Preventing future Gold Rivers requires thinking outside the box

February 23, 1999

When the workers at the ill-fated Gold River pulp mill took their severance packages last week, it marked closure on a frustrating struggle to save the mill. The workers are now moving on and there is little point in continuing the polemic over the mill's viability or what government could or should have done.

Nevertheless it is worthwhile to remember what happened at Gold River and to talk about how to avoid a similar fate for other mill towns. The conventional wisdom from industry opinion makers is that Gold River was the victim of BCÕs high cost-structure and over-built pulp sector. "There are just too many pulp mills in BC, and with such high labour and fibre costs, some mills just won't make it." Sound familiar?

But wait a minute. Gold River faced cost issues and fibre supply issues. But the mill closed because it was sold from Avenor to Bowater and the new owners refused to ride out the current low prices as other BC mills are doing. Bowater made a business decision because it didn't want to be in the pulp business, and it didn't want to be in BC. That is what happens when foreign owners with no commitment to local communities gain control of our productive assets.

The loss of Gold River is a failure of free markets and of public policy. Here are four strategies that could help to prevent more failures.

First, the BC government and the pulp and paper industry should discuss how to bring greater stability to commodity markets, particularly market pulp. One idea that has been proposed is some form of supply management or marketing board. After all, most of BC's pulp is high grade northern bleached softwood kraft (NBSK), widely regarded as the best in the world. Joint marketing would allow mills to coordinate downtime when market conditions require. If a large group of mills shared downtime when needed to correct inventory build-ups, individual mills could be spared having to make the ultimate sacrifice to reduce capacity -- closure.

A coordinated marketing effort might also result in longer term contracts that would offer buyers and producers some protection from the wild swings that characterize commodity prices. If producers moderated their price demands when supply is short, perhaps buyers would agree to meet the cost of production when demand falls short of supply. Excess capacity in NBSK pulp markets is not created by BC mills alone, but by the joint activities of producers here, in the U.S. and in Scandinavia. The free market chaos of the last decade has hurt everyone. Why not try a different approach?

A second way to prevent mill closures is to encourage producers to add more value to our pulp and paper products. BC paper companies have been earning profits in 1998, while those firms focused on pulp have not. (A tragedy of the Gold River story is that the mill had a paper machine a decade earlier, which was taken apart and sold.)

A third, and urgent, need is for a comprehensive fibre supply analysis and strategy for the BC pulp and paper industry. As companies are broken up and sold off in parts, more and more BC mills are separated from the forest licenses upon which the mills were originally based. Fibre supply arrangements to some mills are particularly complex, and neither prices or supply can be planned long enough ahead to ensure stability. The break down of the "appurtenance" system that has tied timber rights to manufacturing facilities is an increasingly serious problem facing the BC forest industry that the government must address.

Finally, an approach that would help prevent more mill closures is for government to stop worrying about being criticized when it intervenes to help workers and mill communities faced with a crisis. It is a perverse feature of BC politics today that if government stands by and watches a mill go down, no one except those directly affected raises their voices. On the other hand, if the government intervenes directly and makes a difference, a chorus of political and business critics go to the attack.

It was not government that created weak and unstable commodity markets, nor can government be blamed for the business decisions of Repap, Avenor, Bowater, Fletcher Challenge or other companies that buy up productive assets and then sell them off in pieces or close them down in order to gain quick cash and boost share-holder value. Given that all of these business decisions are about public resources, government has every right to "just say no" to more Gold Rivers.