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

[The Chair, Conservative, Dave Van Kesteren]

Good morning, and welcome again to our study on the crisis facing the industrial sectors of aerospace, energy, forestry, high tech, and manufacturing, and it's not limited to those.

We have been studying forestry, and we are pleased once again to have with us Mark Arsenault, president and CEO of the New Brunswick Forest Products Association. From the Association des propriétaires de machinerie forestière du Québec inc., we have Eric Dionne, who is a member. Also, we'd like to welcome on video conference, live and all the way from Victoria, Mr. R.M. Jeffery, president and CEO of the Coast Forest Products Association.

Thank you all for attending. Thank you, Mr. Jeffery, for taking the time. I understand it's a little bit earlier there than it is here. We certainly do appreciate the effort you've taken.

We'd like to begin with you, sir. We ask each witness to give a ten-minute introduction, and then we begin our round of questioning.

Mr. Jeffery, would like to present your case?

[R.M. Jeffery, President and Chief Executive Officer, Coast Forest Products Association]

Thank you, Mr. Chair. It's a pleasure to be in front of the committee here. Thank you for being cost-effective and allowing us to do this by video conference. I just got out of surgery yesterday, so I wouldn't have been able to make it otherwise, so my appreciation there.

I'd first like to premise my remarks by saying the crisis in forestry here today is market-driven, and we should not lose sight of that fact. As much as we need as an industry to adapt, as much as we need to work collaboratively and cooperatively with all levels of government--the federal government, provincial governments, and municipal governments--as well as with the emerging first nations governments in different places of Canada, there are very few policy levers that government can do to assist us, because if there is nobody on the other end of the supply chain who is willing or has need for our products, then there's not much sense trying to do a bunch of things, because there's just nobody going to be there buying those products.

I will tell you what industry is doing here on the coast, what the opportunities are that we see in a very short, concise way, and then I will make some suggestions as to government actions and assistance that can be provided. Here on the coast, we would traditionally ship, or have traditionally shipped, about 60% to 65% of our product to the United States. Over the last two and a half years, as we saw the emergence of the subprime mortgage crisis and the beginning sharp decline in U.S. housing starts, as an industry we began to shift away from the U.S. market and away from commodity-based dimension lumber into those markets.

So in 2008 you will find that coastal shipments to the United States dropped to 48%, and that slack was taken up in two ways: one, we curtailed production; and two, we shifted markets. In 2008 we increased our shipments to China, Korea, and other Asian countries from about 6% to 17%. We held steady in Europe. We increased a little bit of our market share in Japan--to 25%--and we changed our product mix, and this is a very instructive piece for you.

As I mentioned earlier, we began to shift away from commodity products and into more high-valued, specialty custom-cut remanufactured products. That's easier for us to do on the coast, and it's actually something that we pursue relentlessly. We have a very diversified, high-valued, commercially driven supply chain in the solid wood and pulp and paper sectors on the coast. From a lumber perspective, our dimension lumber production dropped from what would have been normally about 30% down to 13%, and the increases in other market segments were to the cedar market, to the shop remanufactured, specialty custom-cut markets.

That's important to know in terms of the U.S. market as well, because on the coast we tend to have a big renovation and reconstruction market segment, versus a new-home housing segment. So for the coastal industry we were able to survive a little bit better because we were feeding that renovation market. That now has completely dropped off.

In terms of production, we have 2.5 billion board feet of capacity, and we are now currently running at 1.284 billion in 2008. That number will be under a billion board feet for 2009. You should know that the average market value of coastal products is over $1,000 a thousand board feet. That compares to other parts of the country that would have an average market value of somewhere around $300 to $350, again showing our diversification and high-value supply chain.

Here's what's going on in the States. In our mind, you won't see a recovery in the global recession until you see a recovery of the U.S. housing market. The U.S. housing market, of course, was affected both by the subprime mortgage crunch as well as the resulting recessionary forces across the globe.

