Mr. Chairman and members of the committee, good afternoon. We're pleased to be here, on behalf of J.D. Irving, Limited, to participate in this panel.
I'm accompanied by Mr. Blake Brunsdon, our chief forester. He came along this afternoon to give me a hand if there were any questions I couldn't really answer on the forestry side of things.
Before I try to answer your questions, which we received in your request, I'll give you a little bit of background about J.D. Irving, Limited. We're in different businesses, but the forest products business is an important business to us. We've been at it since 1882, a long time, down in the Maritimes predominantly. We're perhaps a substantial player in a very small part of Canada, that being the Maritimes. But on a global basis, we're a very small company, and it's a global world we're all living in and competing in today.
Just by way of background, our New Brunswick jobs, direct and indirect across the province, are about 7,500. In direct and indirect employment, the income is about $464 million. Our New Brunswick wages are approximately 73% above the provincial average. In Nova Scotia we have 362 direct and indirect jobs, about $19 million in direct and indirect income. In Ontario we have 340 full-time equivalents, and about $34 million in wages. These are 2013 numbers.
In terms of suppliers—because I think this is important—in New Brunswick we have about 1,700 over 250 communities, with an annual purchase of about $425 million. The majority, over 80%, are small enterprises with less than 20 employees. For Nova Scotia suppliers it would be $20 million. That's just by way of a bit of background.
In 2014 we made the biggest forestry announcement in Canada since 1993: a $513-million capital upgrade and modernization to a number of our facilities. That was recognized by the Royal Bank of Canada, the Conference Board of Canada, and the Atlantic Provinces Economic Council as having a very positive impact on the 2015 economic forecast in GDP for the province of New Brunswick.
Before I get into our thoughts on the opportunities and recommendations you've asked for, I'll respond to your request regarding J.D. Irving's view on the softwood lumber agreement, the SLA. As Diana said, we support the maritime exclusion, but we do not support the current agreement in its present form. Our Canadian competitors are not paying any duties, and the Maritimes, as Diana said, is paying the highest stumpage rates in Canada, 40% higher than most other jurisdictions. It's a substantial penalty to us; stumpage, or royalties, if you will, represent about 40% to 45% of the value of timber.
But we think there are opportunities. As Diana mentioned here, there has been about a 45% reduction in the Canadian exports to the U.S. since 2006. That's substantial. Where Canada shipped about 19.5 billion board feet to the U.S. market, today in 2014 it's about 10.8 billion board feet. Perhaps there might be an opportunity to create a different solution at this time.
We think the federal government should be proactive on this file rather than wind up in litigation. Canada has a lot of experience at this...as the industry players and the association folks. A lot of money has been spent, and time and energy wasted, on litigation. At the end of the day, we'll wind up in a negotiated settlement, I would assume. We should try to prevent a protracted and expensive legal battle, if we can afford it, but come to a deal with the United States that we can live with. We would like to see the federal government be proactive in that endeavour. It takes leadership to make it happen, to pull it together.
With regard to strengthening the future—I'll try to answer some of the questions from you folks in terms of input on the future of the forest products business here in Canada—one is value-added. We need to add value to our products. That's no secret. We need to add value to our timber. We have one of the largest forests in the world after Russia—I guess we're number two—so we have a great resource, but we have to add value from our trees.
In our business, we go from the tree all the way to the consumer shelf. I'll show you this box of Royale tissue. This is made in New Brunswick and our Toronto plant, but basically it is just about 100% from New Brunswick trees, both hardwood and softwood. The packaging that this cardboard box is shipped in and the pallet it's shipped to the market in are from logs that go through sawmills, which produce chips that go through a pulp mill, get converted into jumbo rolls of tissue, and are converted into retail packaging, and then there are all the jobs associated with that. It's a great success story for Canada. It's one that we can do and be competitive in if we have the will to compete and to make the investment.
As I said, it adds about 35 times the value of a tree when you get to this box versus the raw timber. If we were to load those logs on a truck and ship them to the United States or on a boat as they do in some parts of the Pacific northwest.... We've added substantial jobs and value. For us, as we've said, it's over 7,300 direct and indirect jobs in our forestry business.
Take milk as an example. I'm going from memory on this, and I'm a little bit vague on it, but we did the comparison. Take milk at the farm gate. It's roughly three times in value from the farm gate to the grocery shelf. For potatoes that are made into french fries, at the retail position it's about six to seven times the value. That gives you a relative comparison for the value of a raw product versus a finished product and what it does for us.
