Business Plan

AGENCY BUSINESS PLAN

2016/17, 2017/18 and 2018/19

April 2016

EXECUTIVE SUMMARY

This Algonquin Forestry Authority (AFA) agency business plan has been prepared for the three-year period beginning April 1, 2016 to March 31, 2019 under the Agencies & Appointments Directive, February 2015.

The Algonquin Forestry Authority, pursuant to the Algonquin Forestry Authority Act, R.S.O. 1990 is a self-financing operational enterprise Crown agency responsible for sustainable forest management conducted within Algonquin Provincial Park and to supply timber to dependent facilities and jobs within the region.  The AFA supplies approximately 40% of the industrial wood supply from Crown land in the portion of Ontario that is south of North Bay.  In addition, AFA operations are important on the provincial level for the supply of over 30% of the white pine and 20% of the sugar maple forest products utilized from Crown land in Ontario.  According to a survey conducted by the AFA in February 2015, there are over 300 people employed annually in Algonquin woods activities and over 3,000 people employed in area mills that receive timber from AFA operations.

The Authority is on trace to achieving 420,000 m3 of sales with total revenues of $22,600,000 and $22,000,000 of expenditures estimated for a total net gain of $600,000 in the current year (2015/16).  Total revenues of $27,900,000 are planned in 2016/17 associated with a planned harvest level of 500,000 m3.  The Authority is forecasting positive results for each of its three years of operations in this business plan based on a trend of economic growth and increasing demand for forest products in the region.  The Authority envisions approximately 10% growth in volume and 1% growth of revenue net of program costs for each year of the  planning horizon.  An economic analysis indicates that an annual harvest of 500,000 net m3 from the Algonquin Park Forest will contribute approximately $145,250,000 to Ontario’s economy in terms of value-added (estimated from an Assessment of the Status and Future Opportunities of Ontario’s Solid Wood Value-Added Sector, Living Legacy Trust, 2001).

Strategies to increase productive capacity and lengthen the operating season in 2015/16 to match forest product demand opportunities have proven effective.  Spring inventories were down slightly, but summer production surpassed budtet targets.  A warmer winter has slowed progress.  Sales contracts were negotiated earlier and for more volume.  Investments have been evident at area mills and within the contractor workforce.  The Authority is forecasting year-end sales volume at 84% of budgeted targets with a corresponding positive financial position, compared to the previous year’s achievement of 75% of budgeted volume and small net financial loss.

The strategic focus during this term will be to develop and add productive capacity and stage operations to take advantage of improving demand for forest products.  To do so will require investment in the workforce involving strategic recruitment, training, development, succession management and retention of skilled and competent agency employees and contractors.  These strategies are co-dependent, requiring improved revenue generation to offset strategic investments in productivity.

The production of forest products at competitive market prices, while meeting mandatory provincial requirements continues to be the highest priority.

1.0  Agency Mandate and Objectives
The Algonquin Forestry Authority Act, R.S.O., 1990, the Authority’s primary constituting instrument, entrusts the Algonquin Forestry Authority (AFA) with harvesting Crown timber from the Algonquin Park forest, subject to the Crown Forests Sustainability Act, R.S.O. 1994 (CFSA), and produce logs therefrom and to sort, sell, supply and deliver logs;  to perform, undertake and carry out such forestry and land management and other programs and  projects as the Minister may authorize and to advise the Minister on forestry and land management programs and projects of general advantage to Ontario.  The Minister of Natural Resources and Forestry is responsible for the administration of the Algonquin Forestry Authority Act.

After 41 years of operations the Algonquin Forestry Authority’s mandate and objectives continue to be relevant to the public interest.  The Authority’s objectives complement the Ministry of Natural Resources and Forestry’s (MNRF) objective to protect Ontario’s biodiversity while promoting economic opportunities in the resource sector and outdoor recreation.  The Premier of Ontario’s September 2014 mandate letter to MNRF Minister Mauro also identifies social and environmental objectives that the Authority helps to achieve through its operations.  http://www.ontario.ca/government/2014-mandate-letter-natural-resources-and-forestry

The Memorandum of Understanding 2015 (MOU) between the Minister of Natural Resources and Forestry and the Chair of the AFA Board of Directors further clarifies the roles and operating relationships between senior Ministry staff and the Authority’s governing Board and Officers, consistent with the Algonquin Forestry Authority Act. The MOU describes the mandate of the Authority:  “to ensure the long-term health of Algonquin Park forests while producing a sustainable supply of forest products for the forest industry of the region in accordance with the CFSA”.

The Algonquin Park Forestry Agreement, made pursuant to the Algonquin Forestry Authority Act, and Provincial Parks and Conservation Reserves Act, subject to the CFSA, sets out obligations for the Authority’s forest management activities.  These include forest management planning, silviculture (forest renewal and tending), forest access, monitoring and reporting.

AFA’s Sustainable Forest Management (SFM) Policy, within the context of the CFSA, the AFA Act and the approved Forest Management Plan, guides its overall management practices in Algonquin Provincial Park. AFA’s Vision and Mission Statements are contained within its SFM policy.

Vision Statement:  To achieve the highest standards of sustainable forest management practices in order to maintain Park values for future generations.

Mission Statement :  To ensure the long-term health of Algonquin’s forests while producing a sustainable supply of forest products for the forest industry of the region.

AFA’s sustainable forest management policy and underlying strategies are registered to international standards, ISO 14001 and CSA Z-809 national standards. Strategies implemented through AFA’s sustainable forest management plan and environmental management system demonstrate commitment to sustainable forest management, compliance with laws, Indigenous rights and participation,  health and safety, and continual improvement.

The business planning process is led by senior AFA staff under the direction of the AFA’s  governing board of directors.  The Authority is a self-financing Crown agency.  The Authority does not require funds from Ontario’s Consolidated Revenue Fund.  The achievement of AFA’s statutory and forest management objectives relies on the harvesting and sales of forest products from Algonquin Provincial Park which are public resources.  Principles of modern controllership and public accountability are the cornerstone of AFA’s fiscal responsibilities.

2.0 Environmental Scan: Assessment of Issues Facing the Agency
Issues and trends that may influence Algonquin Forestry Authority’s achievement of objectives are described in this section.