There are two things to note about that. President Obama's $275-billion homeowner affordability and stability plan will hopefully forestall some seven to twelve million potential mortgage foreclosures that still exist. There are a number of financial instruments--Alt-A mortgages, preferred mortgages--that still remain out there and that may be affected. We're hoping the home affordability plan will forestall that.

This month the home affordability index in the United States has reached the highest level ever, I think. Because of price reductions and the amount of inventory in the market, homes are now more affordable. The big question is whether people will be able to secure financing to buy homes or stay in their homes. We see some glimmers of hope on that horizon. We wouldn't expect to see anything in terms of recovery until 2010, and the most pessimistic folks might say 2011.

Again, we've got a long row to hoe, but it does look like we may be at the bottom of the trough, and we may start to see an upward trend.

Financial conditions in the coastal industry, like every other segment of the Canadian forest industry, are such that it is bleeding red all over the place. There is very limited capital available for maintenance, and there certainly isn't capital available for any new investments.

That's the snapshot--as concisely as I can give it in the time restraints--about where we see the market. I reiterate, it is the market that is driving this. We should always keep that in mind as we try to craft policy and industry responses to it.

The future of this industry is great. There are a number of supply shocks across the world that bode very well for the Canadian forest industry. These things range from the eventual full implementation of the Russian log tax, to reduced supply of timber because of climate-related problems like the mountain pine beetle. The world is increasingly saying that it won't buy products made from illegally logged forests; there is more pressure to increase sustainable forestry.

Canada is a world leader in sustainable forestry. We've done the hard lifting on that. Other jurisdictions around the world are going to have to do this, and that will take supply out of the market. There's an increased call for more forest conservation because of climate change, biodiversity, and those things. Again, Canada, and particularly British Columbia, has done yeoman's work in terms of getting ahead of this. We have the highest levels of forest conservation anywhere.

There is the permanent closure of capacity, which you're seeing. There is the emergence of carbon credit markets, such as the European Union, which is buying wood pellets and now bioenergy is out-competing pulp and paper there. As we see cap and trade systems come into place, if we do the work correctly there will be carbon credits available for growing forests; that will take some supply out of the market.

On the demand side, there's an increasing demand for green construction. One of the policy levers you, as the Government of Canada, can do is to start building more with wood. It is the most energy-efficient building material, both in terms of its production and its energy efficiency when it's in place.

There's a supply and demand imbalance in Asia, especially China. That creates some opportunities.

And there may be some crop-shifting from our competitors in South America, who will switch crops from forest production into fuel production or, even more important, food production. These things all say the future looks good for us.

What could industry and government be doing right now? I'll list a couple of things. I gather we have a couple of hours, and most of the stuff can come up in questions and answers, so I'll run through it quickly.

We need to continue our joint market access efforts. For you, as the federal government, that means the Canada wood export program, the wood-first policy, the value-to-wood program, and the forest innovation programs that were in the last budget. Those are all great programs. They help drive innovation; they help keep markets open; they help us produce new products and develop new markets; and they also allow us to promote our products in those markets.

I happen to be the chair of the Canada Wood Group, which is the industry group that leads the offshore efforts on market access and market promotion for our products. In our work, we rely heavily on government funding, including provincial government funding in B.C., and industry brings money to the table as well. So we need to continue to work on those markets.

As for products, the money that's being sent to FPInnovations for the innovation and technology piece is very important. We work closely with them. We leverage dollars from the industry and the provincial government, and that's driving product innovation in a wide range of things—from solid wood, to engineered wood, to pulp and paper, to bioenergy. For example, the FPInnovations project for the coast has a five-year program that looks like it could drive $700 million out of—

[The Chair, Conservative, Dave Van Kesteren]

I'm going to interrupt just for a second. Mr. Jeffery, we're somewhat time-restricted here. We don't have the two hours. So maybe we can talk about these things if you could just wrap up quickly.

[R.M. Jeffery]

Okay, I have two more for you and we're done.

[The Chair, Conservative, Dave Van Kesteren]

Thank you.

