Natural Resources Committee on Feb. 12th, 2008

[The Chair, Conservative, Leon Benoit]

Good morning, everyone.

We're here today, pursuant to Standing Order 108(2), to do a study in the first hour of the unique opportunities and challenges facing the forest products industry.

We have as witness, Cassie Doyle, deputy minister, Department of Natural Resources, and Jim Farrell, assistant deputy minister, Canadian Forest Service. Welcome to both of you.

Ms. Doyle, you will be giving about an eight-minute presentation, I understand.

Before we get to the presentation, I want to read a small section from pages 863 and 864, House of Commons Procedure and Practice:

Particular attention has been paid to the questioning of public servants. The obligation of a witness to answer all questions put by the committee must be balanced against the role that public servants play in providing confidential advice to their Ministers. The role of the public servant has traditionally been viewed in relation to the implementation and administration of government policy, rather than the determination of what that policy should be. Consequently, public servants have been excused from commenting on the policy decisions made by the government. In addition, committees will ordinarily accept the reasons that a public servant gives for declining to answer a specific question or series of questions which involve the giving of a legal opinion, or which may be perceived as a conflict with the witness’ responsibility to the Minister, or which is outside of their own area of responsibility or which might affect business transactions.

I thought I would read that section so members can keep that in mind as we go through the questioning a little later.

Deputy Minister, if you would, go ahead with your presentation, and then we'll get directly to the questions.

[Cassie Doyle, Deputy Minister, Department of Natural Resources]

Good morning, and thank you, Mr. Chair.

I have with me this morning Mr. Jim Farrell, the assistant deputy minister responsible for the Canadian Forest Service. He will be joining me in answering your questions after my presentation.

It's a pleasure to appear before the Standing Committee on Natural Resources, and I welcome the opportunity to discuss the contribution that Natural Resources Canada is making to the long-term competitiveness and sustainability of the forest sector.

Mr. Chair, I won't read the entire statement but rather I will highlight some key sections in order to allow more time for questions. Also, with your permission, Mr. Chair, when we turn to the second discussion on the Chalk River situation, I would like to provide just a very short update before moving into questions.

So to start, there is no doubt that Canada's forest sector is a major contributor to Canada's economy. Our vast natural forest endowment has sustained a global-scale forest industry. In hundreds of rural communities across Canada it provides employment in high-paid jobs. We are the world's largest exporter of softwood lumber, pulp, and newsprint. In 2006 the sector contributed $36 billion to Canada's GDP and it constituted 10% of our overall exports.

Despite this, the forest sector faces serious challenges, with significant growth of new, low-cost competitors, a declining demand for newsprint in North America, and limited capital investment due to poor profitability. More recently, the collapse of the U.S. housing market, higher energy prices, and a strong Canadian dollar have accelerated large-scale structural adjustment of the industry, resulting in mergers and mill closures.

With the subprime mortgage crisis, American housing starts have declined 26% in 2007 and close to a 25% decline in Canada's wood products has been experienced in our exports to the U.S. We've also seen major price decreases, largely due to the high Canadian dollar. The result is reduced production and the closure of a number of facilities, job losses of close to 30,000, and the likelihood of more layoffs in the future, all of which signal the need for a transformation in this sector.

So what's needed? The future health of Canada's forest sector depends on innovation. We need to find new uses for wood fibre, products characterized by higher value rather than higher volume. Investing in innovation, emerging technologies, and new products have the potential to lead a transformation in the forest sector in Canada.

I want to turn now to actions under way at Natural Resources Canada. We have in the department been leading a long-term competitiveness agenda, working with all forest sector stakeholders, research institutes, academia, industry specialists, and provincial governments. Last year the $127.5 million forest industry long-term competitiveness strategy was initiated. Innovation is the key to this strategy.

The central thrust is to consolidate a number of separate pieces of the national forest innovation system and align them to focus on competitiveness. This has led to the creation of the world's largest public-private partnership in research and development—FPInnovations—with world-class R and D capacity in the fields of pulp and paper and wood products transportation. Some 20% of its resources are dedicated to transformative technology, including bioproducts, nanotechnologies, and next-generation pulp and papers.