Also, it's an integration of communities and manufacturing. A great number of different operations are impacted by what we're doing. That's on the value-added side.
Training and education is a critical part. We think that training is primarily an industry responsibility, with support in the training efforts. As a company in the forestry business, we spend about $5 million a year of our own money in training and education for forestry operations. We think this is a critical part. We'll have a recommendation for you on that at the conclusion of these remarks.
On doing things right environmentally, we have to be right. There is no substitute for that. We have to be right. Our customers hold us to account, our employees hold us to account, the communities hold us to account, and we hold ourselves to account. We're proud of that record. We have third party certification. We have about 150 professional forestry management people on our staff
We also have partnerships. Some examples include watercourse and habitat protection. They are priorities for us, but our doing it and saying it are not enough. We have partnerships with the Atlantic Salmon Federation, the Miramichi Salmon Association, the Canadian Rivers Institute, and Ducks Unlimited, just to name a few. We're partnering on how to make things better, and they are active partnerships.
We have award-winning voluntary conservation programs with 1,155 unique sites on our timberland. We've very active on that. Also, we're the major partner for the maritime provinces with the Nature Conservancy of Canada in areas set aside for reserves and unique areas.
We spend about $20 million a year of our own money on silviculture activities—planting, thinning the land, and managing the timber—because it's a sustainable resource and we have to look after it. You have to walk the talk. We plant approximately 50 million trees a year on our own land—our own money and our own trees on our own land—to make sure the job gets done properly. It's very good work.
We have a voluntary scientific advisory committee. We've had that since 1998. It's made up of senior academics and the deans of a number of maritime universities and the University of Maine. They come every summer with third party graduate students. They're there to scrutinize the management. We're managing our land intensively—that's how we keep our costs down and how we are competitive—but we have to be environmentally right. They come and they scrutinize our business on the ground. We've had a lot of information that's published in peer-reviewed science, which we're proud of, but we have to be proactive and progressive and not run away from criticism. We have to face it head-on and get the facts.
With respect to climate change, a couple of years ago we employed a UNB independent scientist who mapped our carbon footprint in our value chain, right from the tree all the way to the box of tissue. We found out that we are a net carbon sink, which is very good, and that was internationally published and recognized by the National Round Table on the Environment and the Economy. That's the first time it's been done from the seed to the shelf, as we say, so we think that's a great thing. It's a good news story about trees and forest products for Canada. The forestry business is a renewable natural resource, and we should treat it as such.
We're planning for the long term. Blake and his organization are looking 80 years down the road on what the cycles are going to be in our forests. We want to do it right and we can do it right.
Research and innovation are very important for all of us in Canada. I'd like to give you a few snapshots of things we are doing as examples of what can be done, because we don't talk enough about it. We spend about $2 million of our own money every year and then it's leveraged into partnerships with other groups. An example, CFS, the Canadian Forest Service, one of your federal government organizations, has been a good partner in modelling applications of lidar. If you're not familiar with lidar, it's the latest technology. It's like an MRI that gives you topography and geography, and it's a great measurement tool. It's a game-changer. So we're partnering with CFS and Leading Edge Geomatics in Fredericton. We're doing world-class research with CFS and our other partner in Fredericton about the forestry application of lidar.
Forest modelling, inventory modelling research in Fredericton with Remsoft, a New Brunswick company, they've been a strategic partner in the fuelling of inventory of forests—when you harvest trees, and so on—and this technology has now been sold around the world. They're viewed as the world leader in that technology.
We have our forestry lab in Sussex, where we have international patents from discovery to commercialization, which is important. It is important, I think, that the research be commercial in nature, if it's good. On the endophyte discovery for budworm resistant trees, it's great to have patents on this type of thing coming from New Brunswick.
People don't thank the federal government very often, and we'd like to thank them for their IFIT program. It's an investment in forest innovation and technology. It's helped us and other companies innovate, and that's a well-run program that we think Canada is getting good value from. It helped address some of our challenges and improve our competitiveness.
The federal government has also been proactive in partnering with the eastern region, the maritime provinces, on early intervention in the spruce budworm program. That's a 2014 program using the best technology and changing the way we attack a forest pest, which has been a big debilitating bug for eastern Canada for a long time.