[R.M. Jeffery]

We also need to improve hosting conditions, and that falls into the federal government purview. When we talk about hosting conditions, we talk about taxation policy, R and D, competitiveness, and innovation. There are things we can look at there.

Finally, we have two issues in the United States right now: softwood lumber, and an alternative energy tax rebate. This rebate gives the pulp and paper industry in the United States a $300-a-tonne subsidy, which causes huge problems for the Canadian pulp and paper industry, given that the cash cost of producing a tonne of pulp is $500. If they're getting a $300 subsidy, Canada needs to have a response.

Thank you, and I look forward to the rest of the discussion.

[The Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Jeffery.

Mr. Dionne.

[Éric Dionne, Member, Association des propriétaires de machinerie Forestière du Québec Inc.]

Good morning. I represent the Association des propriétaires de machinerie forestière du Québec, the APMFQ.

We are the owners of specialized harvesting machinery and equipment, and we come from all parts of Quebec. My associate, Jacques, is going to present a brief we have prepared to outline our present situation.

[Jacques Dionne, Member, Association des propriétaires de machinerie forestière du Québec inc.]

The Association des propriétaires de machinerie forestière du Québec is pleased to take part in the public hearings of the Subcommittee on Canadian Industrial Sectors of the Standing Committee on Industry, Science and Technology, concerning the crisis faced by the forestry sector.

The APMFQ was founded in 1991. From the start, the Association's mission has been to bring together all owners of forestry machinery and equipment in Quebec in order for forestry entrepreneurs to be recognized as professionals in the harvesting and transportation of lumber, and as true economic partners in their communities.

The APMFQ is the only association in Quebec that brings together and speaks for Quebec's forestry machinery and equipment owners and lumber harvesting entrepreneurs.

Since the Association's founding, its administrators and representatives have taken part in a variety of consultations and hearings, including those of the Bernier Committee, the Coulombe Commission, the Forestry Summit and the Green Paper. Creating greater awareness of the value of the forestry trades has always been one of our key activities. Our administrators have striven for recognition and promotion of our members' excellence and professionalism by presenting a "forester of the year" award, as well as awards for the new generation of workers and young companies less than five years old, and for the best worksite in Quebec.

Recently the important economic and strategic role of forestry companies in the value creation chain of the forestry sector was documented. A study conducted among 2,500 lumber harvesting, transportation and road system companies by Laval University's Programme de recherche sur les entrepreneurs forestiers de récolte et transport highlighted the following facts.

There are an estimated 1,300 lumber harvesting companies. On average, they have four employees. They are thus the employers or immediate supervisors of over 5,100 forestry jobs.

Their approximate average annual volume of business is $1,360,000. Of the forestry companies active in harvesting, 60% work in public forests, 24% work in private forests and 14% work in both. The average value of their assets (production equipment) exceeds $800,000 (book value).

In short, the Laval findings confirm that forestry companies contribute significantly to the economies of resource-rich regions by offering well paid jobs and buying many products and services locally, such as machinery, parts and financial services.

It should also be borne in mind that, thanks to their entrepreneurship, the owners of forestry machinery and equipment have helped to improve harvesting techniques, reduce harmful impacts on the environment, develop machinery better adapted to our conditions and boost productivity spectacularly.

We are in a context of change, where for several years now we have seen a falling demand for newsprint, particularly because of increased Internet use. The softwood lumber dispute with the United States has reduced the demand for Canadian lumber. The current financial crisis is only prolonging and worsening the difficulties we are experiencing in the forestry sector. And, even though 2009 was expected to be economically favourable, it appears likely to bring us an even greater share of worries.

We are directly affected by the uncertainty of the companies that would normally be sending us orders. Because we are very specialized lumber harvesting subcontractors, it is harder for us to find other opportunities for our companies.

To help the big companies, most subcontractors have seen the price per cubic metre of wood drop while payments for benefits and other responsibilities have gone up. So our profits are falling steadily year after year.