FPInnovations is the flagship of our competitiveness strategy, but we have a number of other initiatives under way in the department. The Canadian Wood Fibre Centre was created to generate value from Canada's forest fibre. We're working with the forest industry and with provinces on expanding Canada's overseas markets through the Canada wood export program, which is aimed at raising the profile of Canadian wood products offshore and increasing wood exports to new markets such as China and South Korea.

Here at home, NRCan is helping to develop the non-residential wood construction market in North America, one that is valued at up to $25 billion annually. We're working with small to medium-sized enterprises in our Value to Wood program, promoting the transfer of technology from research institutes to the work floors of the secondary manufacturing wood industry.

The department is also working to increase international awareness and acceptance of Canadian sustainable forest products. The international forestry partnership program is providing information abroad on Canada's sustainable forest management practices.

Canada's forest ecosystems have always been subject to the cycles of change created by pest infestations and wildfire, and the department has a very long and proud history of undertaking forest science.

In response to the current mountain pine beetle infestation, the Government of Canada has provided $200 million to mitigate the impacts and help control the spread of the pest. We are working closely with B.C. and Alberta to assess risk and address target efforts to reducing the eastward spread. Indications are that these efforts, along with an exceptionally cold winter, are having an impact.

Of course, an ongoing concern is the increased risk of wildfire. That is particularly the case for communities in infested areas. So we are working with first nations and communities in B.C. on strategies to mitigate this risk, both on reserves and on crown land that surrounds them.

Mr. Chair, to conclude, although our forest sector is facing challenges, it still has a tremendous potential for future success. The global and domestic restructuring of the forest industry will continue. NRCan is working with its many provincial or territorial and industry partners to support the transformation of Canada's forest sector, with a focus on innovation, higher-value uses of fibre, biomaterials, the inclusion of new players in the industry, and opening up new market opportunities.

Thank you very much, Mr. Chair. Jim and I will be very happy to respond to your questions.

[The Chair, Conservative, Leon Benoit]

Thank you, Deputy Minister. I knew there was a reason I was enjoying the minus 42 degrees Celsius and minus 44 degrees Celsius nights we had on the weekend.

We'll go right to questioning, to Mr. Boshcoff for up to seven minutes.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

Thank you, Mr. Chair.

Welcome.

Concerning your presentation, the recent news of the Community Development Trust, of course, is foremost in the minds of many on this committee and throughout the country. I'd like to focus on it for a bit, because from the details of the finances available, it seems not to be just for forestry. I'm wondering whether the forestry crisis wouldn't warrant more than the billion dollars for it alone.

The corollary of that is, why wouldn't you mention the Community Development Trust in your presentation, with all respect?

I'll just go through some questions to make it easier for you.

Why would the money be allocated on a per capita basis? I don't think every province is in the same situation. I guess one could say that Alberta's economy would be far from being in a crisis.

Mr. Chairman, with all respect, I know where your riding is.

I wonder how many workers would be applying for retraining from the forest industry in Alberta.

Also, we are led to understand that there are essentially no strings attached, or no signed guidelines with the provinces and territories, in the distribution of this money. I'm wondering how we can be certain that it will go to the forest industries.

Let's just start there, and then I'll continue. I have several pages.

[Cassie Doyle]

Mr. Chair, I thank the member for his question. I think the question relating to the Community Development Trust is a very important one. I think it reflects the concern the Government of Canada has about the impact of the forest sector restructuring on communities.

I'm probably not in a very good position to be discussing this, as it's not a program within my own department. It's a program that was initiated through the Department of Intergovernmental Affairs and Finance Canada. As you know, it was a trust that was established to work with provinces and territories to address the impact of restructuring—most particularly in the forest sector but not exclusively in the forest sector—on communities across Canada.

But concerning the deliberations on how the funding will be allocated and the amount of the funding, I'm not in a position to respond to those questions.

Thank you.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

Does it not concern you, as the deputy minister, that one department may be at cross purposes...or that with the work you're doing, say with the forest industry associations, of which there are many, all of a sudden another branch of government is off on one tangent? Should there not be more coordination and focusing of direction and goals? That would be the obvious question.