External
Global Economy
The international Monetary Fund’s (IMF) World Economic Outlook predicts world economies will improve gradually this year over last year (2015 3.1%; 2016 3.4%; 2017 3.6%), although growth in emerging markets and oil producing countries has declined.  The IMF envisions risk to the global outlook as tilted to the downside due to ongoing adjustments in the global economy characterized by a generalized slowdown in emerging markets and oil producing economies, China’s rebalancing, and lower commodity prices.

American and Canadian Economic Indicators
Steady but slow improvement has been experienced in both the Canadian and American economies in 2015 and anticipated to continue through the next three years.  Employment levels have improved on both sides of the border, even with the losses experienced in the Canadian oil sector.  Energy costs are still concerning, but appear to be manageable.  Equipment and transportation costs are concerning. Housing starts have slowed, but consumer price indexes indicate positive outlooks in general.

Inflation expressed by consumer price index on all items (CPI) in Canada during 2015 was 1.1%, down from a previously forecasted 1.9% largely due to dramatically lower energy prices.  CPI is expected to increase to 1.6% in 2016.  During 2015, U.S. inflation was 1.0% and is expected to decrease to 0.6% in 2016 (BMO Capital Markets, Feb. 12, 2016).  Low (below 2%) or stable rates of inflation are positive indicators to our ability to buy goods and propel consumer confidence.  CPI inflationary rates are expected to increase in 2017 to 1.9% for the Canadian economy and 2.4% for America.Our central bank is expected to keep interest rates where they are for the year, unless they need to raise them to control inflation.  A slight hike following the US Federal Reserve’s actions is anticipated. Interest rates typically affect housing starts, but not as much as having a job or not.

Jobless rates on both sides of the border also indicate improvement in the economy.  Canadian unemployment rates have remained relatively stable in 2014  and 2015 at 6.9% with growth in manufacturing jobs offsetting those lost in the oil patch.  At time of writing, BMO reports the Canadian unemployment rate at 6.9% and forecasts 7.3% into 2016 and 7.1% in 2017.  BMO reports that U.S. unemployment in 2014 and 2015 averaged 6.2% and 5.3% respectively.  At time of writing, BMO forecasts the U.S.  jobless rate improving to 4.7% in 2016 and 4.6% in 2017.

BMO Capital Markets Economics forecasted Canadian new housing starts at 180,000 units for 2015. The actual level achieved was higher at 194,000 units.  BMO forecasts stability not growth in 2016 and 2017, at 180,000 and 182,9000 units, respectively. New U.S. housing starts were forecasted 1.08 and 1.3 million units for 2014 and 2015 respectively.  Actual housing starts reported are 1.0 and 1.11 million units, respectively.  Forecasts for 2016 and 2017 indicate a growing economy at 1.29 and 1.39 million units respectively.  About 80% of Canada’s lumber exports go to U.S. markets, primarily associated with new housing.

Canadian Dollar
BMO Capital Markets Economics forecasted the Canadian to U.S. dollar to average $0.91 in 2014 and forecasted a weakening loonie as the American economy strengthened. This compares to the actual annual average rate of $0.783 in 2015. Forecasts for 2016 and 2017 are $0.697 and $0.737, respectively. A lower dollar gives Canadian producers an advantage over U.S. producers both in the U.S. and Canadian markets. Clients anticipate the weaker Canadian dollar will discourage large volumes of competing U.S. lumber from entering Ontario as it has in recent past.

Canada-U.S. Softwood Lumber Agreement
The agreement signed in 2006 was renewed until 2015.  Without an agreement in place, U.S. countervailing and anti-dumping duty orders may once again be applied as the low dollar improves Canadian lumber’s advantage within U.S. markets.  Imposition of trade tariffs will affect forest products’ trade and competitiveness.

Lumber Supply and Demand
The outlook for global lumber markets hinge on the supply side as well as demand forces in the key consuming regions of the world.  The lumber market outlook for 2015 (and beyond) has been assessed in great detail in WOOD MARKETS 2015 – The Solid Wood Products Outlook:  2015 to 2019 produced by industry analysts with the  International WOOD MARKETS Group Inc.  Rising lumber demand coupled with tighter log supplies in North America should allow for record U.S. prices in 2017.  Supply issues are characterised as diminishing softwood lumber supply from beetle-killed stands in western Canada and a dramatic decline in the allowable timber harvest in Quebec.  As a result, Canada’s supply of lumber will reach its height in the next few years with few prospects to significantly increase total supplies.

Substitutes
Substitutes for wood products entering the market will depend on cost structures of other commodities, people’s tastes and the important factor of exchange rates. A big change AFA has noticed is the markets for white pine and hardwood lumber in the selects and better grades. Traditional markets for white pine lumber are being impacted by MDF; finger jointed lumber and other species such as poplar and basswood. Technologies for drying alternative species have made them more attractive.  Traditional markets for Ontario hardwood lumber are being replaced, to some degree, by engineered wood (hardwood flooring) and melamine coated fibre board (cupboards). Engineered wood for structural components is gaining in approval and popularity.

Cost of Fuel
A key concern to the forestry sector continues to be the cost of fuel for the harvesting and delivery of wood products. There were significant increases in recent years as well as troubling fluctuations more recently, causing uncertainty and concern.  A welcomed decline in fuel price trends, although more significantly for gasoline, has been enjoyed by the industry since early 2015.  The cost of diesel as of March 9, 2015 is cited as $1.234/litre.  As of February 8, 2016 the cost of one litre of diesel fuel was $0.896, a year over year reduction of 27%. (Source of data is the Ontario Ministry of Energy website – Fuel Prices, diesel, Ottawa referenced).

Capital Investment, Liquidity & Interest Rates
Banks and creditors  continue to limit access to capital for those in the forest industry. Although economic indicators point to a recovering industry, shareholders and financial institutions see the forest industry as high risk.  As a result, cost of capital is high. As the economy improves, financing for capital improvements and working capital will need to increase. Interest rates are currently low and are expected to stay the same in 2016 unless the Bank of Canada raises its rate to control inflation. AFA is working with some clients who have cash flow issues and are charging them interest on overdue accounts.  Tightening cash flow constrains opportunities.  These financial challenges also apply to AFA contractors who need to invest in and maintain logging equipment.

