Finance Committee on March 12th, 2015

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now hear from the Forest Products Association of Canada, please.

[Catherine Cobden, Executive Vice-President, Forest Products Association of Canada]

Thank you very much. I appreciate the opportunity to be here.

My name is Catherine Cobden. I am the executive vice-president of the Forest Products Association of Canada.

To begin, I'd like to remind you that Canada enjoys one of the largest and best-managed fibre baskets in the world. We have a significant manufacturing presence and 235,000 Canadians who have great jobs in the rural economy.

The drop in the price of oil has been a benefit to our industry in the short term. We've had some lower manufacturing costs, and we see a favourable exchange rate that certainly helps us with our main market in the U.S.

Our prospects look better than a year ago. The recovery of the U.S. economy is taking hold. For example, U.S. housing starts have now hit the important one-million mark. The recovery is still slower than we had anticipated and hoped.

Our exports have grown by roughly 10% over the last year, and we also foresee in the longer term significant growth potential for most of our forest products, such as pulp, lumber, tissue, bio-products, etc.

I have to remind you of the difficult times we faced in the last decade. It translated into half of our global market being lost. I don't need to remind you of the story. You all know the story. We've been before this committee many times to describe it.

While our exports are inching up and we are pleased to see some of this progress, we still have work to do to capture the lost ground, and frankly, to capture our rightful place in supplying the growing global demand that's out there. I hope it's Canada that supplies it and not, for example, the Brazilians.

The sector is busy transforming and innovating, and we have done so, significantly, in partnership with governments. We've been retooling our operations, and we boast the best productivity levels in the country. We've been expanding our marketplace. We are very proud to be Canada's largest exporter to China. We've been deepening our world-leading environmental performances, and we are so pleased that global polling of our customers recently demonstrated that Canadian forest practices are viewed as the very best out there. As I think this committee is well aware, we've been investing in new technologies and products to add more value to the Canadian forest product offerings.

As we move forward, however, we really feel we must not take anything for granted. We must remember that the benefit of low oil prices is only temporary. We must recognize that exchange rates all over the world are devaluing against the U.S. dollar, and some of our major competing environments are experiencing favourable rates, much better than our own. I brought a little prop—which I will make sure I leave with the committee—on the currency of our competing jurisdictions and how it relates to the Canadian dollar.

Of course, I talked about global growth, and I see there are major investments going on in our competing jurisdictions, such as Brazil, Finland, and Sweden. They are readying to capture that growth, so we need to respond.

How do we respond? Well, I suggest we double down and keep doing what we've been doing. We have been focusing on transformation and innovation, and we've been building a strong partnership. We have great strengths: our world-leading environmental credentials, world-class fibre quality, trade agreements, and innovation expertise. We have an innovation system like no other country in the forest industry. We must build on these advantages and recognize that we are in a global race with competing nations and not just competing industries.

The drop in oil pricing and the dollar does not give us room for complacency. I would remind the committee about our past discussions of the need to continue our partnership on innovation, market activities, trade agreements, and transformational support that will propel the sector forward. It's a challenge we can take on together. We will reach our potential; we will create great jobs, and we will prosper.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll go to Mr. Watkins, please.

[Ron Watkins, President, Canadian Steel Producers Association]

Thank you, Mr. Chairman.

Good morning, committee members and fellow witnesses. I appreciate this opportunity to appear before you today.

My name is Ron Watkins. I'm the president of the Canadian Steel Producers Association, an industry with annual shipments in the range of $12 billion to $14 billion and employing some 18,000 people in Canada. We operate steel mills in Alberta through to Quebec. With other parts of the steel industry, we're an economic force across the country.

Today the focus of this committee is the impact of sharply lower oil prices on the manufacturing sector. You've already heard from many experts, including this morning's panel, with multiple perspectives. I will provide you our views from the point of view of the Canadian steel industry.

First, regarding the potential impact on our own production costs, we foresee modest net benefits at best. Our processes run primarily on natural gas and electricity, and the cost of the latter especially remains relatively high in Canada. Lower-priced oil could reduce our transportation costs, although that is contingent on those pass-throughs from the shippers. We've yet to experience that.

However, a key point here is that Canada is not an energy island. Our competitors in other jurisdictions are also experiencing lower energy prices, so our relative energy cost differentials have not shifted as much as absolute costs have. I think we've heard similar observations on exchange rate movements globally, as well as in North America.

Second, regarding the potential impacts of lower oil prices on our customers, and particularly our manufacturing customers, there's a range of factors at play in various sectors, as you've heard already today from other experts. Associated exchange rate effects can help exports, certainly, but they also increase input costs. Structurally, the erosion of the Canadian manufacturing base—this is a prime customer for our industry—over the past few years will not suddenly or easily be reversed by short-term shifts in input costs. Plants that closed will not reopen or be quickly replaced.

