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

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

In other words, that cancels any possibility.

[Éric Dionne]

It's automatic. Even if the companies and the figures are good, you have to find roundabout ways to find funding. The banks are somewhat more open towards those who work for companies that are having less difficulty. But whatever the situation, it's not easy.

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

I'd like to tell you about something that was discussed in the House of Commons. A motion was moved in the House. I don't know whether you know about this motion, Mr. Arsenault. It was passed by a majority in the House.

It asked the government to put forward four measures.

First there were loan guarantees for forest-dependent businesses and obviously for equipment owners because credit is not available.

Then there were credits for research and development—not non-refundable credits, but refundable credits. Because, when companies aren't making any money, they can't get tax credits. So these would be refundable credits. If someone suffered losses, they'd be refunded.

Next there was increased demand within Canada. For example, if the federal government put up a building, it would have to build with wood; if it did renovations, it would have to use wood; the solution would be wood.

And then there would be the transformation of forest residues into energy.

I'd like to hear what you have to say on the topic. Do you thinks that, if the government put forward such measures, we could say that these are good measures?

[Éric Dionne]

These would definitely be good measures, if we can transform a part... Harvesting specialists like us could indeed go and harvest biomass. That would actually work quite well. These are aspects of harvesting that we have some good ideas about too.

Tax credits would also be a good thing. Very often, owners are people of the land who don't necessarily seek tax credits for innovations. They have a good idea, they develop it, they put it into practice, but they don't necessarily always reap the benefits for what they've invented or improved. Certainly, if that becomes accessible and is popularized, lots of entrepreneurs and forest people will take advantage of it. Because people have good ideas every day. I spend my time with entrepreneurs like myself, and they have good ideas, but we're not numbers people; we're land people.

If we have a good idea, we develop it, we apply it and we don't necessarily think about looking for a credit somewhere. Sometimes, it's more complicated when it comes to books used by the majority of people.

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

Right. Thank you very much for your excellent answer.

If you don't mind, I'd like to hear Mr. Arsenault's point of view concerning the motion, which was passed by a majority in the House of Commons.

I don't know whether you heard about it before, but you have no doubt heard about it just now. Do you think these would be good measures that we should encourage?

[Mark Arsenault]

Regarding green energy, there are certainly huge opportunities. The cost of energy in New Brunswick is very high. We don't have the advantage of having hydro electricity, like in Quebec. So energy costs a lot.

If we had help in one way or another to invest in new green forms of energy that would enable us to reduce our energy costs—by burning our residues, whatever—this would be very positive.

Furthermore, it would have two functions. It would help us economically, and that would help reduce greenhouse gas emissions in accordance with the goals and objectives of the Government of Canada respecting its international responsibilities.

[The Chair, Conservative, Dave Van Kesteren]

I'm sorry, your time has finished.

Mr. Harris.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Thank you, gentlemen, for your presentations this morning.

I want to start with Rick. Are you in Campbell River?

[R.M. Jeffery]

No, I'm in Victoria today.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Hi, Rick.

You encapsulated a couple of things quite appropriately. Number one, the market certainly is almost the entire culprit in all these problems that we're experiencing in the forest industry--the recent high dollar, the turndown in the housing. Although waiting is very difficult when you're trying to make a dollar in the forest industry, we're in a waiting game for the market to come back in the U.S. while we build our markets in other countries. You both touched on this. I think that's important.

It's hard to be optimistic in times like these, but of any of the industries that I've seen come to Ottawa to state their case, I think the forest industry has been probably the most positive about the future.

Rick, you talked about the Russian tax coming into play, the reduced timber that is being cut in other countries, as in Canada, because of things like the pine beetle, the clamping down on illegal forests. And of course, lastly, there's a market conversion where in South America, for example, there's going to be probably more growing of food than trees because of the demand. That's all good for the forest industry. It doesn't help us right now except to make us feel a little good about the future, but it's really difficult in these times. Then, of course, there are all the other plans that the government have put in--FP Innovations and the wood-is-good program. These are all good things.