Regional Supply and Demand
Industrial demand for forest products from the Algonquin Park Forest has trended positively since 2013.  Most clients foresee growth, but are still only cautiously optimistic.  Large capital investments in equipment and facilities have been observed.  The cost of electricity is still of concern, but the lower cost of oil is currently a business advantage compared to previous years.  Regardless, the cost of transportation and availability of trucks are commonly expressed concerns.  The cost of freight has affected the cost of heavy equipment and machinery.

Algonquin Park supplies approximately 40% of the industrial wood supply from Crown land in that portion of Ontario that is south of North Bay.  In addition, the Park is important on the provincial level for the supply of just over 30% of the white pine and 20% of the sugar maple forest products utilized from Crown land in the province.  Reliance of AFA supply has been constant even during the economic downturn.

The white pine lumber market, which is responsible for most of AFA’s operating margin, is anticipated to increase only slightly for the upcoming years.  Its use has been relegated predominantly to the renovation and remodeling sector. Demand for poplar and red pine saw logs is expected to increase.  Poplar has become a substitute for white pine in trim, window and door markets and red pine demand is directly linked to the demands for pressure-treated wood for outdoor decks and fences.  Red pine poles are still a highly sought after commodity. Demand for hardwood (maple, birch, oak) saw logs has also steadily improved and anticipated to remain strong into the next three years.

Demand for poplar and hardwood pulpwood is in steady demand with several mills requesting additional volume over the period 2013 to 2016.  During 2015, dense hardwood residue prices increased slightly as demand surpassed production.  The price of hardwood firewood has also been increasing due to demand and less capacity regionally to produce the wood, which has also contributed to competition with the pulpwood sector.  There is a shortage of pellets in the domestic and overseas markets that may also affect demand and pricing of saw mill residues.  Softwood and poplar pulp utilization is problematic as supply exceeds demand and receiving mills are almost beyond economical haul distance.

Productive Capacity – Harvest and Access
During the economic downturn, the Authority took action to ensure it was able to maintain a core group of qualified harvest and road construction contractors.  Uncertainty prevailed for several years causing the loss of some operating capacity.  Highly skilled operators that were more mobile than others left to find work in western Canada.  Others chose new lines of work that kept them closer to home while others downsized their operations.  Demographics have also played a part in availability of experienced woods workers with some leaving the workforce permanently.  We are only just beginning to see young people taking renewed interest in the forest sector at professional, technical and operator levels.

Algonquin Land Claim Negotiations
The Algonquins of Ontario First Nations and the governments of Ontario and Canada are negotiating a comprehensive Algonquin land claim. A Preliminary Draft – Agreement in Principal (AIP) was made public in 2012 and a ratification vote by members is to occur in March 2016.  AFA is engaged with Algonquin First Nation communities through the Committee of External Advisors and sub-groups; External Forestry Working Group and Algonquin Park Working Group as well as through representatives participating in the forest management planning process and AFA’s CSA Certification Advisory Group.

Green Energy
Governments and the forest industry are promoting the use of wood as an alternative to fossil fuels. Barriers to entry into producing electricity using wood  include the poor rate of return on the capital needed to be invested due to the provincial feed-in-tariff or “FIT” rate, and lack of infrastructure (hydro lines) that can support new capacity. Cogeneration has not been a viable option in this region, although some clients say they are still in the investigative stages.

Tenure Modernization
Changes to Ontario’s forest tenure are underway with the inception of the  Ontario Forest Tenure Modernization Act, 2011 and amendments to the Crown Forest Sustainability Act, 1994. There is little change expected to AFA, although we have been receiving requests from elsewhere in the province for information that we are happy to provide, based on our long history as an operational enterprise agency.  AFA will be involved in a review of tenure models in Ontario in 2016.

Changes in Quebec Tenure
The Quebec government has taken over responsibility for forest management planning and operational planning on Crown lands in Quebec. While the transition is underway, we expect more demand for Ontario wood from Quebec facilities to compensate for inherent uncertainties. AFA has heard from one client that they expect to rely on more wood from Ontario for several years as a result of  the recalculated wood supply.

Maintenance of Roads Outside of Algonquin Park
Municipalities surrounding Algonquin Park have sought out provincial assistance with the maintenance cost of public roads used by the logging industry.  The Major Lake Road is an example of this whereby the local township (Township of South Algonquin) has decided to stop maintenance on a section of the public road.  AFA and Ontario Parks have had to pay as needed to maintain that section of road in a satisfactory condition.

Species at Risk
Species at Risk habitat regulations will continue to challenge AFA operations. Mitigating risk to the species and habitat usually impacts the timing and configuration of access, renewal and harvest operations. This ultimately requires additional cost in terms of additional resources to plan and adjust operations, seek authorizations  and where appropriate to install physical mitigation measures.

Climate Change
The effects of climate change on the forest are generally unpredictable weather and  weather extremes that limit accessibility and availability of timber and forest management activities.  Cap and Trade, or carbon tax policies are not likely to negatively affect the forest industry given the  positive role that sustainable forest management and use of wood products plays in carbon management.

Environmental Lobbying Against Logging in Algonquin Park
Over the years organized environmental groups have lobbied to eliminate forest management from Algonquin Park.  This has normally intensified during the public consultation phases of  park management planning, forest management planning and third-party forest certification processes.  Some campaigns are lover lived, co-ordinated efforts to negatively influence public perception of sustainable forest management in Algonquin Park and denounce provincial forest policy.  Responses are handled by AFA staff and Board of Directors, but are limited by resources and AFA’s status as a Crown agency.

Internal

Human Resources
AFA has 23 permanent staff positions.  There have been a total of six retirements since 2009 (26%).  Thirty percent of staff are either eligible or will be eligible for retirement within five years, with another 40% eligible in less than 10 years. AFA’s succession management plan is  reviewed annually by AFA’s Board of Directors and Officers. This exercise ensures business continuity.  AFA’s success in achieving its objectives can be attributed to the recruitment and retention of qualified and motivated employees and contractors.