Manufacturing investment needs sustainable medium-term economic conditions and supportive public policies. That is why our industry consistently advocates pro-manufacturing policies across a range of policy fields. This includes the long-term extension of the accelerated capital cost allowance—we appreciate this committee's support for that—and competitive tax rates. It is also why we emphasize strong trade remedy laws to ensure fair competition in our market to counter the injury from dumped and subsidized imports, as recent rulings of the Canadian International Trade Tribunal have demonstrated.

Third, and very importantly for our sector, decreased capital spending in the energy sector will have a direct negative impact on the demand for steel products. For us, energy is much more than a cost factor. It's a vital customer for a wide range of steel products: construction materials, fabricated structures, drilling equipment, processing plants, storage facilities, and of course, pipelines and railcars to get Canadian oil and gas products to domestic and export markets.

Mayor Blake can probably speak better than I to the range and volumes of steel that move through her community. I look forward to her testimony too.

The energy-steel relationship embodies supply chains that stretch across Canada, beginning with iron ore mined in Quebec or recycled steel from multiple sources. These materials are transformed into steel in several provinces, then formed into pipe and tube and multiple other steel products for exploring, developing, processing, and transporting oil and gas resources.

In doing so, we employ thousands of people directly and indirectly in well-paid industrial jobs. When the energy sector is going, so do these opportunities, but the converse, of course, is also true, as we have seen already with hundreds of recent layoffs in our industry. In this key respect, the decline in oil prices has a direct negative impact on Canadian manufacturing and in turn on our own suppliers.

To summarize, lower oil prices are in no way a silver bullet for an expansion of Canadian manufacturing, certainly not for our industry, particularly because of the impacts on energy sector demand. We need to look to the medium-term outlook both for energy costs and for other structural factors that ultimately drive investment decisions.

Finally, it remains important that government policies across a range of factors help to set investment conditions that will strengthen the major supply chains we serve, including the energy sector itself.

In closing, Mr. Chairman, our industry feels that Canadians really need to be dissuaded from this false dichotomy between manufacturing and energy, or worse still, between west and east. The two industries are integrated through cross-country supply chains. More broadly, we continue to encourage this committee to focus on the structural policies that will contribute to investment and production in each of the supply chains we serve.

Thank you very much, Mr. Chairman.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now go to Mayor Blake in Fort McMurray, please.

[Melissa Blake]

Good morning and thank you, Mr. Chair and members of the committee, for this invitation to appear and share a community perspective on this global issue. Certainly it's going to be different from the ones you've heard before.

The Regional Municipality of Wood Buffalo consists of 10 communities in 66,000 square kilometres in northeastern Alberta. We are home to five first nations, several Métis locals, and many different nationalities, with over 156 different languages spoken in the homes of our school population.

In the 2012 census we identified a resident population of 77,000 and some additional 39,000 guest workers who live on-site in project accommodations. They come from all over Canada to work in the oil sands and then take their paycheques back home, wherever that is, and that brings our population up to about 116,000. We are well educated and earn an average household income of about $190,000 per year. Unemployment is at 3.8%, and yet there is a notable wage gap. The average age is 32, and just over half of our citizens are under the age of 35. In fact, over the last five years, our local hospital has delivered anywhere from 1,100 to 1,400 new babies each year.

Ladies and gentlemen of the committee, when I say that we've seen this before, what I mean is that we've seen variations of this before. When our region experiences a downturn, we find a way to take advantage of that.

In mid-2008 we had our first breather since the rush of new oil sands development took hold a decade before. We had a chance then to catch up, a chance to plan, and a chance to get ready for what was coming next. What came next was a very busy rebound.

Even today we have $21 billion in oil sands projects that are already approved, $4 billion that are in various forms of construction, and another $26.5 billion in applications, yet that capital spending pales in comparison to what these companies will spend in operations over the life of each of those projects. Each and every year forward, that combined value will go up from the approximate $5.3 billion that it was in 2012.

On the ground, people are still working and living normal lives. They're going to doctors and taking kids to sports, arts, and anything else that kids will do. They are still getting groceries, going out for meals, and even travelling, though they may be more carefully considering large purchases like cars, trucks, or RVs.

Businesses vary, and those that have exclusive ties to industry are further constrained and being asked to do more with less. There have been layoffs, but local businesses are in fact still hiring.

The non-profit sector has long been familiar with doing more with less, but now it is strained even further. Our food bank use was up 75% this January over last, and our February numbers are worse. Thankfully, we're a community that cares, and we will be able to overcome these challenges.