One common thread that you've all mentioned today is the access to credit. I know our government is aware of this problem, and I'm also aware that the government is trying to do whatever it can to encourage the banks strongly--one of you used the word “pressure” because these are private-public companies--to recognize that the forest industry is not a dead industry. It's very much alive, and there's going to come a day when the banks' best customers will be the forest industry once again. That's down the road. So we're trying to get that message to them now.

At the same time, in some areas of the forest industries where the government can help because of trade agreements that we have, it makes it a little more difficult. We have all these factors that we're looking at. And this is probably about the fifth session on the forest industry, going back two or three years, that I have sat in on, and we all have a clear understanding of what the difficulties are.

So now we have a new difficulty, and you both brought it up--the black liquor issue. There are two things. Number one, because they're burning fossil fuels in order to burn the black liquor, they're in fact cheating on the environmental requirements. The other one, which is even more important to us, I think, is that because many of these pulp mills are in fact owned by companies that have sawmills as well, there is some opinion that there's a direct subsidy in some way to their sawmills, unless you're able to absolutely track the dollars going into their company overall. Now, I'm not saying that's happening, but I would imagine there are some lawyers on both sides of the border who are having a good look at that.

I want to get back to one question, and that's the access to credit. Is there anything more that any of you believe the government can do? We know about loan guarantees, and it's easy to say let's just do this. But are there any other steps the government could take to improve access to credit for the forest industry?

[Mark Arsenault]

The forest sector applauds the access-to-credit initiatives that the government has put in the budget, but we can't see how all this gets back to us. I believe the approach is that they are putting in money, they're buying back bad debt, and they're doing all sorts of different things that will free up the institutions to lend more. But we don't necessarily see this taking place in the forestry sector. In the last four years, credit became more difficult for us to achieve, even with the initiatives. There has to be something that ties the initiatives to forestry.

The program we're talking about isn't confined loan guarantees. Our larger companies are willing to provide the loan guarantees to the small independent contractors, but we would like the government's balance sheet to provide a blanket that would eliminate the risk premiums. That would drive it down and make it possible for a specific amount of dollars to be applied to the forestry sector and to other manufacturing sectors that might also be facing challenges. It's sort of, “Show me the path to the credit”. We haven't seen that in the macro-initiatives that the government has put forward. We're not sure how the micro is going to apply to us. Some clarity on this would help a great deal.

[The Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Arsenault.

Mr. Thibeault.

[Glenn Thibeault, NDP, Sudbury, ON]

Thank you.

I want to say a very good morning to you, Mr. Jeffery. I'm looking at my watch. It's just coming around to seven o'clock in the morning, your time. I appreciate your being up bright and early. As a former left-coaster, I recognize that. Mr. Jeffery, you hit the nail on the head when you said that the crisis in the forestry sector was market-driven. Unfortunately, we're in a waiting game, and we're hearing of more job losses and more mills closing down.

One of the things you brought up was green construction. We have an opportunity to build with more wood products. I'm wondering if you can talk a little about that and tell us what we can do, as a government and as opposition parties, to support this so we can move forward instead of playing the waiting game all the time.

[R.M. Jeffery]

That's a great question. British Columbia is leading the pack in this regard. Our premier, in the throne speech, promised a wood-first policy, and we are working on it. All public buildings built in British Columbia will have a requirement to use wood wherever possible. This is good from three perspectives: it increases demand; it increases demand outside the residential sector into the commercial and non-residential sectors; and it allows us to showcase the use of wood in these applications to our customers all across the world, including the United States. The non-residential market in the United States is some $500 billion a year. We get about 6% of that. If we could raise that to 10%, we'd be creating huge new markets for our solid wood products. That is one of the things we can do.

On the loan guarantee piece, I'm with Mr. Arsenault. We don't see that stuff on the ground. It would be nice to see how we can tangibly decrease the coupon value of our debt, because it's high. But you have to watch out for the softwood lumber agreement there, folks. We can't be seen as doing something that provides a subsidy, so we always have to put our eye on that one.

I'm sorry for answering two questions.

[Glenn Thibeault, NDP, Sudbury, ON]

That's okay. It was a good opportunity to get a couple in there.

Mr. Arsenault, if I get the numbers wrong, please correct me. I believe you said that you had 99 mills and that now you're down to 40. Was it six that are operating?