CSA and ISO Certification
The annual surveillance and scheduled re-registration audits to third party certification standards will be undertaken during this term.  AFA staff are assessing the merits of maintaining ISO certification of AFA’s Environmental Management System in light of significant chants to the standard.  Cost-benefit analyses will be undertaken and a decision made by the Board of Directors.  AFA is also actively involved with the CSA technical committee that is currently preparing revisions to the Z-809 SFM national standard.

Employment of Aboriginal Contractors
The Authority continues to work with Algonquin First Nation communities to provide opportunities within silviculture and harvesting operations. In 2014/15, the overall availability of Algonquin contractor productive capacity decreased.  In 2013/14, Algonquin contractors harvested approximately 12.9% of the annual volume of wood harvested in the Park.  This is a decrease from the 2012/13 level. The Authority’s Sustainable Forest Management Plan includes a target to maintain/increase the total volume harvested by Algonquin communities per year (from a benchmark of 12.2% set in 2006/2007). There has been a decrease over the past three years as other contractors and the overall volume harvested have increased while Algonquin contractor’s portion has decreased.

Employment in forest management projects (silviculture) is provided as well.  Two Algonquin associated contractors have had contracts in 2014-15 and will be provided similar opportunities into the future.  AFA is working to establish these and other businesses so that they are able to expand.

Human Resources
AFA has 23 permanent staff positions. There have been a total of six retirements since 2009 (26%). Thirty percent of staff are eligible or will be eligible for retirement within in five years, with another 40% eligible in less than ten years. AFA’s succession plan reviewed annually by AFA’s Board of Directors and Officers has been key to ensuring business continuity. AFA’s success in achieving its objectives to date can be attributed to the recruitment and retention of qualified and motivated employees.  Salary administration initiatives have been undertaken to ensure an appropriate compensation package is available to employees.  A staff engagement survey, review of human resources needs, and modernization of job descriptions are underway.

Information and Information Technology
Demands are increasing for forest-based information to assist with the management of this valuable resource. Requirements continue to be more complex, therefore automation of data and data management system development has been ongoing to provide modern controllership and efficiencies.  This will result in higher long-term costs associated with the collection of data, acquisition of technology and training staff on its use. AFA will continue to invest in technologies that assist the organization in meeting its mandate, including systems that facilitate efficiencies and reduce cost. The Authority maintains a public website and a social media  account as communication tools.  Information of AFA’s mandate, governance documents and forest management activities are posted to the website and updated as required.

Employment of Aboriginal Contractors
The Authority continues to work with Algonquin First Nation communities to provide opportunities within AFA silviculture and harvesting operations.  The Authority’s Sustainable Forest Management Plan includes a target to maintain/increase the total volume harvested by Algonquin communities per year (from a benchmark of 12.2% set in 2006/07).  There has been a relative decrease over the past three years as other contractors and the overall volume harvested have increased.  Employment in forest management projects (silviculture) is provided as well.  Two Algonquin-associated contractors have had contracts in 2015/16 and will be  provided similar opportunities into the future.  AFA is working to establish these and other businesses so that they are able to expand.

AFA Clients
Timber from Algonquin Park is mandated to support mills and therefore jobs in the region at  the communities of Huntsville, Whitney, Madawaska, Killaloe, Pembroke, Petawawa, Eganville and Palmer Rapids.  There are nine mills receiving part or most of their supply from AFA on a regular basis while another five to 10 mills receive periodic supplies in any given year. Eight mills are the beneficiaries of wood supply agreements issues by the Minister and implemented by the Authority.  To provide a continuous and predictable supply of timber, the AFA requires a large sustainable workforce of qualified and experienced producers and staff to plan, train, and supervisor operators. According to the 2015 AFA survey, there are over 300 people employed in Algonquin woods activities and over 3,000 people employed in area mills.

The over-supply of low-end material is still problematic for AFA and its clients. There are limited markets for pulpwood and sawmill residues in this part of the province. Pulp companies are expected to take traditional volumes but we still see pricing pressure and haul distances  that reduce truck availability and our ability of produce.  As markets for lumber improve more mills will be producing more chips and residues. This will have an impact on markets for round wood pulp. Hardwood and softwood lumber demand is expected to increase slightly in 2016 due to the steady housing rebound in the U.S. and a weaker Canadian dollar.

Pembroke Panels (formerly ATC Panels) became fully operational in August 2014, stimulating the local economy with the creation of over 100 new jobs and improving demand for softwood and poplar saw mill residues.  Trebio In., a wood pellet manufacturer at Portage du Fort, Quebec has also been operating for a few years, receiving smaller quantities of mill residues from AFA clients.  The addition of these mills to the softwood and poplar pulp/residue  and economical haul equation has been helpful, but the supply still exceeds demand. Lavern Heideman & Sons Ltd., operating a sawmill in Eganville has recently acquired the inactive Commonwealth Plywood Co. Ltd. sawmill and associated wood supply from Algonquin Park.  Columbia Forest Products (an American company), has announced reopening their Rutherglen, Ontario  veneer facility in April 2016, creating some competition for Quebec mills and potentially improving pricing for AFA and regional suppliers.  With the exception of only one out of nine regular customers, all receiving mills have taken more volume than in 2014/15, contributing to the continuation of a positive outlook on the regional marketplace.  AFA offers open market wood to other sawmills in the region, as required to meet objectives and to keep our contract loggers employed and viable.

3.0 Strategic Direction

The Authority’s vision and mission statements guide its operations.

  • To achieve the highest standards of sustainable forest management practices in order to main Park values for future generations.
  • To ensure the long-term health of Algonquin’s forests while producing a sustainable supply of forest products for the forest industry of the region.

Strategic business planning is conducted by the AFA Board of Directors, and senior managers within the context of AFA’s statutory obligations and sustainable forest management objectives contained in the CSA certified Sustainable Forest Management Plan and the approved 2010-2020 Forest Management Plan for the Algonquin Park Forest.

Achieving the highest standard of sustainable forest management (SFM) and financial self- sufficiency requires excellence in strategic business, FMP/SFM and operational planning and day-to-day, on-the-ground implementation by trained and competent employees and contract woods workers.  The Authority ensures that high quality services and products are delivered to satisfied clients by a skilled and responsive workforce.  The Authority’s Customer/Client Service Plan outlines the vision of quality service and identifies procedures for responding to ‘service’ requests to facilitate continuous improvement in quality service.