These are the problems stemming from the situation. The owners of forestry machinery and equipment have to work longer hours. The remoteness of timber stands means long working days. It is getting increasingly difficult to make gains in productivity and efficiency, with the result that we have less flexibility. Our aging workforce is proving hard to replace. Construction and mining siphon off our workers. Wages in cities used to be lower than those paid in the forestry sector, but this difference is less noticeable than in the past. Young people prefer to work in the city rather than go away to work in the bush for weeks at a time.

In an effort to increase their revenues and reduce their expenses, many forestry machinery owners update their equipment regularly. They need to do so in order to keep up with the latest in technology and thus increase their productivity.

For the past two years, we have noted work weeks falling from 40 or more hours to 30 or fewer hours. This makes a big difference to company revenues. A number of bankruptcies occurred last year, and there have been even more this year. This in turn impacts all the parts suppliers and manufacturers. Some owners who are close to retirement would rather just give up completely than continue working like dogs for little or no profit year after year.

In conclusion, we want to assure you that the APMFQ and its members will keep improving their way of doing business, as they have always done in the past. Forestry professionals past and present care deeply about the forest and want to conserve and develop this country's garden of trees for future generations.

[The Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Dionne, and I apologize for not recognizing you. You kind of snuck in on a corner there.

Thank you both for coming.

Mr. Arsenault.

[Mark Arsenault, President and Chief Executive Officer, New Brunswick Forest Products Association]

Thank you, Mr. Chair.

Thank you to the members of the committee and to my colleagues who have joined us today. Thank you for inviting me to appear this morning.

On behalf of our 50 members and the New Brunswick Forest Products Association's board of directors, I welcome the opportunity to present our views on the crisis faced by the manufacturing sector. More specifically, today I'll speak about forestry from the Atlantic Canadian perspective.

The New Brunswick Forest Products Association is a non-profit organization that represents pulp, paper, and solid wood manufacturing companies in the province of New Brunswick.

I would like to take the opportunity to compliment this government committee for reviewing the issue and attempting to understand the impact the current economic downturn is having on the forestry sector and our rural communities that are beholden to forestry.

In the few minutes provided I'll speak of the economic impact. I will briefly outline three significant issues for forestry in New Brunswick, those being access to credit, black liquor energy subsidies to the U.S. pulp and paper mills, and silviculture funding.

l'II also recommend initiatives with which the federal government could help overcome these issues, and I'll conclude with an optimistic outlook for the future of our sector, because I do believe forestry has a bright future in Canada and for our economy.

First let me start with a brief economic snapshot of the downturn and how it's affected our sector.

As you are undoubtedly aware, the forest industry has been undergoing a forced transformation over the past four years. It's been subjected to a perfect storm of events that have challenged what is one of New Brunswick's most important economic engines. Global competitiveness moving in on our traditional trading markets, a downturn in the U.S. housing market, dramatically rising and uncompetitive high energy costs, and at one point even the high value of the Canadian dollar have all contributed to a very difficult business climate for investment, which has ultimately challenged industry's long-term survival.

It's worth noting that while Canadian manufacturing has suffered—

[The Chair, Conservative, Dave Van Kesteren]

Excuse me, Mr. Arsenault. I'm sorry. I know I've admonished everybody to do this in ten minutes, but the interpreter can't keep up with you. Could you pace it down just a tad?

[Mark Arsenault]

Thank you. Sorry to the interpreters.

It's worth noting that while Canadian manufacturers have suffered greatly in the last year, forestry has actually been in such a downturn for more than four years. During that time, due to our closures, New Brunswick has lost half our pulp mills and more than half our sawmills. In 1999 there were 99 registered sawmills in New Brunswick, and in 2009 there are 40 registered. But we just recently conducted an operating survey to our members, and in fact there are only 20 in the province that are operating right now. And of the ten pulp and paper mills that existed four years ago, only six are operating at this moment.

These closures and losses hit New Brunswick particularly hard, because New Brunswick is the most forestry-dependent province in Canada. Forestry contributes as much as 12% of our gross domestic product and accounts for more than $4 billion in economic activity. This is a significant contribution to our small province. Our sector provides an estimated 23,000 direct and indirect jobs, some of the highest-paying jobs in New Brunswick. According to Statistics Canada, we unfortunately lost 7,800 jobs in the last few years, and with more than 40 of our communities dependent on forestry, you can imagine the difficulties they have faced.

