Industry Committee on June 15th, 2006

[Marta Morgan]

We are in a period where industry must deal with challenges of a scope that it has not seen for 30 or 40 years. There is currently a convergence of factors that is forcing the industry to do what it can.

to regain its competitiveness. This means increasing productivity in whatever ways it can. Some of that is investment and some of that may be a consolidation of production.

It's difficult to attribute it to any one thing, but I think the key point is that we are really in a period of change. We're in a period when the global competitive factors that are upon us have intensified and have all come upon us at one time. I think that's why we are looking to work with governments to create a positive vision for this industry for the future as we come through this transformation period.

[Robert Vincent, Bloc, Shefford, QC]

I would like to come back to the question that I asked earlier about skilled workers, in other words, about jobs within the industry.

Are companies investing money to set up a joint training school with other industries to train needed workers and to create a bank of skilled workers, or are we relying rather on the government to train those workers? I do not believe that there are any university courses in the area of debarking or sawmilling. In my view, there should be a school, like the one in La Tuque, Quebec, where training is provided for logging industry workers.

Is there any intention of offering that type of training in cooperation with industry?

[Shawn Dolan]

In certain cases, we fund programs at both colleges and universities to train workers for our industry. Our organization is not equipped to provide that level of training. We're not in the business of building a school for woodworkers, for example. But our members spend more and more time trying to attract the people they need, and, where appropriate, we have members who partner with local colleges to meet those needs.

As far as an industry-wide school for wood plant workers, I don't think anything like that is in the works.

[Marta Morgan]

As Shawn said, the industry has generally adopted a regional approach based on the education infrastructure and regional needs as they arise. Our companies are doing a great deal in that regard, by providing bursaries and programs to draw local students. The industry is also offering internships, and a whole host of local activities to encourage and support young people who want training.

I have not mentioned that we are the largest industrial employer of aboriginals. Mr. Chair, this is an area that our companies are very involved in. Our goal is to encourage aboriginals to acquire skills and to work in our industry.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Fontana.

[Joe Fontana, Liberal, London North Centre, ON]

I will follow up both Mr. Arthur and Mr. Lapierre. You have touched on this whole issue of consolidation. It's fragmented and...obviously, it's been successful, but in order to bulk up, I don't know if you're saying there's an over-capacity and therefore one needs to consolidate, or whether or not you need to consolidate by virtue of the fact that there are synergies when you start to bulk up.

I'll ask a couple of things. Are you talking about government being involved in a planned consolidation, because you can either plan consolidations or wait for outsiders to buy out and consolidate for you? If that's the case, are you then asking for adjustment programs for workers who are displaced or communities that are directly affected?

I'm trying to understand how government can help either in the consolidation or what you are doing in order to consolidate, rationalize, and everything else. There are significant social implications for communities and people. Therefore, is that the piece where you want government to be involved?

Secondly, with regard to research and development--and I think our greatest hope for the future is to continue to do some research and development and value-added--what role do you think government should have with the forestry sector in helping to develop a forestry strategic plan that encompasses a pool of money, with yours, that will help us add value and do some research and development and some of the new innovation for wood products that must come about?

[Marta Morgan]

On the issue of consolidation, the rationales for consolidation vary. In some cases, where there is over-capacity, it's a way to get greater economies of scale and to take some capacity out where the market demand is shifting. In many cases, it's an opportunity to develop new products and new services.

This has been particularly the case with the solid wood sector. Our industry has found over the last few years that it needs to be bigger in order to provide the kind of service that buyers like Home Depot are asking for. Our industry went from shipping the lumber to them to now having to deliver the lumber, stock their shelves, and manage their inventory. That kind of sophistication of service provision also often requires that you be bigger.

What do we want the government to do? Well, for the most part we want the government to stay out of it and not interfere in consolidations: let the market decide when consolidation should happen and allow the market to figure out whether it makes sense to have bigger or smaller companies.

[Joe Fontana, Liberal, London North Centre, ON]

With all due respect, I would agree that the marketplace and business makes business decisions. But usually it's the government that has to come to the rescue of communities and workers who are displaced by virtue of either planned.... That's what I'm asking, whether or not you want to plan consolidation, because it's the government, it isn't the business, that has to worry about communities that are left out there on their own, or workers who may be 55 and older. What do you think you're going to do with those people? Who pays for those social costs? It isn't going to be you. It's going to be the government at the end of the day, all three levels of government, that will be left picking up the pieces of people's lives.

[Marta Morgan]

We think that's very important. We are willing to work with governments at the community level to facilitate adjustment and transition for workers. There are many good models from the past that we should look to, where that's happened, with all levels of government working with the industry.