The Authority is strategically well positioned to be more successful in achieving its objectives by increasing utilization of the prescribed sustainable harvest level of just over 760,000 m3 per year.  This goal requires optimizing harvest levels with generating enough revenue to conduct all operations successfully.  Increasing production will entail increasing contractor capacity while reaching further afield to access additional harvest area that was previously uneconomical due to haul distances.  More detail is provided in the following section.  During the term of this Business Plan, AFA will remain diligent to its strategic direction while implementing programs and providing the financial and human resources necessary.

4.0  Overview of Current and Future Programs and Activities

Harvesting:  The total volume produced for sale by AFA in 2015/16 is estimated at time of writing to be 420,000 m3 or about 84% of business planned volume levels with corresponding financials estimated at 150% of budget.  Strategies to increase productive capacity to take advantage of improving market conditions have been successful.  However, productivity gains have been somewhat offset by weather-related constraints and absence of one regular contractor.  Pricing and proportion of high value to low value products has been better than anticipated and renewal program costs were lower due to lower realized needs.  These represent a few of the realities going forward.

Volume production targets from harvesting activities for the term of this business plan are 500,000 m3 for 2016/17, then upward by 50,000 m3 for each of the next two years.  The 2010-2020 Forest Management Plan for the Algonquin Park Forest sets out a sustainable harvest level of just over 760,000 m3.  Table 1 outlines planned and forecasted harvesting levels and forest management activities.

Table 3 outlines proposed capital expenditures.  The Authority budgets for all operating and capital expenditures within forecasted revenues to be achieved from the sale of forest products.  The forest renewal program is funded by the renewal portion set out in the Ontario Crown stumpage matrix, also derived from the sale of forest products.

Advanced operational planning and staging of operations, specifically road and water crossing construction, prescription setting and tree marking will be conducted to invest in efficient and effective contractor start-ups, avoid issues and cost associated with last-minute changes required to adjust to changing markets and/or weather conditions.

The Authority has entered into an agreement with MNRF-Ontario Parks, subject to funds being allocated by the legislature for the maintenance of certain public roads to recreation access points within Algonquin Park.  The revenue received from Ontario Parks appears under General – Interest and Other with corresponding costs included under General – Public access road maintenance.

Forest Management:  Forest management targets in the business plan (see Table 1) are predicated on actual harvest levels.  Therefore, these targets are also planned and forecasted at lower than FMP targets.  Increased harvest activity does not necessarily equate to corresponding renewal work.

The main emphasis of the Authority’s renewal program is the marking of trees to be cut or retained by highly trained tree markers.  The level of marking in an individual year approximates the planned harvest area with some additional area in advance of subsequent year’s operations.  In some cases, site preparation/scarification, tree planting, spacing and releasing trees from competition is also required to ensure successful regeneration and growth (forest health).

Significant staff resources are expended to complete required planning, monitoring and reporting phases of the FMP and SFM planning process.  During the term of this business plan, AFA will implement years 2 through 4 Phase 2 operations of the approved 2010-2020 FMP.  AFA staff will begin preparations for a new FMP starting with updating the recently received Forest Resources Inventory.  The Independent Forest Audit that occurs every five years is scheduled for 2017.

Annual CSA certification surveillance audits will take place in 2016, 2017 and a re-registration audit will be undertaken in 2018.  AFA is also actively involved with the CSA SFM technical committee that has just completed revisions to the Z809 2016 SFM national standard.  AFA professional foresters will be engaged with CSA SFM plan re-write to comply with the new standard.  CSA Z809 forest certification involves the identification of values, objectives, indicators and targets (VOITs) and the participation of stakeholders and Indigineous communities on an advisory group.  The operation of AFA’s Environmental and Management System (EMS) involves identifying potential environmental risks associated with the organization’s activities and their impact on the environment.  Environmental impacts have been identified, programs designed to mitigate significant impacts and then monitoring, reviewing and adapting practices as required are implemented on an on-going basis.  Key components of the EMS (currently registered to ISO 14001 standard) are the prevention of pollution, compliance with applicable laws, regulations, standards and policies, and continual improvement of the organization’s operations.

The Board of Directors and senior management are actively involved in reviewing performance and setting direction for the Authority’s operations.  In 2015/16, a review and revision of AFA’s policies and procedures included revision of the communication strategy to use social media to market and support sustainable forest management.  Additional outreach and education activities are described in section 9.0 Initiatives Involving Third Parties.

There are no significant changes planned during the term of this business plan that would affect the Authority’s business or organizational structure.

5.0 Resources Needed to Meet Goals and Objectives 

AFA commercial operations fund all resources and activities required to achieve its objectives with one exception.  since 2005, the provincial road construction and maintenance fund has been providing funding for main roads accessing and within Crown forests that provide benefits to the people of Ontario.  Without the program, the entire cost of constructing and maintaining the primary road network would be transferred directly to the purchasers of wood from the Algonquin Park Forest.

Human and financial resources forecasted in this business plan are sufficient to support delivery of AFA’s mandate.  Knowledge transfer from retiring staff to new staff will require some overlap of tenure, therefore an investment in additional staff resources is reflected in financial requirements.

Procurement of logging contractors requires continual development (training, supervision, communication) over many years to build a reliable workforce that ensures value for money and achieves agency wood supply and social employment objectives.  Some contractors have provided their services on a continual basis since the inception of AFA in 1975.  Annual contract negotiations recognize and place significant value on past performance and cost, business plans and determine capacity for each of the contractors engaged.  Growing existing contractors and attracting new entries are ongoing initiatives for the term of this plan.

Forest renewal funds generated by the renewal portion of stumpage are sufficient to maintain the required minimum balance for the term of this business plan (AFA/MNRF determined January 2016).  The forest renewal minimum balance of $1,500,000 is defined in the Algonquin Park Forestry Agreement.. At the March 2009 Board of Directors meeting, a resolution was passed to top up the Renewal Account at year-end to $2,500,000 from retained earnings. AFA has done this every year since 2009, even during the downturn.