While there is no shortage of issues facing the sector that I could explore today, I've decided to limit it to three that I can match with a recommendation or a course of action the federal government could partner with us on.

Let me start with access to credit. Our member companies have identified access to credit and reasonably priced credit as a top issue to be addressed. The current global economic crisis has had a devastating impact on all industries' ability to access capital. This is particularly true for the forest industry. We have been considered high risk now for several years, and this has definitely added to the challenge. The expanding credit crisis is wreaking havoc. As companies scramble to cover debt in these difficult times, financial institutions are simply unwilling to lend at normal risk premiums. In the rare chance that an investor makes capital available to our industry, the industry faces ridiculously high risk premiums—premiums from 8% to 11%, which make it virtually impossible to survive.

We recognize that government has included access to credit as a title in the budget. But honestly, we're not sure we see the natural path this stimulus will take to reach our sector. That said, we recommend that the Government of Canada ensure that these funds make it to our sector. We'd like to welcome any initiatives that make capital readily available at a reasonable cost. Doing so will allow companies to weather the storm until better markets prevail, preserve ongoing operations, and invest in modernization and efficiencies.

Currently, if the industry were to swing back tomorrow, we would not have enough trained forest contractors and appropriate equipment to meet the harvest levels—and I believe that's what Mr. Dionne was just saying. The current state of the financial markets coupled with the challenges faced by the forest industry has made it virtually impossible for the industry to invest in new or replacement equipment for our primary harvesting operations—equipment such as for harvesting and for transporting of wood from the forests to our mills.

Independent contract harvesters, as well as our member companies, are facing a crisis, and we believe we have a potential solution to assist in securing reasonably priced and accessible credit. We can talk about that in the question period.

With the government balance sheets as a guarantee, we could reduce the risk premiums at virtually no risk to government—and this is for a project for New Brunswick—because our mills and our licensees and our sub-licensees would be willing to back the loans but would like the government to support it with their balance sheets. That would allow us to eliminate some of the high risk premiums, and this could be done through an organization like the BDC. This plan would be extremely helpful to the independent harvesters or contractors and our industry companies.

The second issue I wanted to bring up is black liquor, and my colleague from British Columbia mentioned it at the end of his piece. This is quite the issue. Recent subsidies being offered under the renewable energy initiatives to the pulp and paper companies in the United States are a great cause for concern here in Canada. The U.S. pulp and paper mills are eligible for substantial tax credits for burning black liquor in their boilers. Under this program, companies are eligible for a 50¢ per gallon excise tax credit on the use of concentrated pulping liquors, the residual waste that's created from the pulping process

Conservative estimates put the value of that credit at $125 to $150 for unbleached mills, and $175 to $225 for bleached mills. Other people have estimated that much higher, but I've used the conservative numbers on that one.

Analysis prepared by the Deutsche Bank estimated the U.S. industry could be propped by billions of dollars. Just to give you an example, they estimate that IP could receive a $1.2 billion cheque for their portion alone. Individual mills could be receiving multi-million-dollar credits, which is going to be very challenging for us.

These credits put Canada at a serious disadvantage. I believe if it's unaddressed, this may be catastrophic to our pulp mills on the Canadian side of the border. Let's face it, if a bleached hardwood market kraft mill can actually realize a benefit of $175 per tonne, it will put the cost structure of our Canadian mills at a huge disadvantage. This issue is new, and we are only starting to realize the potential impact.

I believe the forest industry in partnership with the Canadian government can work on this issue and address it very quickly. A potential course of action could include challenging these subsidies under trade laws or the free trade agreement, and I'm not a trade lawyer, so I don't know the specifics of that. Or Canada could look to provide similar types of incentives to level the playing field.

Their program is actually counterproductive. It's designed to reduce emissions, but in fact it's increasing them. We'll get into the details about that a little later.

