International Trade Committee on May 3rd, 2016

[The Chair, Liberal, Mark Eyking]

We'll have to move on. Thank you very much.

We're going to move to the NDP. I'd like to welcome Ms. Malcolmson to our committee.

You're sharing your time with Mr. MacGregor, as I understand. You have five minutes. Go ahead.

[Sheila Malcolmson, NDP, Nanaimo—Ladysmith, BC]

Thank you, Chair.

I am the member of Parliament for Nanaimo, and Harmac is a real point of pride for us in the community, so I'm really grateful that Cameron Milne's here to talk about the interconnection between the lumber industry and fibre supply. With the renewable energy component, value-added jobs, and employee purchase, it's right in the heart of our community, so it's good to hear a success story.

I'm hoping you can expand on your comments around what would be a win for Harmac. When the softwood lumber agreement is announced, and we're very optimistic that there's going to be a good conclusion from that for Canada, what would be a win? What's the headline you want to see in Nanaimo on that?

[Cameron Milne]

A win for us is an agreement with the Americans that allows access for the lumber producers into the U.S.

Principally, I'd like to see something that recognizes the large producers, which essentially produce CLS or construction-grade material—a commodity—and I'd like to see the smaller guys, the independents who do not have tenure but who bid for wood on the open market, also have access into the States, in recognition that their business is different from that of the large guys and that they need some special consideration so that they can be successful. It's a very tough world for them.

A good part of our success is dependent on the small guy's success, because we end up purchasing our chips and hog material on the open market from the small guys as well. They need to survive.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Thank you for appearing today, Mr. Milne.

I'm Alistair MacGregor. I'm the southern neighbour of Sheila Malcolmson. My riding runs from Chemainus down to Langford. I have the Crofton pulp mill, and I have the sawmills in Chemainus and in Cowichan Bay. It's great to see a fellow Vancouver Islander.

I was really interested in your comments about the supply of fibre available for your operations having declined.

As you know very well, the topic of raw log exports is an explosive item on Vancouver Island. In 1997 we had 200,000 cubic metres exported, and now exports exceed 5.5 million cubic metres. In that time we've seen thousands of jobs already lost.

As this new agreement is being negotiated, I was curious to hear your thoughts on the whole raw logs issue and how the increase in exports may or may not have affected your operations in trying to find fibre.

[Cameron Milne]

The export of raw logs is an explosive topic in B.C. It has a positive side and a negative side, from my perspective. The positive side is that export log values allow operators—tenure holders and small businesses—to operate and harvest in areas in which they might not otherwise. The downside, of course, is that the fibre is leaving B.C. unprocessed.

From a pulp mill perspective, there is a high component of pulp log material—that's low-grade logs—in some of these high-value older stands. In actual fact, we're able to source a significant volume of pulp logs out of harvesting that is principally done for the export market. I'd like to see the material stay in the province and support some of the smaller manufacturers, but at the same time it does supply us with fibre from the lower-quality log that is not exportable. There isn't a market to export it.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

I know that a lot of the demand for raw logs is coming from Asia. With the agreement with the United States, are you seeing a demand in the United States market for Canadian raw logs, or are they more interested in our value-added products?

[Cameron Milne]

As you know, there is no export tax on logs into the States, so the U.S. purchases a fair volume of logs from B.C.

[The Chair, Liberal, Mark Eyking]

Unless you have any quick comments, your time is pretty well up.

Is it just a quick one? Go ahead.

[Sheila Malcolmson, NDP, Nanaimo—Ladysmith, BC]

I have a fast one for Mr. Milne.

What are the implications for your operation, Harmac in Nanaimo, if we don't get a good deal that protects that fibre supply?

[Cameron Milne]

As I said earlier, our business model and the economics of our model are predicated on lower-cost residual fibre. Every time a lumber manufacturer goes out of business, we have to source a more expensive pulp log from the bush and support the economics of that. This is detrimental to our business, so we'd like to see sawmillers and plywood manufacturers remain in business.

[The Chair, Liberal, Mark Eyking]

Thank you very much, sir. That's a good question to wrap it up.

We're going to go over to the Liberals now.

Mr. Dhaliwal.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Thank you, Mr. Chair.

Thank you, Mr. Milne and Professor Nelson.

Mr. Milne, even though you hardly export any softwood lumber, do you believe that there should be an agreement in place in order for Canadian industry to do well?

[Cameron Milne]

Yes, I do.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Thank you.

Professor Nelson, what in your view is a pragmatic solution to the softwood lumber negotiation, and one that is realistically achievable while reasonably satisfying both the Canadian and the U.S. governments?

[Prof. Harry Nelson]

Thank you for the question.

To be honest, I thought the agreement that we had in the past was reasonable in the sense that it offered both flexibility to the different provinces and access to the market.