[Mark Arsenault]

I have 20 that are operating.

[Glenn Thibeault, NDP, Sudbury, ON]

If we continue to see this waiting game and we're not doing what we can to get into the green economy or things along those lines, hypothetically, could we see more of those mills close? Do we potentially lose the equipment or technology that's there, and then of course the workforce that goes with that? Is that something we could see down the road, if we continue to wait longer and longer?

[Mark Arsenault]

Yes. It's unfortunate. We actually thought that 2009 would be the bounce-back year. We thought the end of 2008 would be the swing back, and of course the downturn hit us, and everyone was caught off guard by it.

Our companies that are standing right now are incredibly resilient. They've done an enormously good job of investing in modernization and leaning out their operations, changing their products, changing their markets. They've built a pretty strong backbone. If they're still operating, it's because they've done something right. But they're all operating at a burn rate, and they're all operating at losses right now. I don't know anybody who's doing well. Our exports to the U.S. have decreased by 70% since 2007, and we export 80% of our finished products.

That said, will there be more losses? The longer we wait, I think it's inevitable. Eventually burn rates run out and companies can't make it any longer. Again, we're hoping that things are turning around. We're starting to see the indicators slowly turn. Housing starts have increased--mind you, a percentage of nothing is still very little, but we're starting to see some of those indicators turn.

The idea is really to outlast it. It would be a shame if there were outside pressures--for example, the U.S. subsidy on black liquor, which would allow them to survive the last leg of this and not allow us to survive. The ones that are there have worked hard during tough times, and we'd like to see them make it over the last hurdle. And it's close. We really do believe it's close.

We need that little push. And it's not with the subsidies; it's making sure we're at a level playing field and that we're doing everything right, with the understanding that there are many things we can't affect.

[Glenn Thibeault, NDP, Sudbury, ON]

Good.

How's my time?

[The Chair, Conservative, Dave Van Kesteren]

You have about a minute and a half.

[Glenn Thibeault, NDP, Sudbury, ON]

Perfect.

With my minute and a half, maybe you can be specific on some of the things the government and opposition parties can support to help level the playing field or to get involved and support the forestry sector.

[Mark Arsenault]

An initiative like using more wood is definitely one. There are initiatives that recognize the value of green energy. In the U.S., companies and governments are willing to pay more for that green energy. That doesn't take place in Atlantic Canada right now. I don't know about other provinces; I believe Ontario offers some incentives for renewable energy resources. But some provincial governments have to look at that.

The federal government can look at the benefits of assisting companies through technology-sharing or making the credit available, not necessarily funding it, for co-generation plants and the research and development that's going to help expand that new industry. I believe biotechnologies, using forest products for what we used to use petroleum products for, is the emerging economy.

So helping us get to that point through funding the academic institutions, FPInnovations, all those types of things, is going to go a long way. The industry normally would fund research and the like, but it may not be able to at this particular point.

[R.M. Jeffery]

If I could quickly add something, it doesn't help the demand side much, but the silviculture case that Mark made is a good one. We can put people to work, including our loggers and harvesters, if we look at investments in intensive silviculture today. And that's not planting the trees, so to speak, that's tending the trees.

We've just released a silviculture strategy in British Columbia. It needs funding. If we can fund fertilization, spacing, thinning, those kinds of things, people can go to work, we increase the value of the product over time, and we reap that benefit down the road.

The federal government could step up to the plate with incremental silviculture funding today. It would help workers and help the industry.

[The Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Jeffery.

The second round is five minutes. We will begin with Mr. Garneau.

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

Thank you, Mr. Chair.

Unfortunately, the softwood lumber deal didn't work out perfectly and we're playing a very serious ball game with our neighbours to the south. I would encourage you, Mr. Arsenault, to get together with your sister organizations across the country and bring the issue you raised concerning black liquor to the government. I think this is one that we definitely need to bring above the radar screen, because I don't think it is there at this point.

The first issue you brought up had to do with access to credit. I want to make sure I understand it. Those who are in a position to lend money view forestry as a high-risk industry at this point. You mentioned 8% to 11% premiums. For my clarification, is that the interest rate on a loan, or is that 8% to 11% above current standard rates?