My final issue today is on silviculture.

New Brunswick invests $26 million annually planting trees and thinning our forests to increase the yield and the quality of woods in our forests. New Brunswick has the longest history of planting trees. Today New Brunswick's forests are absorbing millions of tonnes of carbon dioxide and provide a sustainable wood supply that supports over 15,000 direct jobs in the province.

We've been planting trees for more than 50 years. However, we'd like to do something more, and introduce hardwood silviculture into our mix. We are looking to the federal government to partner with us. The federal government once was a partner with New Brunswick, the industry, and the provincial government in funding silviculture, and we'd like to bring them back to the table on the hardwood side of things. As you know, Atlantic Canada doesn't pay countervailing duties under the softwood lumber agreement, and that's because our wood is marketed at fair market value. The hardwood side of things doesn't interfere with the softwood lumber agreement, and we would like the federal government to consider that. We'd like the government to invest $7 million annually to introduce hardwood silviculture on crown lands. We also encourage the government to supplement the private woodlot owners silviculture budgets.

Quite frankly, if you're looking for an infrastructure program to stimulate the economy in the short term, with long-term benefits, there is no more shovel-ready project than reforestation. The long-term benefits are significant. We've been working with government officials over at ACOA and we've made presentations to Minister Ashfield. We're hoping, with the 2009 planting season about to begin in eight weeks, that we could get a decision as soon as possible. A recommendation from this committee would be a great help.

To conclude, I want to say that while we're very concerned about the short-term outlook for the industry, we're very optimistic about the long-term prospects. The good news is we believe the markets will improve. Long-term economic forecasts indicate a swing in the lumber and pulp prices. There are many opportunities that lie with new emerging forest-based products, biotechnologies, and the emergence of biofuels. In fact, I think this is very exciting.

We are looking forward to working with the governments and our partners across the country to address some of these concerns.

[The Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Arsenault.

We'll begin our first round at seven minutes, and we'll start with the Liberals.

Mr. Garneau.

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

Thank you, Mr. Chair.

I have questions for all three witnesses.

By the way, thank you very much for your presentations. They were very informative.

I'll start with Mr. Jeffery.

Mr. Jeffery, you spoke about the fact that you had to adapt to the conditions that exist. Some of the things you've done are to increase your percentage of exporting, and you mentioned a number of Asian countries. You also spoke about a product mix change.

Would you say that these are measures that are going to continue even when things get back to normal? Is this something permanent, in your view? Is it a growing trend within the industry in British Columbia?

[R.M. Jeffery]

Thank you, Mr. Garneau.

Yes, joint market efforts build the industry's road for the future, in British Columbia as well as across Canada. It should not be lost on us that our high dependence on the U.S. market left the forest industry very vulnerable. As Mr. Arsenault said, we were the bellwethers of this global recession. Four years ago, we saw the peak of U.S. housing starts and the decline. As that decline in housing starts occurred, you saw problems that manifested themselves in Canada.

Our best opportunity is to diversify markets and diversify product mix. So the programs that get funded by government on market access and market development are crucial, as are programs that fund research and development, in getting new products from the labs to the marketplace. These are long-running programs. One of the problems with the programs is that because they are so crucial for diversification and for capitalizing on future opportunities, we need long-term funding over them. The current renewal of these programs was for two years. I understand the budget constraints that governments face, but we need to go beyond two-year funding to secure things.

We have at the Canada Wood Group some 50 to 70 people located in offshore markets. We need to be able to maintain that infrastructure in a stable manner so that we can continue to build on the relationships we have with governments and customers in those marketplaces.

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

Thank you very much.

My second question is for Mr. Dionne.

You've described a pretty tough situation, which, let's hope, is temporary. You have not, however, made any particular recommendations concerning your group. Do you have some to make?

[Éric Dionne]

We are harvesting specialists, but we also work in collaboration with the large companies. If we don't get any help, we are going to lose this expertise. We are very specialized and, as the companies close down, we are gradually dying. It's inevitable. In the short term, there won't be anyone to take over.