I do think that there were some things that could have been done to create opportunities for some of these secondary manufacturers and for people who relied on untenured timber. The door has been open with the U.S. before; we could have tweaked the agreement there. I think something that builds on that last agreement would be a good starting point. I think a strict quota would not be a bad one.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

You said it should be tweaked a bit. What would you like to see included in that?

[Prof. Harry Nelson]

One of the concerns I had at the time was that a previous agreement actually had created an incentive to produce value-added goods and secondary products. That became a disincentive under the last agreement. There are certain products and certain species that are produced in B.C. that aren't really part of this trade dispute, so efforts could be made to find a way to create incentives to produce these higher-valued goods and support the smaller manufacturers and such.

It's not a primary part of what this agreement is about, which is really managing the export of construction-grade lumber to the U.S., but I think attention could be paid to that. That's why I think it's important to solicit the perspective of what that part of the sector thinks would make a good agreement.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Professor Nelson, I understand that your primary research includes developing policy options that enhance the long-term sustainability of the Canadian forest industry. What specifically would you like to see our government and the forest industry do to improve long-term sustainability while ensuring our forest industry remains competitive?

[Prof. Harry Nelson]

I think one of the opportunities here—and I think Cameron has touched on it—is there's this highly interdependent web between the competitiveness of the sector, the value of the forest, and what that allows us to do in managing that forest. I think there are opportunities to diversify the mix of models that we use to manage our forests to match in some ways the diversity we have in the industry, so I see the potential role for more collaborative agreements between different types of tenure holders, not just industry licensees.

Here in B.C. we're experimenting with community forests and aboriginal communities that have their own tenures, and the agreement strengthens the reasons for having that, or at least doesn't penalize us. That is the kind of thing I would like to see. In a minute or less, this is how I envision it.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Last week we travelled through western Canada. Most of the farmers are now exporting pulses, canola, and potash to India in big numbers. Susan and Duncan earlier mentioned that we have to explore our industry to India. What would you like to see? India can be a market for Canadian lumber and create opportunities for Canadians if we go in there.

[Prof. Harry Nelson]

I know that the provincial government is investing in it, and it does appear that there's an opportunity there. The one challenge is that other producers are closer to that market—the Australians and New Zealanders—and if it's a price-sensitive market, there may be a challenge, but I do agree that it's worth looking at.

I would like to pick up on something else. I think one of the other things I've been struck by in talking to some of the smaller producers is that we tend to forget if you're a smaller producer, and you're trying to go into a market, let's say the U.S. market, whatever kind of agreement comes forward, the rules around access to that market can be a critical component of whether or not that market makes sense for you.

It can be something as simple as the customs forms and the reporting that you do. This may seem like a by-product of it, but anything that we could do from our end to help reduce the bureaucratic costs or the disincentives created around trying to figure out what the rules are to access that market would be an important part of what we could achieve or negotiate.

[The Chair, Liberal, Mark Eyking]

Thank you.

We only have a few minutes left, so I'm going to give Mr. Van Kesteren and Madam Lapointe two minutes each. Then we can wrap it up.

Go ahead, Mr. Van Kesteren.

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

Thank you, Chair.

I don't have much time, but the one thing we haven't talked about is the reality that we could see Donald Trump as the president of the United States. I wouldn't have said that two months ago, but increasingly that is becoming a real possibility. Should that happen, and it's really not funny, I think it's safe to say that all bets are off the table.

Should we be talking together as an industry, as a strategy, as we go into the 21st century? The whole softwood lumber issue and the negotiations over it took place in 2006, and now we're at that table again. Should we be looking outside of the box and should we be asking ourselves where we want to be in the forestry industry in the 21st century?

[Cameron Milne]

I would say it's whether the Americans would allow us to do that. The Americans principally would like to protect their market and they would like to limit access to Canadians to raise prices; that's their intent. We simply want to remain in business, so there is the conflict. We'd love to look longer term, because I don't think we want to see ourselves every five or six years in discussions over a trade agreement in lumber.

[Prof. Harry Nelson]

I would agree. As Cam said, and in your comments too, the Americans want to limit access, but it makes no sense for them to completely block access for Canadian exports to the U.S. Really, what this has been about for many years is what market share they feel they're willing to kind of grudgingly give us.

In my view, in the longer term we do want to find something that offers us some stability and certainty around access to that market that's never going to go away. It's the richest market in the world still, but we do not want to find ourselves having to go back to changing the rules every five to ten years. That simply kills the business and kills any kind of ability to do long-term thinking.

I'd agree. If we can reach an agreement that puts to bed some of this uncertainty so that we can focus on the long-term view of the industry and the sector, it would be a good thing.