What are the forces moving the Minnesota economy? Adam Belz tries to identify the trends and show the connections between Minnesota and the larger U.S. and global economies. You can connect with him on Twitter: @adambelz

Paper industry subsidies strike home in Nova Scotia and Minnesota

Posted by: Adam Belz under Business trends, Economics Updated: September 19, 2012 - 3:47 PM
The Sappi Fine Paper mill in Cloquet, 2010. (Credit: Gregory Hanrahan)

The Sappi Fine Paper mill in Cloquet, 2010. (Credit: Gregory Hanrahan)

The paper industry in Maine is mulling a fight against the reopening of a Nova Scotia paper mill that's been idled since last year, and the dispute has Minnesota and Upper Midwest implications.

The mill in Port Hawkesbury, a few miles from the North Atlantic Ocean, closed in 2011 when operator NewPage went bankrupt.

NewPage had a big presence in Wisconsin, where it closed paper mills in Kimberly and Niagara in 2008. Politicians in Wisconsin blamed subsidized Chinese paper for the decline in the industry.

The latest complaints over subsidies are coming from Maine, where producers are frustrated that the government of Nova Scotia has promised $125 million in incentives to get a Canadian company to reopen the mill at Port Hawkesbury, as reported by the Halifax Chronicle Herald:

The province has already spent $31.4 million maintaining forestry activities in the area and keeping the mill in a hot idle state since the former owner closed it last September, bringing total provincial support to a whopping $155.9 million. 

Pacific West, the Vancouver-based company that might reopen the mill, is hoping to get breaks on taxes and its electricity bill to drive down costs so it can make money making paper there.

The mill has the capacity to make 360,000 tons of supercalendared -- slightly shiny paper used in inserts and some advertising and magazines -- each year. That would flood the market with new supply at a time when demand for all types of paper is in secular decline.

Producers in Maine are naturally uneasy with the possibility, the Bangor Daily News reports. Verso Paper is “obviously watching it to see what happens,” company spokesman Bill Cohen told the Bangor newspaper. Verso has two mills in Maine employing 1,500 people. The story went on:

There is a process paper manufacturers could use to fight back against subsidized imports. Companies have the ability to petition the U.S. International Trade Commission to impose tariffs on imports that are subsidized by foreign governments. In 2010, the International Trade Commission voted to impose tariffs on cheap paper imports from China and Indonesia. Both Sappi Fine Paper, which owns the paper mill in Westbrook, and NewPage, which owns the mill in Rumford, were parties to that complaint. 

These are all familiar names in Minnesota. NewPage has a mill in Duluth, Sappi has one in Cloquet, and Verso just closed one in Sartell.

They all make types of paper that compete with the type of paper that would be made at the idled mill in Nova Scotia.

But before anyone gets too upset about the $156 million the provincial government has floated toward the mill, it's important to remember something called the "black liquor" tax credit. Paul Quinn, a forest and wood products analyst at RBC Capital in Vancouver, called the tax credit a "boondoggle" that's transferred $8 billion from U.S. taxpayers to the paper industry.

For instance, Verso has only turned a profit once in the past five years, in 2009, and that was thanks to a $239 million federal tax credit for using the alternative fuel mixture. 

Suddenly a $156 million package of incentives in Nova Scotia doesn't seem like such a big deal.

The larger issue for the paper industry is the long-term decline in demand for paper, which will come as no surprise to anyone who writes email all day, reads news on the Internet, or buys e-books.

“It’s definitely in secular decline, the question is how fast it’s going down,” said Quinn.

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