Second, would that aspect of it not perhaps be used...? Say if you were making progress on the transportation front or the costs or some of the other issues in terms of international marketing that you mentioned, might that get displaced by the sort of ad hocery of it, where you as a deputy minister are unable to give me some base answers?

I say that with concern and respect for public service, that you have a job to do, and that right now, at this committee, which is a hearing on how to improve us, you probably should be one of the people who should know, really, what those answers are--with respect.

[Cassie Doyle]

Thank you, Mr. Chair.

I want to assure the member, first of all, that we are working in very close coordination. The role of the Government of Canada in relation to the forest industry is a fairly diverse one. I want, first of all, just to assure you that we work very closely together. Certainly, from the perspective of Natural Resources Canada, we are very focused on working with the industry on issues related to competitiveness and the sustainability of the forest resource.

There are other initiatives and other roles that are shared with the provinces that we are also, of course, engaged in, and one of those is in the area of adjustment and support to workers. But as you would appreciate, that's not an area that is focused on out of Natural Resources Canada, but rather in other parts of departments....

I feel that the work we are doing in the department in supporting the industry through the restructuring is very complementary to the Community Development Trust and its aims to support communities and workers while we go through a very difficult restructuring within the forest industry.

So I want to assure you that we are working in close coordination.

I would just say that I'm not in a position to be answering detailed questions on the Community Development Trust, but I would say it is entirely complementary with the thrust of my department, which is to ensure competitiveness and the sustainability of the sector.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

On the aspect of a summit, as proposed by the CEP union or the steelworkers, or last year by Stéphane Dion, in terms of bringing all the parties together so that we could do this, would your department be in favour of some kind of national effort to bring the heads together so that we really were hearing and understanding what other people were doing?

[Cassie Doyle]

Mr. Chair, thank you for that question.

I believe the only way through the current restructuring is to ensure strong partnerships. That's been the basis of our work at NRCan, to be working in very close cooperation with the provinces, with research institutes, and with the industry. So I would support any initiative that pulls together the partners that are impacted and have an influence on the restructuring of the forest sector.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

I have a technical question on the amount available for the pine beetle. I was under the impression that it was more than $200 million, but you used that figure. Has it all been used for pine beetle research, and have we had any success in killing any bugs or saving any trees?

[Cassie Doyle]

I'll ask my ADM of the Canadian Forest Service to respond.

[Jim Farrell, Assistant Deputy Minister, Canadian Forest Service, Department of Natural Resources]

Thank you, Mr. Chair.

In Budget 2006 there was an allocation of $200 million committed by the government for the mountain pine beetle. Approximately half of that was used to undertake control efforts designed to slow the spread, to look at ways to generate more value out of the affected trees, and to work with communities around protecting communities--hazard trees in some schools and parks and communities.

The other $100 million was dedicated to essentially dealing with the reality of economic impacts after the pest infestation has passed. We've worked closely with Western Diversification and Transport Canada on infrastructure projects as well as community economic development programs.

There was a very small portion of the $200 million used for research; however, it was relatively small. One of the areas we did invest in was expanding geoscience in terms of exploration of other opportunities, perhaps in mineral resources, in the affected areas, again to stimulate exploration with a view to offering other economic development opportunities in the affected area.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Farrell, and thank you, Mr. Boshcoff.

We will go now to the Bloc Quebecois, to Madame DeBellefeuille for up to seven minutes.

Go ahead, please.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Thank you, Mr. Chairman.

Thank you, Ms. Doyle, for your presentation.

Discussing forestry resources is no simple matter, because this natural resource falls almost entirely under provincial jurisdiction. Therefore I can understand why it would be difficult for you to answer certain questions.

The federal government is involved extensively in R&D. These days, Quebec's forestry industry maintains that companies are shutting down their forestry operations because they are not profitable. When a company cannot make a profit, it has no money to invest in modernization or in R&D. Furthermore, when a company isn't making any profits, tax credits are more or less effective. To remain competitive, companies must invest extensively in R&D.

Aside from the forestry industry's long-term competitiveness initiative, how does Canada compare to other countries in terms of R&D? Do we compare favourably, less favourably, or not all favourably? How do we rate? Do we have a lot of ground to make up in order to sustain forest industry related R&D?