AFA employs staff directly to supervise and monitor all forestry operations in the Park to ensure compliance with legislation, AFA policies, plans and systems, ultimately ensuring that human resources, goods and services are sufficient to deliver programs effectively. Salaries and supporting funds are reviewed, budgeted and committed to as part of the work and business planning process and are approved by the Board on an annual basis.

6.0 Risk Assessment and Management

The Authority conducts risk evaluations annually and reviews risk at many levels.  At the corporate level, risk evaluation is part of annual strategic business planning exercises involving the Board of Directors, senior managers and staff with program responsibilities.

Risk at the operational level is evaluated within AFA’s environmental management system and mitigated by a suite of management system procedures and operational controls, including, but not limited to, monitoring and on-site supervision by competent AFA employees and contractor supervisors.  Effectiveness of AFA’s EMS and SFM systems is formally evaluated annually by its implementation team, by third-party auditors and on an ongoing basis by staff as part of continual improvement.

Evaluation of Business Risks
This section summarizes the Authority’s annual corporate risk evaluation exercise.

Business Growth:
Increasing the volume of harvested forest products and revenue to fund forest management activities improves the agency’s ability to achieve all of its objectives.  The AFA is subject to a number of external market forces.  Conditions in the markets for dissolving pulp, panel boards, lumber and other timber products largely determine the demand, and therefore pricing.  In addition to factors specific to individual products, general changes in macroeconomic conditions such as interest rates, employment and exchange rates, and energy costs can have implications for Ontario producers.  Local factors that limit the production of forest products include available human and equipment resources, inclement weather, constraints to ensure positive recreational experiences, and constraints to avoid potential negative impacts on biological features such as species at risk.

The potential risks to the Authority’s business, positive and negative, are unplanned changes in the marketplace or ability to produce marketable products that generate more/less revenue than business planned.  Mitigation is built into the business plan by setting targets for increased volume and value, investing in more capacity to produce and reviewing progress monthly and quarterly to examine and forecast financial and operational performance, identify pressures and opportunities and adjust accordingly.  Reduced volume will be met with corresponding reduction of expenditures unless sales margins are sufficient to offset.  This requires constant review and analyses by managers.

Alignment of Government Objectives:
Proposed new government direction could change agency administration and operations.  One example is the new Ontario Retirement Pension Plan.  The risk of additional administrative workload and cost of payroll would need to be transferred to the cost of forest products.  AFA clients and contractors would be faced with the same payroll burden, compounding risk.  On the forest operations side, new legislation such as the Invasive Species Act may constrain operations demanding costly operational adjustments, communication/training and/or additional resources to mitigate.  Uncertainties with the newly received Algonquin Forest Resource Inventory and proposed draft revisions to provincial forest management planning manuals also pose a risk to future wood supply to be determined by the upcoming 2020FMP.  Risk mitigation includes ensuring timely communication with proponents of the new direction, contractors and clients, ensuring awareness, contingency planning and appropriate response.

Changing direction, business practices, work environments and managing human resources require that the Authority’s policies and procedures be developed and maintained to ensure compliant delivery, relevancy and currency.  Risk mitigation involves constant review of emerging requirements and current practices at both the Board and managerial levels.

Public Image:
The Authority’s operations within Algonquin Provincial Park are sensitive to people with a protectionist view of how provincial parks should function.  Campaigns against logging in Algonquin Park adversely affect the Authority’s reputation, clients’ expectations and negatively affect employee and contractor morale.  To mitigate the risk, AFA will maintain education and outreach programs, self-marketing and continue to respond as effectively as possible.  AFA will work with external organizations (i.e. professional forestry associations) and industry partners to guard against inaccurate statements and promote sustainable forestry.  The Authority’s communication strategy is to engage the general public to create awareness of science-based provincial forest policy and understanding the services and benefits the AFA provides through delivery of its mandate.

Algonquin Land Claim:
The risks are speculative at this time.  The outcomes could be at risk of changing the agency’s mandate and achievement of assigned objectives.  For example, the principles outlined in the current Agreement-In-Principle potentially set the stage for negotiating co-management and  revenue sharing options.  Economic development principles undoubtedly provide positive opportunities for AFA and Algonquins alike.  Communication and engagement is the key mitigation strategy.  Underlying strategies include improving business relationships, providing capacity building opportunities and building upon previous business to business successes.

Climate Change:
The effects of climate change on AFA’s business range from unpredictable and disruptive climate events to impending carbon credit policies (i.e. Cap & Trade0, tree species migration and invasive species.  Risk to the Authority can be summarized as additional time (cost) to understand and determine the best course of action that would optimize achievement of objectives.  Adjusting to challenging weather and salvaging damaged timber will be conducted as required to mitigate the effects of wildfire, wind, insect or disease.

Salary Administration:
Public service wage constraints have affected AFA staff since 2009.  Skilled and experienced employees are critical to business continuity and delivery of required programs and support functions.  The risk is not being able to attract and retain qualified and motivated employees, leading to performance issues, business and service continuity risk.  A staff engagement survey, review of human resources needs (succession management planning), and updating of job descriptions and performance management systems are underway.  A review of compensation packages with MNRF will be initiated in 2016.

Demographics:
The reality facing today’s businesses is that many skilled workers are nearing retirement.  Replacing the knowledge base will be difficult and certainly not timely.  Business and service continuity is at risk.  Disruptions to service levels and uncertain delivery are costly.  The Authority will implement strategies to support recruitment and training of employees within the forest management and harvesting contractor workforces.

Figure 1 is a Risk Analysis Chart that relates AFA objectives to public service risk categories.

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7.0 Human Resources 

The Chair and the Board of Directors are accountable to the Minister for the Authority’s statutory mandate. AFA’s General Manager is responsible and accountable to the Board of Directors for the day-to-day management of the Authority’s operations. The Authority has an approved regular staff complement of 23 and hires approximately 10-20 seasonal employees on contract.  Figure 2 displays the AFA’s organizational chart including seasonal contract job functions required for the term of this business plan.

AFA’s unique mandate requires specialized administrative functions including a forest products business-focused financial department and systems support.  AFA maintains a small IT/IM department with GIS specialization to support finance, administration, forest  and wood measurement data, management planning and reporting activities.