On the issue of R and D, we've been working quite a bit with the federal government, Mr. Chairman, on the creation of a single research institute for the forest products industry, bringing together three existing institutes into one institute that will be able to provide a strategic plan and vision for research activities for Canada in this area. We think this is a very important step in terms of creating a more strategic approach to R and D in this sector, and we would encourage part of the funding announced by the recent budget for competitiveness for this industry being focused on R and D, particularly on transformative R and D, where there is currently a gap. It's quite easy for the industry to find R and D that will reduce its costs and improve its existing products, but moving toward that more transformative R and D, toward conversion to bioenergy, smart papers, and nanotechnology.... There are a range of exciting new technologies on the horizon that we think provide a solid future for the industry.

[The Chair, Conservative, James Rajotte]

Thank you.

Thanks, Mr. Fontana.

I just have a few wrap-up points. First of all, on the consolidation issue, could we get a list of Competition Bureau cases that Mr. McTeague asked for?

Just for members' information, there was a case two or three years ago in northern B.C., where West Fraser Timber merged with another company and actually had to divest a mill that was owned by three native bands, basically putting three native communities out on their own. That's the kind of situation you're probably talking about, but if we could get a list and an explanation of those, that would be very helpful to the committee.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Mr. Chair, to help the committee, I just wanted to find out if that also included the merger of Slocan and Canfor in 2003. I believe it did go through, and there were provincial concentration issues as opposed to Competition Act questions that were brought forward, so we need some clarification on that, through you, Chair.

Thank you.

[The Chair, Conservative, James Rajotte]

Okay.

Second, on the tax on capital investment, my understanding, based on what the researchers are telling me, is that this is a tax on capital goods for production processes supplied on a corporation's capitalization. But this has been mentioned by a few witnesses. So could you provide some background as to exactly what you mean and what level you would like it at to be competitive with other forest industries across the globe?

Also, with respect to the investment tax credit, I don't know if you have something specific in your package on that, but you could submit something specific on it to us if you want.

Third, on black liquor and the capital cost allowance, the capital cost allowance issue has been raised by a number of witnesses. The CME has advanced a two-year write-off period. Is that acceptable to your industry or would you like something different from that?

On black liquor, and renewable energies as well, if you have anything further.... Actually, I was in a plant in Prince George and I saw black liquor. It was explained to me exactly how—

[Joe Fontana, Liberal, London North Centre, ON]

You didn't drink it, did you?

[Some hon. members]

Oh, oh!

[The Chair, Conservative, James Rajotte]

I didn't drink it. That's moonshine out west, Joe.

[Some hon. members]

Oh, oh!

[The Chair, Conservative, James Rajotte]

On the last issue, perhaps I'll put this as a challenging question. If you want to comment on any of the others, you can, but you mentioned the perfect storm. I think Mr. Dolan said this industry has become a leader in productivity in spite of all these conditions. Yet some people in your sector have hinted to me that perhaps it's because of all these challenging conditions that productivity has increased so much. Did all of these conditions actually cause the rise in productivity in your sector, or was it actually in spite of all these conditions?

If you want to comment on any of those, or if you want to provide further information, I'd allow you to do so, or you can make some final wrap-up comments here.

[Marta Morgan]

On your specific points, we'd be happy to provide you with more specific information and follow-up. We certainly support the proposal, for example, that the CME has put forward in terms of an accelerated writeoff of capital investment. And we'll provide you with additional information on the other issues.

I think the perfect storm is a great challenge for the industry, but it is also a great opportunity. Certainly in the solid wood sector in British Columbia, I think some of the capital investments that have been made in recent years have been driven by the need to respond to the softwood lumber challenge and the extraordinary disadvantage at which it put Canadian producers. Would we have chosen that? Probably not. But are we in a stronger position now because of it? Yes we are.

I think the critical thing for our industry and for the government going forward is to navigate this perfect storm in such a way that it leaves us at the other end stronger, more competitive, and more rooted in Canada for the long term.

[The Chair, Conservative, James Rajotte]

Okay.

[Shawn Dolan]

Just to follow up on that, our members have done a tremendous job in surviving up to where they are now, but the pain is quite real in a lot of these communities. For an industry as large and as capital intensive as ours is, the rates of return on investment are below what you can get on GICs, in some cases. It's just not a healthy investment climate for an industry that's as crucial as ours is in Canada.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

On behalf of all the committee members, thank you very much for being with us today. We appreciate your very specific recommendations, and we look forward to them. If you have any further recommendations, besides the ones that have been asked for, please submit them to me, and we'll consider them in our report.

Thank you very much.

[Marta Morgan]

Thank you.

[The Chair, Conservative, James Rajotte]

We will adjourn the meeting, members. We will have a short break, and then we will come back for an in camera session to discuss draft recommendations and observations.

The meeting is adjourned.