We've thought about redirecting our activities towards harvesting biomass for heating, generating electricity and so on. Though it's not really promoted much. We could do forestry harvesting and reforestation for carbon capture. But if we want to renew ourselves, we can't change our equipment tomorrow morning. This is specialized equipment. We'd need to get help and the companies would also need it.

The companies tell us that we have to transform forestry so that it is compatible with the new CSA, ISO and FSC standards. We work in collaboration with them. It's a matter of meeting the demands of the clients and the company. We're really partners. We are the forestry foundation. If we're not there to cut down trees, no company is going to continue its activities because there won't be any raw material. We'd like to get some help to get through this crisis. Times are tough, and we have to keep our expertise going.

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

Thank you very much.

Mr. Arsenault, there are a number of things I wanted to talk about.

Certainly this thing you call black liquor is new for me. I would like to have more of a sense of how big this is becoming in the U.S., in terms of being used and effectively subsidizing. Has your association brought this forward so that the government can look at whether this is violating NAFTA rules, or is it something you're bringing up for the first time now? I noticed that Mr. Jeffery mentioned it as well.

[Mark Arsenault]

This is actually the first time we are bringing it up. The actual tax law that exists has been in place for five years in the U.S. It was designed for the automotive and other sectors that would mix any type of renewable fuel--that could be ethanol or anything else--with fossil fuel. If they did that, it would, in essence, be a good environmental practice, and therefore they would qualify for these tax credits.

What the pulp industry has figured out in the U.S., just recently, basically in November of last year, is that if instead of just burning the black liquor they add diesel to their black liquor, they can now qualify for these credits. And they're going back for the many years that this has been in place. So it's a real sudden jump, and it's something that's happened quite recently.

The irony in the whole thing is that it's not a very environmental practice if you don't have to burn fossil fuel but you're adding it in order to meet the qualifications.

This is all new for us. We've just sort of taken note of the challenges it's going to pose for us. We're going to work with the other associations. We've been in touch with them, and we're going to be putting together some briefs and letters and the like as we move forward. But a note from this committee as to the importance of it....

As our colleagues in B.C. were saying, it's a substantial reduction in their costs. If it's $200 or $175 on what you can get for your pulp, that is substantial, and our side of the border won't be able to compete.

All our sawmills depend on our pulp mills purchasing chips. There's a real interdependence in that, and this puts our whole industry in real jeopardy.

[The Chair, Conservative, Dave Van Kesteren]

We'll go to Monsieur Bouchard.

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

Thank you very much, Mr. Chair.

Thank you for being present here today and thanks also to Mr. Jeffery.

My first question is for the machinery and equipment owners.

From what I've understood, your difficulties are due to the fact that the companies are currently experiencing major difficulties. You told us it's important to preserve your expertise. In an article I read last week, Robert Dionne, President of the Association des propriétaires de machinerie forestière du Québec inc., said that 50 companies had ceased their activities in Quebec in 2008, and that perhaps there would be more in 2009. This expertise is truly in serious trouble. If the equipment owners disappear and this sector diminishes, your harvesting expertise may well disappear by the time the economic recovery occurs.

In view of the fact that the current situation is very difficult, could loan votes help the equipment owners? Do you have any measures to suggest to us?

[Éric Dionne]

Loan votes might be useful. As we said in our brief, there are fewer revenue-earning weeks in our season, but we still have to maintain a certain turnover. We were accustomed to changing our machinery regularly to keep up with the latest. If we lose seven, eight or ten weeks of revenue a year, our indebtedness remains the same. We are moderately in debt and we don't know whether activities are going to start up again.

We've all ended our operations for the spring, for the most part during the thaw. The news we're getting from the companies is not encouraging. We're told things were supposed to pick up, but that's an assumption. The payments still need to be paid. But we're going to be short of money.

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

Are the bankers willing to lend you money?

[Éric Dionne]

Not at all. We went to meet with some of them in the spring, and all we had to do was mention AbitibiBowater for them to refuse us a loan automatically.