My council approved the 2015 budget with the expectation that we would not need to raise taxes. Four months later we are revisiting the capital projects and discretionary spending to ensure fiscal prudence in changing economic times. Our local economy and the contractors within certainly do need projects to bid on. In times like these, it's how we help keep people working, and Canada's investment in infrastructure helps us keep these projects on our books and those people working in our communities.

Our community is really still just catching up from the more than doubling of our population since the year 2000. The work is real and it is truly needed, and so is the need to curb inflation, reset expectations, and achieve greater efficiency in the industry, but experience tells me that it is really hard to predict the price of oil in either direction. From a community perspective, the rapid upswings can be even more difficult than what we're currently experiencing.

While these are challenging times, there remains a great deal of confidence in our local community. We take a long-term view and we remain optimistic that we will see a rebound someday and that we will once again change our economic outlook and activities.

To conclude, I believe that the need for energy will never cease. I believe that the oil sands will remain an important contributor in satisfying global demands. I know humanity must adapt and innovate in an ever-changing world. I also know that we must work together to ensure that my home, my community, and my people are able to survive, thrive, and prosper for ourselves and for our nation.

We've come through darker economic days of our past even stronger than before, and I believe that we will do that again this time, too. Believe me when I tell you that you simply have to see this place before you believe anything at all about it.

Thank you very much for the opportunity. I certainly look forward to any questions.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mayor Blake, for your presentation.

Colleagues, we'll begin with members' questions.

We'll do six-minute rounds again, beginning with Mr. Cullen.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Mr. Chair, can I just check in on process?

[The Chair, Conservative, James Rajotte]

Sure.

Colleagues, yesterday we did have a couple of members stay through the vote; they sort of paired. We could do that again if—

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

When are we expecting votes?

[The Chair, Conservative, James Rajotte]

The votes will be at about 11:20.

We have one vote, I understand, so we could go and vote and then come back.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

I apologize to the witnesses. We're keen to hear your testimony and to ask you questions, but we keep getting interrupted by the affairs in the House and some votes.

[The Chair, Conservative, James Rajotte]

Can I get a sense from members on this? Do a few members want to pair and stay, or does everyone want to go and vote?

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

What is the vote? That would be an important thing to know.

[A voice]

Time allocation.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

It's a time allocation vote?

I'd be prepared to stay.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

It's a vote on Bill S-7.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

It's time allocation on the bill? Okay.

Sorry, Chair. I just wanted to check on that.

[The Chair, Conservative, James Rajotte]

Go ahead, Mr. Cullen.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Thank you again.

Mayor Blake, thank you, and perhaps I'll start with you. I was in your beautiful community a number of years ago. We talked about the pace and scale of development, you and I. I think a detached two-bedroom home was going somewhere north of $800,000 at the time. I imagine housing prices may have somewhat returned to this universe.

Just out of curiosity, are you hearing from folks on whether there has been a decline at all in the amount of temporary foreign workers who have been going through Fort McMurray, or is that not something you'd hear about through the employers in the industry?

[Melissa Blake]

I would get only random stories. The fact of the matter remains that the temporary foreign worker program has been the most significant benefit to our hospitality and retail and service sector in this community. We simply were not able to bring in enough Canadians to fill the jobs we had.

I mentioned the wage gap. That's one of the big differences we experience here. The cost of housing is one of those influences, and the cost of living is a little bit higher. Even though these jobs exist in the community, it's tough to get people to be able to integrate here and accept them.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

We also believe in a strong immigration program so that if we're in need of workers in Canada, there should be a path to citizenship. That's something you and I spoke of as well. I think you spoke in favour of it.

You said something towards the end of your presentation about the council revisiting the budget. I don't want to get into details of the municipality's affairs, but did you set a budget as the price of oil was dropping, or...? When does your cycle happen that the council would set its budget?

[Melissa Blake]

Yes, we did. On December 12 we approved our budget for the 2015 year. Though we did know or have an awareness at that time, and we were stringent on projects that we had reviewed, at this point there's much consideration in the community about how we might be able to trim things up, or maybe delay, and ensure that every project we have is suiting the population that is actually here as opposed to the ones that are yet to come. The future is sort of more nebulous to us: that's the reason.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

I don't want to put words in your mouth, but does the council go through and then reconsider the commitments it's making, or has made, in that budget cycle, given the current context of $50-a-barrel oil?

[Melissa Blake]

Indeed, and I'm not quite certain whether changes will actually be made or will happen within the next few weeks. It's a matter of just making sure that everything we have is still what we want to have.