The province refused, so Dingwell went home and closed his mill. Forty-one people were thrown out of work.
They expect to reactivate the saws and planers when prices rebound, likely by 2010. But in the meantime, Dingwell and his partners, like several other mills in the province, have plans to diversify into the production of wood pellets.
While he and others are frustrated that the provincial government is not moving faster with its diversification plan, they are pleased to see a response.
"The government has said if we and others can develop business plans to make capital investments, they will contribute. That is positive," Dingwell said.
Dingwell would like to see changes to the licencing system to ensure a more stable supply of wood resource. Right now, he said, licences are issued on an annual basis.
He'd also like to see the provincial government convert heating systems in public buildings in order to take advantage of wood pellets. He said a provincial initiative that offers homeowners a 25 per cent rebate on the cost of a pellet stove is a good start to establishing a new industry, but the province has to do more.
He said other provinces are much farther ahead.
Dunderdale said the government is exploring "all options."
Ted Lewis, owner of Holson Forest Products in Roddickton, is also eyeing diversification. He said sawmills have to become less dependent on the two-by-four and two-by-six market.
He said the government's restructuring fund will help, but he's concerned with the process.
"It is taking too long to roll the program out. Will we struggle to survive long enough to take advantage of it?" he asked.
Value of lumber production (smaller operations and integrated mills) was $60 million in 2007.
Direct employment in sawmill sector in 2007 - 175 to 260 jobs.
Since the early 1990s, sawmill production in Newfoundland and Labrador has grown from 50 million board feet to over 100 million board feet in 2007.
Sawmill production peaked in 2002 with 11 integrated mills producing 145 million board feet.
Integrated sawmills account for 85 to 90 per cent of the total lumber production.
In recent years, production has declined, as has the number of integrated sawmills. In 2007, seven integrated mills were operating. In 2008, only four mills operate on a consistent basis.
Source: Department of Natural Resources