AFA managers oversee staff and programs in finance and administration, forest management planning and forest operations.  Forest operations activities include operational planning, commercial logging and sales of forest products, forest access construction and maintenance, renewal and tending, monitoring, training,  supervision, and reporting.  Forest operations activities are planned and implemented by AFA foresters, forest technicians and contract woods workers.  Operations Supervisors monitor the work of logging and road building contractors and interact on a day-to-day basis with contractor supervisors.  AFA supervisors and contractor supervisors have different responsibilities, including those required by the Occupational Health and Safety Act.  All harvesting and operations requiring the use of heavy equipment (I.e. road construction and site preparation) are contracted out to local companies.

AFA seasonal (contract) employees are generally hired from April to December to set up and supervise tree planting, site preparation and tending programs, deliver approximately 60% of the tree marking program and conduct silvicultural effectiveness monitoring assessments.  The balance of the renewal and tending program is carried out by silviculture contractors.  Seasonal staff positions are generally entry level positions that factor into AFA’s succession plan.  Training and development opportunities include job shadowing, coaching and mentoring are succession management strategies.  AFA seasonal contract staff opportunities also support the local contracting work force by investing in AFA training and exposure to a variety of forestry work experiences.

8.0 Information Technology

AFA’s IT department supports forest management planning, data management and maintains operational and administrative systems required to fulfill its statutory mandate.  Capital expenditures are planned to update servers and personal computing devices with field applications. The largest single component of the organization’s IT costs relate to computer software (i.e. annual fee for geographic information systems, and technical support).

AFA IT/IM employees are modernizing several IT applications.  Parallel testing of a new payroll and timber sales system is underway and expected to be concluded in 2016.  Objectives include developing systems within commonly used and recognized software, with a queriable database for ease of access and use by staff with controllership responsibilities and new hires.

9.0 Initiatives Involving Third Parties

This business plan includes the following commitments to third parties for research, bursaries, cultural activities and educational programs. The activities and organizations supported also support the achievement of AFA objectives.  Many of these opportunities are good news stories representing a dynamic and collaborative approach to providing social, economic and  environmental benefits.

Research:  The budget includes financial and in-kind support to do research on the design/build and use of wooden portable bridges. Operational research is also scheduled to continue the examination of winter sand storage and gravel screening.  The Authority will also support a proposal to investigate varied levels of residual forest cover resulting from commonly used forest harvest treatments and the effects on species at risk habitat.  AFA will also be involved with the 10 year re-measurement of group selection openings to determine regeneration responses.

Bursaries:  Financial support has been designated for high school and post-secondary school bursaries for many years to assist graduating and mature students from the region who enter the forestry/natural science disciplines at college or university level.  This eligibility for this program includes priority for the support of families employed in the region’s forestry sector.

Education & Outreach:  Financial contributions are made to assist with training teachers who participate in the Canadian Institute of Forestry (CIF) – Eastern Canadian Teacher’s Tour.  The purpose of this tour is to develop teachers’ knowledge and competence in forestry.  AFA has been a sponsor of this program for many years with very positive feedback.  AFA staff also support CIF’s participation in Sir Sandford Fleming College’s fall camp work experience as well as assist with field tours for the University of Toronto’s Masters of Conservation program.

Price of Wales Leadership Award:  AFA will be a host employer to a forestry exchange student selected by the Duchy of Cornwall and CIF.  The program is sponsored by His Royal Highness, Prince Charles, TD Bank and CIF.  AFA will provide meaningful forestry work and learning experience to one exchange student for one month in the summer of 2016.

Friends of Algonquin Park:  The annual Logger’s Day event is held each year at the Logging Museum in Algonquin Park on the last Saturday of July. The Authority co-sponsors Logger’s Day with the Friends of Algonquin Park and Ontario Parks. Events focus on the history of logging in the Park, current forest management practices and the importance of logging to the individuals and surrounding communities. In 2016-19 AFA will support the Friends to update and maintain interpretive signs and displays at the Logging Museum and co-host Loggers’ Day.  AFA staff will also participate in the Friends’ highly successful Meet the Researcher Day to expose park visitors to the science of forestry and legacy of forest management in Algonquin Park.

Timber Sport Events, Logger’s Days, Forestry Festivals:  AFA annually contributes  financial support for area community events that celebrate forestry’s contribution to the rural way of life.  Some of these long running events include Bancroft Logger’s Day, Killaloe Sno Fun and Timbersport, Timberfest in Barry’s Bay, Logging Days Festival in Parry Sound, and the Forestry Festival in Huntsville.  AFA will be represented at Saw-Tech Log Expo in Bancroft in June 2016.

Envirothon: Financial contributions are budgeted to support area school teams representing a school board adjacent to Algonquin Park to attend the final challenge event.

Forests Ontario:  Financial support and participation by AFA foresters is provided for the annual conference.  In-kind participation and logistical support is provided to Forestry Connects for school group tours of forest management in Algonquin Park.

Ontario Professional Forester’s Association: Financial support for Annual General Meeting and Conference as well as display booth and encouraging participation of AFA staff who are members of the association.

In addition to the above activities, AFA conducts tours and provides presentations to interested groups. Other initiatives that arise throughout the year are brought forward to the Board for discussion.

10.0 Implementation and Communication Plan

Implementation of the guidance provided by this business plan is entrusted with the Board and staff of the Algonquin Forestry Authority primarily through the conduct of their respective roles and responsibilities for oversight, accountability and program delivery.

Target Audience
This Business Plan has been prepared for approval by the AFA Board of Directors, the Minister of Natural Resources and Forestry and Management Board of Cabinet, and for the benefit of the people of Ontario.

Strategic Message
Business Plans are a key requirement for accountability, under the Agencies and Appointments Directive, 2015. This Business Plan guides the Authority’s achievement of objectives and commitment to undertake sustainable forest management practices in Algonquin Park for the three-year term covering 2016 to 2019 fiscal years.

Anticipated Reaction from Stakeholders
No negative reactions are expected.  Stakeholders (clients, contractors, Local Citizen’s Committee, CSA Certification Advisory Group, Algonquins of Ontario) have continued to show support for the important economic contribution made by the Authority to regional communities.