[Cassie Doyle]

Thank you for that question. It really speaks to what I think is at the heart of this sector's future, and that is investments in innovation and R and D. I will say that I believe that FPInnovations, which is the new aligned partnership between all research institutes and which sets very strong and well-coordinated priorities across the country, positions Canada as being one of the best in the world in terms of ensuring that we have a cohesive strategy on promoting innovation in the forest sector.

On the question of other countries, perhaps I'll just ask Jim if he could comment on that as he's more familiar with the international situation.

[Jim Farrell]

I would say that in terms of R and D spending in both public and private, Canada is about in the middle of the pack if you compare it to other countries. However, as the deputy has mentioned, I should go back to FPInnovations, which was an undertaking that was coordinated with provinces and the industry in the country to consolidate and focus our R and D investments to in fact make them more effective. Headquartered out of Pointe-Claire, just on the edge of Montreal, they have offices from Vancouver to Quebec City, as well as smaller offices all over the country.

It's relatively early days. It's been about a year since the consolidation occurred, but I certainly see a lot of interest. I was at an international conference in Montreal a week or so ago, and there is considerable interest in Canada's setting a new path in terms of focusing investments in innovation and R and D. I'm hopeful that the structure now is in place and now it's time to actually generate more and more results out of that new structure.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Mr. Farrell, this is the first of six meetings on the forestry sector. How does Canada's forestry industry compare to that of other countries? If I understood the interpreter correctly, you stated that some countries invest more than others in R&D. I could have told you much the same thing.

Could you give the committee some specific details about the state of R&D in this sector? It would be important to have that information for our study.

[Jim Farrell]

There are a number of ways that people measure investments in R and D: as a percentage of GDP, or in terms of total investments, or R and D embedded.... I'm not trying to be evasive, but a lot of Canada's R and D, particularly in pulp and paper, is actually acquired through technology as opposed to being performed itself. Perhaps I could offer, Mr. Chair, to bring back some specific information on this to help advance the discussions of the committee, as opposed to speculating right now on some of the various measures we have out there for measuring R and D.

[The Chair, Conservative, Leon Benoit]

Mr. Farrell, will you send that to the clerk of the committee then?

[Jim Farrell]

I will.

[The Chair, Conservative, Leon Benoit]

Thank you.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Consideration is being given to ways of diversifying activities in the forestry sector, of promoting very specific programs aimed at producing energy or ethanol from forest byproducts. We call this cellulosic ethanol. This type of energy would be greener, but the industry argues that it does not receive enough financial support from the federal government to build cogeneration plants. More plants like this could be built, because the resource is plentiful, but the industry needs various incentives. I know that some incentives are available, but probably not enough to ensure the success of such a venture.

What do you think the federal government should be doing to support a program to produce energy, specifically ethanol produced from forestry byproducts?

[Cassie Doyle]

Thank you very much for the question. It addresses a very important area, the diversification of the overall industry and enhancing the value of forest products.

We do have two recent programs in place that address the member's interest. One is ecoENERGY for renewable power. For the first time, it was expanded in the last announcement to include support for electricity produced from biomass to make it accessible to the forest industry.

Secondly, in the last budget there was an announcement that there would be a half-a-billion-dollar fund through Sustainable Development Technology Canada to advance next-generation cellulosic ethanol, to be available for both agricultural-produced cellulose as well as forest-based cellulose.

So we do have two programs in place now that we think have the potential to move to more creation of electricity from biomass in the forest sector, as well as to the next generation of cellulosic ethanol in the forest sector.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Minister.

Merci, Madame DeBellefeuille.

Now to the New Democratic Party, Ms. Bell, for up to seven minutes. Go ahead.

[Catherine Bell, NDP, Vancouver Island North, BC]

Thank you, Mr. Chair.

And thank you to the deputy minister and Mr. Farrell for attending today.

We're pleased to get started on the study of the forest sector because of the problems I know you're very well aware of.

Just before I get to my questions, I'd like you to clarify something in your statement, Ms. Doyle. You said that there were job losses of close to 30,000 in 2007. I was reading from the Library of Parliament brief that just over 27,000 jobs were lost from January 1, 2003, to October 5, 2007. Were those another 30,000 jobs lost in 2007, or was that a cumulative number?