Subcommittee on Canadian Industrial Sectors Committee on April 2nd, 2009

[Mark Arsenault]

My understanding is that it is what they're offering as interest rates on loans. I got that by contacting several contractors and asking what they were paying. They were saying that it ranged from 8% to 11%, when it's available.

Another point is that we're finding that companies that have good balance sheets aren't able to access credit right now, just because they're in the forestry sector.

[R.M. Jeffery]

Mr. Garneau, I'd just like to add to that. Yes, indeed, we're finding that interest rates for our companies with good business plans and good balance sheets are north of 8%, 10%, and 12%. If you can even get credit, the coupon value on that credit is far above standard bank rates.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you. Does this apply whether it's a commercial bank or a government-related organization, like the BDC?

[Mark Arsenault]

I'm not sure. I didn't check that out. I apologize.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Mr. Jeffrey, do you have an answer on that one?

[R.M. Jeffery]

We do very little business with the BDC. The forest industry, generally, in the commercial world, accesses EDC for offshore loan financial instruments. They're essential for doing that, so we don't have that problem there.

The EDC is very important to us that way, by the way, because when you're sending product across you need letters of credit and that kind of thing to facilitate the commerce, and the EDC steps in. So we should continue to make sure that they have adequate funding to support our exports.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you.

My final question deals with R and D. Mr. Jeffery, you obviously seem to be focusing on that aspect in terms of growing your business. Of the research you do, how much would you say is funded by your own companies--in other words, is privately funded--and how much do you access federal or provincial government money?

[R.M. Jeffery]

In today's marketplace and with the financial conditions the forest industry has been facing, R and D probably runs at around 1% to 1.5%. We are highly dependent on research and development from federal funding and provincial funding through FPInnovations, UBC, Laval, and places like that. So those programs are very important.

I heard the motion that was passed in the House about loan guarantees, building with wood, bio-energy, and R and D tax credits. The R and D tax credits are very important for driving innovation and the switch to these new products that are available or the opportunities that appear to be available.

In our industry, there is a big time lag between the R and D that comes out of the lab to pre-commercial and getting it ready for commercial application. The government is crucial in providing funding for that phase. The issue we have at the commercial level is whether we can build a business case and get credit to take these new products to market. And that's where your first question comes in about access to credit.

We need you to continue to fund R and D. We need the R and D tax credits. That will help to build the road forward for us.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you.

Mr. Arsenault, do you have any comments to make concerning research and development in your province?

[Mark Arsenault]

Certainly.

The recent budget includes initiatives that should enable institutions to increase their technological capacity. Those things are going to go a long way. We have some exceptional institutions. For example, the University of New Brunswick has been offering a forestry program for over 100 years. Furthermore, initiatives will help the research and development infrastructure, in addition to the tax credits.

All that may help to develop new products and position them on the market, especially in the new area of biotechnology, whose uses could be both chemical and physical. Forest products will be a launching site for a new economy.

[The Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Arsenault.

We'll go to Monsieur Gourde.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

I'd like to direct my question to Mr. Dionne, from Quebec. We have the good luck today of having specialists, people who do the harvesting directly on the worksites. I'd like us to take advantage of their expertise.

People seem to be placing a lot of hope in forest residues, especially with regard to cellulosic ethanol and renewable energy. What do you think about this new harvest? Large quantities of residue would have to be transported to the more central plants or to regional factories, which would handle the processing or maybe process the residues as far as possible into some form easier to transport on the worksites.

You said you had some ideas about this, and I'd like to hear them.

[Éric Dionne]

Since we're generally fairly far away, the simplest thing we've seen is to take at least the material. Maybe the factories would have to move closer to transportation lines and then the residue in its most compressed form would be transported there.

There are good, low-cost means of transportation. We've had fires. There are 14 million cubic metres of biomass available in Quebec. We could harvest a lot more. Sure, electricity really doesn't cost very much, but that doesn't mean that biomass couldn't be used to complement wind power or hydroelectricity. Biomass could be used the way we use electricity in a factory, that is, by flipping the switch as needed.

We've got lots of ideas, but we can't act fast. We need help because the companies aren't able to do it. A lot of development has to take place. Since the cost of electricity and all products is terribly low in Quebec, we're never competitive. If the cost of our energy were the same as that of wind power, we might be competitive, but I don't know whether we could get there. Maybe we have to try out a few of our ideas.

