Both industry and labour agree that the pulp and paper sector of the forest products industry is facing a perfect storm.

The Communications, Energy and Paperworkers union used the term in August 2005 to describe turmoil facing the industry, and two months later it was the turn of the Forest Products Association of Canada in its pre-budget submission to the federal government.

The industry is being pummelled from three directions: by international economic trends, provincial policies and changing technology. Any one of the factors would have been disruptive; coming together, they are remaking a key Canadian industry – including pulp, paper and timber, forest products represent three per cent of the economy – and the resource communities that rely on mill jobs.

Towns and cities across northern Canada, from Port Alberni, B.C., to Grand Falls, N.L., are reeling from the job losses as mills shut down, partly close or demand concessions from workers.

It's not just the actual forest sector jobs, although there have been more than 40,000 of those lost in five years; it's also the impact from the disappearance of the best-paid work (often over $24 an hour) on a small community, and on the people who sell the high-wage earners cars, vacations and restaurant meals.

A consultant's study estimated that more than two indirect jobs depend on each of the 285,000 direct forestry jobs, so every loss of a job at a mill has a ripple effect on the community.

Then there are the suppliers. The closing of Weyerhaeuser's pulp and paper mill in Prince Albert, Sask., put 700 people (in a city of 41,000) out of work and the impact of the closure reaches Meadow Lake, where a sawmill supplies wood chips to the pulp mill.

Other small corporations, such as log haulers Malenfant Enterprises (which says 80 per cent of its work comes from the Prince Albert mill), will go out of business if another forestry company does not buy the mill.

In smaller communities like Stephenville, N.L., and Terrace Bay, Ont., the cuts at the mills threaten the future of the community. Some resource towns only exist because of the mill, and the community's reason for being goes if it closes.

"When you look at all these faces at the Stephenville Dome tonight, we have a lot of scared people, including myself," a resident said as 2,000 people – a quarter of the town's population – turned out to hear the government's take on the July 2005 announcement that Abitibi Consolidated would close the mill.

Even in bigger centres, like Thunder Bay, Ont. – population 120,000 – disappearing mill jobs will make a dent in the city.

When the dreaded announcement comes, there's usually a strong political reaction. People feel threatened in a way that isn't felt in big cities, where the loss of any one employer is usually a much smaller deal.

So premiers try and save the mill, even going so far as to talk about expropriating it, in Stephenville's case.

Governments can sometimes save plants, as New Brunswick has done with the mill in Nackawic, near Fredericton, but it was already financially backing the mill. In other cases, governments are powerless to change companies' minds about the closures, if the company is claiming it has to stop the bleeding after years of losses. The economic forces driving the closures are often beyond the control of any municipality, province or country.

Among the "outside" factors battering Canadian mills are:

• The higher-valued dollar. As the loonie appreciates against the U.S. dollar, Canadian products become more expensive for American buyers.
• Shifting production patterns. Manufacturing is moving to low-cost countries such as China, and the demand for packaging, a major part of the paper industry, has followed.
• High gasoline prices. This is a huge problem especially in Ontario, where wood is often trucked long distances to mills.
• Competition from low-cost regions in Russia, China and South America with cheap trees and labour, while huge, advanced European mills are more efficient.
• Falling demand for key products. Newspapers, squeezed by the internet, are shrinking. Newsprint exports, once the centrepiece of the industry, have been falling by 4.4 per cent a year for a decade, a $3-billion drop.

But there's more. On top of the issues seemingly beyond Canada's control, local decisions have made the problem worse. Two stand out:

• High electricity costs. Mills use large amounts of electricity, and in many jurisdictions, prices have been shooting up. In Ontario, the increase has been as much as 30 per cent over four years as discounts for manufacturers were phased out.
• Inadequate wood supplies. Moves to reduce unsustainable forest "harvests" so there will be trees to cut in the future, or for environmental reasons or competing uses such as tourism, have squeezed mills in Eastern Canada. Most dramatically, Quebec decided in early 2005 to slash allowable cuts by 20 per cent over three years.

Quebec will spend $450 million over three years to ease the industry's pain, it said in October 2005, and in September, Ontario promised $330 million over five years.

But the money is not enough, industry sources said.

And as the federal government noted in early 2005, "production capacity is still too high relative to the declining consumption of newsprint in North America, and more plant closures can be expected in the near future."

It didn't take long for the pace of closures to pick up. On Oct. 10, 2006, Abitibi-Consolidated announced it would shut down four mills in Quebec, costing 700 workers their jobs. The following day, Domtar announced the indefinite closure of four more mills in Quebec and Ontario, throwing 900 out of work. Since April 2005, more than 7,000 permanent and temporary jobs in the forestry sector have disappeared in Quebec alone.

The crisis in the industry prompted several companies to consolidate to better compete in their increasingly difficult marketplace. In August 2006, Domtar announced it would merge with the fine paper business of U.S. forest products company Weyerhaeuser in a $3.3-billion US cash-and-stock deal.

In January 2007, Abitibi-Consolidated and South Carolina-based Bowater Inc. unveiled a merger of their own. "We will be better positioned for success than either company will be on its own," said Abitibi CEO John Weaver. After years of announcing mill closures in Newfoundland, Quebec and Ontario, Abitibi had decided that joining forces with a competitor was the best way to survive.