Industry Committee on June 15th, 2006

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair.

I have some really quick questions. I understand, just looking at statistics here, that we have 10% of the world's forest area, or at least that seems to be the forest that would be accessible for the forest industry. In terms of Americans, I understand that if it's crown land you pay stumpage fee, and in America most of it is private land. And that's also the basis of the dispute. Is it an advantage or a disadvantage for us to have crown land as opposed to private land?

[Shawn Dolan]

I think Marta might be better off.... But whether or not it would be better or not, in terms of mollifying the complaints coming from south of the border, look at our members of the Maritimes; they've been exempt from the softwood lumber dispute specifically because they get their trees from private land.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

But as far as the forest industry is concerned, is it easy to work with the government?

[Marta Morgan]

I think it's a fact of life for the forest industry that the lands are crown lands, that they're held as a matter of the public trust, and that they're managed to meet a variety of objectives, including commercial objectives. I think it's just the way we do business.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Then, very quickly, you're talking about energy. Is that hog fuel and turning it into pellets? Is that what you're talking about? Are you using the byproducts of the lumber, the branches, the bark, and converting it to hog fuel, or is it the hog fuel that you're converting to fuel pellets? Is that what you're talking about when you're talking about using your own energy?

[Tom Rosser, Chief Economist, Forest Products Association of Canada]

Yes, we're talking about deriving energy from wood biomass, and that takes many forms. Certainly part of it would be burning hog fuel for energy purposes. Another really significant source of bioenergy is the kraft pulping process, what's called black liquor, the recovery of a byproduct of the chemical pulping process. So, yes, hog fuel is one of several forms of bioenergy in our sector.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Is there a possibility to expand that beyond the forest industry? Would you be able to sell it, perhaps to greenhouse growers south of you? Would they be able to use that?

[Tom Rosser]

There certainly are examples of people using wood biomass pellets and other forms of biomass energy in other uses. In other jurisdictions, in many parts of Europe, for example, where incentives for renewable energy are more generous than is the case in Canada, that's more common than it is here.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Very quickly, that leads me actually to my next question.

I'm surprised that so much of the equipment is coming from Europe. Why is that? Why aren't we leaders in producing equipment?

To follow that question, will the high dollar help us in buying equipment, possibly, from the U.S.?

[Marta Morgan]

The best manufacturing equipment in this sector comes from Europe. One of the reasons for that is that the Scandinavian countries, about 20 to 26 years ago, adopted concerted national strategies around their forest product sectors. They realized that their forest product sectors were critical to their economic future and they put in place national strategies that included both primary producers, equipment manufacturing, strong R and D, both commercial R and D and university-based R and D infrastructure, so they have managed to leap ahead on all of those fronts.

I think the encouraging thing about that is that it can be done.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

We can do the same thing. It's not too late for us to do the same thing.

I have a few more seconds so I want to talk quickly about the softwood lumber dispute. What have been the legal costs? Do you have any numbers for that? What have been the legal costs for the forest industry? Do you have a figure?

[Marta Morgan]

I'm sorry, I don't. I could get back to you with that, but we don't deal with the legal costs.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Mr. Dolan, have you any data?

[Shawn Dolan]

Not in total, but by way of example, our members pay to us 19¢ for every thousand board feet they sell. On top of that, for the past number of years, they've been paying 2¢ to the black hole, that is to say, lawyers, on this issue. It's fully 10% of what they pay to us.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

This is my last question.

I will return to the commercial building products. I'm looking at building a new building myself and I think I have to go to steel. Is it regulations in this country that make us go to steel? Is that what we're trying to change?

[Shawn Dolan]

No. As I said, the non-residential opportunity in North America is $12 billion every year without any changes to building codes. It's largely because in the design community—architects and engineers—they do not come upon the opportunity to design with wood very often, so that knowledge isn't retained. It isn't improved over time.

We have a program to target upcoming projects. We send people in and convince them of the benefits of switching to wood construction. In almost every case, the cost is the same or less than a typical concrete and steel construction. It's a cultural thing in the design community.

Getting back to what Marta was saying about the concerted effort that Scandinavian countries have made over the last 25 years, Finland, by way of example, in the space of five years, doubled its per capita use of wood. It's a smaller country, but it is a country that has a large forest product sector, and their wood use per citizen far outstrips what is currently used in Canada. That potential market is there, but it is simply a lot easier to design a building like the one you did yesterday, rather than learning a new way and going forward.

We're working as much as we can to try to get over that tipping point with the design community, both in Canada and the U.S., as well as worldwide.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Van Kesteren.

We'll go to Monsieur Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you. I have three questions but I'll ask them one at a time.

What improvements in productivity have the paper manufacturers made over the past decade in order to prepare for a potential increase in the Canadian dollar? Over the past three years, the dollar has gone up by 36 cents. What have you done given this increase? In 2004, total revenues for the forestry industry were $81 billion. However, the money spent on research and development only amounted to $345 million, which is 0.4 per cent of revenue. I would like to know what you have done and what you expect to do in order to mitigate the impact of the increase in value of the Canadian dollar, which, as you know, can increase in value at any time.

[Marta Morgan]

I'm sorry, I thought you had two other questions.

[Robert Vincent, Bloc, Shefford, QC]

I will ask the other two after.

[Marta Morgan]

Over the last ten years, we invested between three and five billion dollars a year in production and capital assets. We also invested about 500 million dollars a year in research and development. Our industry has been one of the most proactive in terms of converting to renewable energy sources, which reduces our dependency on fossil fuels.

Further, during the same period, we also invested significantly in environmental measures. Some of these measures were imposed by way of regulation, but many of them were adopted on our own initiative.

In the course of the 1990s, a good part of our investment was focused on forest management.

and the economic performance of our mills.

[Robert Vincent, Bloc, Shefford, QC]

Did your investments and research and development lead you to other niches, or other areas, to compensate for the eventual increase of the Canadian dollar? It was clear that sooner or later the value of the Canadian dollar would rise. It was obvious that would happen one day.

[Tom Rosser]

As my colleague mentioned, we invest 500 million dollars per year.

[Robert Vincent, Bloc, Shefford, QC]

That does not even represent 1 per cent of the forest industry's global revenues. So I feel it is not a priority for you.

[Tom Rosser]

If you compare what we do with what other Canadian sectors do, it's fairly significant. However, there's no doubt we need to do more in the future. We have just made fairly significant changes to our innovation system within the structure of our research institutes. We want to increase our investments each year, despite the fact that the industry is operating in relatively difficult conditions. However, we must do more in the future.