Key Message
The Algonquin Forestry Authority is a self-financing Ontario Crown Agency responsible for sustainable forest management in Algonquin Provincial Park.  This Business Plan is prepared to ensure the organization meets its mandate as detailed in the Algonquin Forestry Authority Act, 1990, and objectives for sustainable forest management set out in the approved 2010-2020 Forest Management Plan for the Algonquin Park Forest and AFA’s Sustainable Forest Management Plan certified to CSA standards.

Communication of Business Plan
Copies of the Business Plan are provided to the Authority’s Board of Directors and the Ministry of Natural Resources and Forestry.  The Authority’s Business Plan is also available to the general public by visiting the AFA website at www.algonquinforestry.on.ca.  AFA will facilitate the review of the Business Plan by MNRF and Ontario Parks staff prior to approval by the Minister.

AFA Communication Policy and Communication Plan
AFA’s corporate directive contains guidance for communication activities, including protection of privacy, customer service standard and describes roles and responsibilities.  AFA’s communication plan covers internal/external communication, public relations, media relations, requests for information, and complaint resolution.  The Board of Directors monitors AFA’s communication policy and plans in light of a fast moving social media environment.

The Authority’s public website houses general information, governance documents and up to date information on the activities and services provided.   AFA will continue to market our services in the region to enhance sales opportunities, recruitment and retention of a viable workforce, as well as to enhance general public opinion and Park user understanding of the benefits of sustainable forest management in Algonquin Provincial Park.

11.0  Financial Resources

Table 2 summarizes AFA’s ‘Statement of Operations’ as it relates to program targets set out in Table 1.  As previously stated, the Authority does not require funding from the Consolidated Revenue Fund to carry out its mandate.  Financial resources are derived from the sale of forest products.  This business plan forecasts continued financial viability based on demand for forest products and the Authority’s ability to produce and generate sales to suitable fund delivery and investment in its programs.  Forest management (silviculture) targets represent financial pressures that are funded by revenues generated from the renewal rate portion of stumpage.  Renewal rates are reviewed annually to ensure that the minimum balance in the Algonquin Park renewal fund is maintained and sufficient to fund the required silviculture program.

Total revenues of $27,975,400 are planned in 2016/176 associated with a planned harvest level of 500,000 m3. Revenues from 2016/17 logging operations (general account) are budgeted at $25,658,600 with expenditures of $25,602,600.  A net gain in the “General” account of$56,000 is planned for the fiscal year ending March 31, 2017.  In 2016/17 the Algonquin Park Forest will produce approximately $3,470,200 in Crown stumpage of which $1,463,100 is directed to Consolidated Revenue and the Forestry Futures Trust Fund.  Note that forecasted financials show a 1% increase per year based on economic recovery, program costs and  investments required to further objectives.

Silviculture expenditures are budgeted at $2,232,000 for 2016/17 with estimated revenues of $2,316,000.  A small net gain of $84,000 is forecast in the “Renewal” account.  The CFSA required minimum balance is projected to be met for all periods of this business plan.

Capital Expenditures
Capital expenditures  included with operating expenditures line item in Table 2 are separated out for presentation in Table 3. Capital dollars displayed represent the purchase of vehicles, including trucks, ATVs, trailers, computer equipment and portable bridges required over the term of this business plan.  Most of the increase from previous years is attributed to infrastructure required for remote logging/silviculture camps.

12.0  Performance Measures
The Authority’s core business and primary performance measures consist of harvest volume and area-based forest management programs (also referred to as forest renewal or silviculture) and the overall financial results. Harvesting is described as total volume in cubic metres of forest products sold in the term while performance measures for forest management programs are hectares of treatment or quantities (i.e. thousands of tree seedlings, hectoliters of seed). Table 1 displays targets associated with the AFA’s harvesting and forest management programs for the term of this plan.

The financial targets ($CDN) associated with harvesting and forest management programs are displayed in the “General” (harvest) and “Renewal” (forest management) columns in Table 2  Projected revenues and expenditures are also displayed for the term of this plan. These are AFA’s financial performance measures.  This business plan establishes targets for harvest levels of 500,000 m3 for 2016/17 and then increased to 550,000 m3 in 2017/18, and 600,000 m3  in the third year.  Variance from the target is anticipated and tolerated with careful consideration of impacts to programs.  Financial results, although tied to harvest levels, are also subject to actual sales values (prices) achieved.

Forest management treatment targets are established initially during the FMP process to correspond with planned harvest areas and anticipated needs.  Then targets are modified to match annual harvest plans and actual project areas, usually with area carried over from previous years and added to some of the current year’s harvested areas.  AFA’s silviculture effectiveness monitoring program collects information on treatment success to be used in the FMP process, as well as to determine renewal and tending treatment needs.  Achievement of targets can also be limited by weather, but more often as determined by on-the-ground reconnaissance and prescription setting.

Performance measurement of forest management activities to operational standards is described in the forest operations compliance planning, monitoring and reporting routines contained within the approved forest management plan and annual work schedules.  The Authority reports the results of its forest operations monitoring program to the MNRF, as well as to the public through third-party certification requirements.  The Ministry’s Algonquin Park (Ontario Parks) staff has an audit function on the Authority’s legislatively-controlled activities.  The Independent Forest Audit (IFA) required by the CFSA and Algonquin Park Forestry Agreement will be conducted in 2017 and provide a comprehensive third-party assessment of the Authority’s and MNRF’s performance related to CFSA and FMP objective achievement.

Reporting
Financial results and forecasts are provided quarterly and rolled up into the provincial budget reporting and forecasting process.  Interim in-year progress to the measures described in this business plan is reported to MNRF in November of each year (six month progress and forecasting for the remainder of the year).  Final annual results of performance target achievement for programs and financials are summarized in Agency Annual Reports tabled each year in the Ontario Legislature.  In addition, AFA will annually provides a public report of  achievements toward its forest certification commitments as required under the CSA Z809-08 standard as well as the CFSA required Annual Report (AR) of forest management objective achievement to MNRF and on its public website www.algonquinforestry.on.ca.  The FMP and AWS are also posted on MNRF’s  eFMP site with links on AFA’s public website.  The results of the IFA will also be made public in the same manner.

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