Resolute Forest Products Inc. and the two other forestry companies working in Quebec’s North Shore region say the entire industry there will soon disappear if the provincial government doesn’t increase subsidies to reflect the higher cost of producing in the area.

On Monday, Resolute, Arbec Forest Products and Boisaco removed their equipment from logging areas after a meeting between ministers and company officials failed to reach an agreement on the future of forestry in Quebec’s second-largest administrative region.

“We don’t want gifts and we don’t want favouritism, we are asking only that the fair value of our fibre is recognized,” said Karl Blackburn, director of Canadian public affairs and government relations at Resolute. “If the ministry does not change its model, the industry on the North Shore will quickly die.”

Blackburn said mountains and rivers have always made it expensive to work on the North Shore, a region of more than 300,000 square kilometres above the St. Lawrence River in eastern Quebec. However, he said the most immediate problem is a spruce budworm infestation possibly influenced by climate change that has already destroyed more than three million hectares of forest. He said harvesting and processing the fibre is now costing $20 per cubic meter more than elsewhere in the province.

During Monday’s meeting, the government announced it would provide more than $13 million this year to help with the North Shore’s industry,  $4.8 million of which would go to reduce the budworm impact, $4.3 million to revise the market value of standing timber over the next year, and $4 million on a remote-sensing laser used to gather forest information.

Blackburn said that in reality the actual funds that will reach the companies will be closer to $2.5 million because of the way the government has calculated the projected needs. “Unfortunately, that is not enough to sustain the forestry industry,” said Blackburn.

He said the government has estimated the mortality rate from the budworm at about seven per cent, while in reality it is closer to 20 per cent.

On June 19, Resolute stopped logging in the area, leaving about 350 people unemployed while Arbec suspended operations at its sawmill few weeks ago, laying off 160.

If the crisis is not resolved, Blackburn said, Resolute’s sawmill in Outardes Pointe-aux-Outardes that employs 137 people will be closed by the second week of September after it finishes processing the timber that has already been cut.

Next will be the Baie-Comeau newspaper plant, where 250 people have received a collective dismissal notice.

About 1,700 people are directly employed in forestry on the North Shore, while 2,700 jobs are indirectly related to the industry in a region with a population of less than 95,000.

Blackburn said that the economic impact of forestry is about $300 million a year.

Quebec’s forestry ministry said it wants to come to an agreement with the companies and has signed on to eight of the 10 operational changes proposed by the companies.

However, the provincial government said it still needs to analyze the proposed financial measures as there are concerns that providing too much support to the industry in Canada could violate the Softwood Lumber Agreement with the United States and hurt forestry companies across the province.

“We cannot do whatever we want because the Americans are looking at us and the compensation we give the industry,” said Mathieu Gaudreault, press secretary for the Ministry of Forests, Wildlife and Parks. “If [the U.S.] feels that it’s not fair, they can put commercial sanctions on us.”

Resolute says it does not want to compromise the trade agreement but still needs more support to keep forestry sustainable in the region.

Gaudreault said government lawyers will meet next week with company representatives in hopes of finding a resolution to the crisis.

He said deputy minister Richard Savard has brought the companies a signed non-binding contract and has presented their offer to union representatives.

“There’s no maximum [amount of money] we can spend on them, we just have to be sure that the help we give is going to be in line with the laws of the province and the trade agreement that we have,” said Gaudreault. “I don’t want to start a battle of numbers because what we want to do now is get the workers back in the forest.”

Resolute employes 7,700 people and is the second-largest forestry company in Canada. It has pulp and paper, and wood product operations across the country, as well as in the U.S. and South Korea. In 2014 it had a revenue of $4.7 billion.

A report by the Conference Board of Canada says in 2014 Canada was the world’s top exporter by value of softwood lumber, newsprint, and wood pulp. It says that as the U.S. housing and labour markets strengthens, demand for wood products is expected to surge this year, driving industry output higher by six per cent.

“There’s still lots of room for growth in terms of demand for wood products to go into residential construction in the U.S., but we’re not sure how producers in Canada will be able to take advantage of that,” said Mike Burt, associate director of industry sector economics at the board.

However, much of the forestry industry in Quebec is in pulp and paper, in which demand for Canadian paper products has been on a steady decline since 2003, in part due to the rapid increase in the digitization of information and stronger competition from abroad. This year, industry output is expected to rise by 2.2 per cent, compared to a 3 per cent rise in 2014.