The announcement the Whakatāne Board Mill's Swiss owner SIG is proposing to close the facility is a significant blow to the local economy says Toi Eastern Bay of Plenty Development Agency (EDA).
The mill employs just over 210 staff and has produced paper and packaging products, latterly mostly for export, for more than 80 years.
General manager Juha Verajankorva said in a statement that, faced with the loss of its biggest customer, the plant was no longer economically viable.
"We have begun consultation with staff on a proposal to wind up the business and close the mill," he said.
A statement from the agency said it was acutely aware of the impact this would have on many in the town, with most people in the community knowing someone employed in the operation.
Chairman John Galbraith said he was confident that with the right support and leadership the board mill could be repositioned and he looked forward to working alongside the mill team and Government to explore all possible alternatives.
The agency is requesting assistance from central government to find solutions that will allow for the continued operations of the facility.
"The recent strategic review of the Norske Skogg Mill in Kawerau shows that the entire wood fibre processing sector is facing continued challenges and a proactive and coordinated approach to supporting this sector needs to be undertaken," the statement said.
"Today, New Zealand's forests are being exported in their log form to China and other markets, rather than having the value added to them locally. This remains a risk as China have declared their intent of becoming self-sufficient in lumber within 20 years.
"In many cases the wood processing sectors receive significant subsidies from their governments which makes competitive production in New Zealand a significant challenge. This is despite New Zealand's competitive advantage of having one of the world's largest sustainable plantation forests and renewable energy."
The agency said the Whakatāne Board Mill was an important part of the wood processing value chain in the Eastern Bay, where many of the mills and wood processors provided raw materials and share overheads.
"Removing the Whakatāne Board Mill from the matrix will likely reduce the efficiency of the other mills in the region, which is a significant concern, and create further head winds."
Galbraith encouraged the Government to invest in the region to ensure the maximum value of the wood processing sector is retained in New Zealand, while retaining the high value jobs locally.
E tū spokesman Raymond Wheeler said the union would be supporting more than 40 more members during the consultation process.
He said the proposed closure lended some urgency to the Government's work on an Industry Transformation Plan (ITP) for the forestry and wood processing sector, if local manufacturing was to survive.
"We need to see increased support for manufacturing in the regions, particularly in the form of government procurement for local wood products.
"These industries are also a vital part of the community's economic wellbeing, as many local businesses such as in engineering, scaffolding, and associated industries, rely on a large operation like the Whakatāne Mill for work."