In summary, before we come to the recommendations, we have to understand that we have to be competitive. We live in a fiercely competitive global market. It's not an academic exercise. This is hardball business, and Canada has the scars to prove it, as a lot of jurisdictions do, with the mill closures across the country. So the forest industry needs a stable economic wood supply and innovation to be able to stay ahead. But we need to know where the wood supply is coming from, recognizing that's provincial jurisdiction, but nonetheless if we're not competitive, it affects Canada as a country. Wood and energy costs are 40% to 60% of any mill's costs. You go to Brazil today, and they will grow a tree 60 feet tall in six years, rule of thumb. We will grow a tree in New Brunswick 60 feet tall, and it will take us 35 to 40 years, if we have great success and everything's going well. So that's the competition. We have better quality trees, different quality trees, but nonetheless volume is important.
The forest products business is not a dead business. Segments are certainly under intense competition, like printing, newsprint, and printing and writing grades of paper. We were in the newsprint business 15 years ago; we got out of it. We went on to make value-added paper for People magazine and Sports Illustrated, and such publications, by deciding that we were going to compete, invest the capital, and move forward, and it can be done. But printing and writing grades, no question about it, are under pressure. Market pulp is a growing segment used in tissue and all kinds of flexible packaging, from hospital gowns to grocery bags, a growing segment that is increasing in value. All types of packaging are continuing to grow with the growth of the Internet, the shipping through Amazon and their packaging, and so on. Other segments are growing, so there are opportunities if we invest properly.
In closing, we have some recommendations. First, we would ask the federal government to continue the accelerated capital cost allowance. This was an effort that was put in by Mr. Jim Flaherty in 2013. It's due to expire in 2016. This allows for accelerated depreciation. Simply what it means is that for tax purposes we can write off our capital equipment, capital expense, in two years, rather than a protracted time. It allows us against taxable income to reduce that bill. Those dollars can be put towards capital investments, which are essential. If we're going to compete in the global market, we have to capitalize our industries. Canada, I would say, is lagging in that regard. We're behind. We're not spending enough capital to keep up.
Second, on the training point, we'd ask that the federal government allow the flexibility so if you're on EI you could be on a training program. As I said, we spend $5 million a year training. However, we might pay for the training course and the equipment that's involved, and so on, but the individual can't afford to get trained because he gets disallowed if he's on EI. We say if he's on EI and getting a new career and moving forward in life, why not? Let's get him skilled up to do something productive. In our forestry, for example, the jobs are $45,000- to $50,000-a-year jobs. You can drive a truck, drive a piece of logging equipment, or do something else. We need that skilled labour. Diana mentioned that. We have a shortage of labour. We want to train people, but they shouldn't be penalized so that they can lose their EI benefits because they're taking up training.
There's a lot of talk of a possible national energy strategy amongst the provinces. We think there maybe should be a national forestry strategy. We think that's quite important. We're a bit lost on leadership, we think. In every province forestry's a provincial jurisdiction, but there's nobody pulling us all together. We have some common problems in this country on this one. We'd like to bring the three pillars together on that. We have the economic, the environmental, and the communities, and they're all interwoven on this one. We think that perhaps the opportunity is to have the industry and government, and universities as the place, perhaps, to do the work.
We have some very good universities in this country, but from my perspective—and I could be wrong, I can't speak for the rest of Canada—and I just get what I hear anecdotally, but I can certainly vouch for the Maritimes that we don't have the analytical capacity inside government that recognizes what's going on globally, what's happening environmentally, what are best practices. We need some hub where money gets in—if it's universities that's fine—to do it. But it's practical, very practical, results-based forestry. It should be a partnership. The money shouldn't just come from the federal government to the universities and it's gone, has no value. It should be a partnership between the provinces, the federal government, and industry. Industry should have money into it so we're helping drive the agenda, all with a focus of how we're going to be competitive. We need practical, timely, and results-based information.
In closing, we have to understand that being competitive is one of the reasons why we've lost so many jobs. We're just not competitive, from a policy perspective, from training, from investment. The money moves. Unfortunately, it leaves. We're Maritimers. We're Canadians. This is home and we'll fight as hard as anybody to make our business go. I think that's demonstrated through products like this and having a great group of men and women. But we can't drag a boat anchor of, I would say, misinformation. Too much political policy, as far as we're concerned, gets decided without the facts, and we really need these results to be fact-based so that we can compete.
Thank you very much.