Right now, we're just running little tests. For example, we take the residue from pulp and paper plants already in the city to feed heating systems with biomass. But going and harvesting biomass from the forest floor has almost never been done. This might be considered in order to keep our entrepreneurs alive.

There would also have to be some advances so that companies can reduce their costs. When a biomass plant can produce its own electricity, it's a bit more efficient. At the same time, this could become part of the new forestry standards. Before, we followed CSA standards but now FSC standards apply. We try to work with the companies, but adapting quickly is very costly for them. The companies don't have the time to turn around and they lose their access to the market from one day to the next. We have to set a new standard fast and hire new employees. The market is changing too quickly for the companies to keep up.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Currently, in a lumber harvest on a worksite, how much do forest residues account for? Do they account for 25, 30 or 40%? Are these residues shredded or left where they are?

[Éric Dionne]

In general, since our harvests are multifunctional, residues and branches are left on the cutover. There's no longer much harvesting with branches along the side of the road. Before, we used to cut swaths, but maybe there's a way to adapt this way of doing things.

In Europe, they have worked a lot on harvesting residues, even harvesting stumps. As for us, we could harvest after fires. This is done less in Europe, because they harvest the stumps. This method would enable us to go and get biodegradable mass if we wanted.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

In conclusion...

[The Chair, Conservative, Dave Van Kesteren]

Thank you.

Monsieur Bouchard.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chair.

Mr. Dionne, you're in the machinery and equipment business and it may be said that in this sector the owners of small businesses are often close to their employees.

I'd like to know about your workers' difficulties. What measures should be put forward to support them? Are you worried about that your workers might leave your company, or even the region?

I'll let you comment.

[Éric Dionne]

We really represent small businesses. In Quebec, that's how things are done. These are small sub-contractors, who harvest using one, two or three machines, compared to the big companies. There are about 1,300 in Quebec and just about all of us operate this way.

We are harvesting specialists. We're beginning to need new qualified employees, but it's extremely hard to find any. Since we've had a very tight budget for several years, we cannot afford to hire someone young who is just beginning. He's fresh out of school, he's good, but he needs another year or year and a half before he has a level of skill comparable to that of the other workers. It has to be said that our flexibility depends directly on our employees. We work in the forest with our employees, on whom we depend directly. When we can rely on experienced employees, the company does well overall.

In view of our narrow profit margins, when we hire someone young, we automatically go from small profits to instant losses. The students have good training, but they lack experience. They have to work with us for another 1,000 or 1,500 hours before becoming operators, at the rate at which things are going now in the forestry sector.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Is employment insurance an appropriate measure? Do you think that improvements might be made to provide incentives to young people to work in your companies?

[Éric Dionne]

This might be a good solution. They say that training a young person costs at least $50,000 during the first year. That's how much money we're going to lose. We know that we won't get the revenues and it's going to cost a lot. Maybe the creation of a partnership would reduce the wage costs a little.

In a company like ours, a young person just beginning will earn more or less the same wages as an experienced worker. A company whose employees are not unionized does not necessarily have this problem, since it can pay him a lower wage. But still the training time is costly. When a young person starts his career, it costs more in parts because he breaks more equipment than the experienced worker and he produces less.

This might be a solution to help with the training of new employees for five or six months. After six months, they begin to get good, and the employer sees the light at the end of the tunnel. But very often employers have trouble keeping good employees because there aren't very many of them and they get offers from other employers. So they can choose to go and work for another company whose employees are unionized or that offer better working conditions.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

I see.

Mr. Arsenault, I'd like to summarize the assistance that might be provided by the federal government. You talked about risk premiums and loans. You also talked about this green energy that could be developed further with, I assume, residues from woody and forest substances. You also talked about research and development, and also silviculture programs. In your opinion, the federal government should help the provinces to set up reforestation and forest maintenance programs.

Have I summarized your points well? If I've forgotten something, can you tell me, please?

[Mark Arsenault]

You've summarize what I said quite well. I'd just like to specify that we really have to be careful where the softwood lumber agreement is concerned. We have to make sure that these are direct subsidies in various softwood lumber sectors.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

But if these were loans at commercial rates, would that be consistent with the softwood lumber agreement?

[Éric Dionne]

Yes.