Natural Resources Committee on Feb. 28th, 2008

[The Chair, Conservative, Leon Benoit]

Good morning, everyone.

We're here today to continue our study of the forestry industry, looking at the unique opportunities and challenges facing the forest products industry. We started this study two meetings ago. We've had a break and we're back today looking forward to the witnesses here.

We have as witnesses, from FPInnovations, Ian de la Roche, president and CEO. From the Fédération des producteurs de bois du Québec, Pierre-Maurice Gagnon, president, and Jean-Pierre Dansereau, director general. From Communications, Energy and Paperworkers Union of Canada, we have David Coles, president; and we have as an individual, Emilio Rigato, who was a mill manager in the past. He may talk about that in his presentation, but I'll leave that to him.

We'll start with the presentations for up to 10 minutes each and then we'll go to the questions and comments.

We will starting with Mr. de la Roche.

Go ahead, please, for up to ten minutes.

[Dr. Ian de la Roche, President and CEO, FPInnovations]

Thank you very much, Mr. Chairman.

I must say that I'm very pleased and I find very commendable the fact that this committee is spending the effort, time, and seriousness in looking at the forest sector, and looking at it not so much from a perspective of the crisis we're having, but the possible future direction this sector can take. We're very excited about the possibilities. I think if there's a willingness to move forward on this by all parties, and that includes government as well as industry and labour, we can have a bright future. I want to take a few minutes today to outline some of the thoughts I have on that.

I believe you all received a copy en français et en anglais of the “Technology and Innovation” piece. I'll highlight a few of those points, but within the next 10 minutes I'll hope to perhaps leave you with a feeling of hope and a clear indication of some of the things you might consider doing as parliamentarians.

Let's look, first of all, at the forest sector from an R and D perspective and at FPInnovations. We all know it's been several years now since the industry and two levels of government have been looking at ways to revitalize the Canadian forest sector. I think it's fair to say we've had limited success on that. What's different today? Well, specifically what we're seeing today is a serious attempt by both industry and governments to tackle the underlying issues that drive competitiveness.

At the meeting two weeks ago, Mr. Chairman, Avrim Lazar was here as well as Hugues Simon and Michel Vincent to talk about some of the things the industry was looking at doing and at some of the things they felt that government should do. I'm not going to dwell on that aspect, but perhaps take a little more time to discuss the key role of technology.

I think we all have realized that if we're going to transform, we'll move the industry from the state we're in now to a future desired state. Technology and innovation is going to play a very key role. I think we have to say the forest sector also recognized that the way we did research had to change. You have heard the expression of silos, of fragmentation in the R and D community, and the need to bring people together on a common focus that was directed towards problem-solving solutions for the current situation we're in.

It was with that spirit that FPInnovations was created. They took three national institutes, one in the pulp and paper side, one in the wood product side, and one in the forest harvesting and engineering side and brought them together. In bringing them together they added a fourth division. They added what is called the Canadian Wood Fibre Centre, which is really a novel approach to taking public sector research and bringing it into a different model of delivery. I know Cassie Doyle and Jim Farrell talked a bit about that when they were here the last time.

Basically what this has meant is that with those four divisions we are now an organization with a budget of around $100 million and with about 675 employees. That positions us to be the largest private, not-for-profit research organization in forestry in the world. Now, that sounds nice, but there's a lot of expectation that goes with that. That is something we have to deliver on. As a result, we are now in a position to address sector-wide issues along the entire value chain, from genetics to forestry, production to manufacturing, all the way to market intelligence, market development, and performance of products in the marketplace.

It's truly a private-public partnership. It involves funding, investments from both levels of government--federal, provincial--as well as industry, and it is focused very much on applied research and demonstration and implementation of research. This organization has been set up. There is some excellent progress. For instance, if you're from the island, you'd be quite interested in the coastal strategy that's under way that's being led by FPInnovations. We can talk at some length on that off-line perhaps. If you're in Prince George, you're of course very concerned about the mountain pine beetle, and there is some excellent work that we're in a position to do, and that we are actually doing. So we're quite excited about that.

The next step of the strategy that the industry and governments wanted was to say, okay, we have FPInnovations together; how do we integrate the university capacity? I mentioned we're doing applied and application. Universities are a hotbed of activity for more fundamental work and training of people. How do we bring this in? What we're currently doing is trying to work...and when I say “we”, I'm talking about a very senior board of FPInnovations involving senior government officials from the provinces and from the federal government as well as industry. So that's where we are currently, and we're quite excited about the progress.

Let's look closer at the industry. We've been in the past primarily in the commodity business. That means we've been price-takers in the marketplace. That's made us particularly vulnerable to price pressures in the marketplace and to stiff global competition. The world has changed, and at the same time, we've had a tendency, because of our business model, to be disconnected from the end users, our customers. Now, I believe--and I can see it--that the industry is accepting the need to change the business model, moving from a commodity product focus, moving from two-by-fours to providing housing solutions. It's a completely different approach. That kind of approach requires more knowledge, more technology, more training, and more innovation.

We know the recent public concern about greenhouse gas emissions, climate change, and the depletion of non-renewable resources. That has triggered, as we can all recognize, a global movement towards the new bioeconomy, which is based on renewable fibre sources. Growing trees sequesters carbon dioxide. That continues to be stored when you cut that tree down and make a product, whether it's a desk of wood or a house of wood. In fact, if you take a typically wood-framed house, it stores between 28 and 32 tonnes of carbon dioxide in its wood. That's equivalent to driving a family SUV for seven or eight years. In the future this planet will look to renewable feedstocks for energy, shelter, packaging, and even to other bold uses like chemicals that we currently produce from fossil fuels.

We're also working on nanomaterials for application and structural biocomposites. Some of you involved in southern Ontario are well aware of BioAuto and the goal of having a car made out of material that's 50%-plus renewable, and cellulose is the answer in that capacity. So where are we as Canada? We're talking about trees becoming the building blocks of an emerging bioeconomy. We're incredibly wealthy. We have the land, we have the water, and we have an abundance of fibre. Along with that, I believe we have the infrastructure and experience to convert trees into products as well as being a world leader in sustainable forestry.

There are barriers to overcome. That's what I think this committee is very interested in following up on. There's obviously a resistance to change. There's limited investment in technology and innovation from the Canadian forest sector. We've seen, because of the poor economics in the market, slowdowns, terminations, and so on in the area of the people responsible--the technical people in the mills who are the receptors of technology. We don't have the same number as we had before.

I mentioned the fragmentation and the lack of focus of the R and D community and the poor business climate that addresses these factors. How do we overcome these barriers? First, I have to applaud the investments from the Government of Canada recently on forest sector innovation. That was announced last year--an investment of $55 million over three years to help create and move FPInnovations forward in terms of transformative technologies. It's a good start. We've been able to leverage considerable investments from provinces and companies to co-invest in this fund.

More needs to be done. We're suggesting the creation of perhaps a national innovation trust for the Canadian forest sector that focuses on transforming the sector with transformative technologies and applications using the same private-public partnership approach. The initial investment could perhaps come from the Government of Canada. We're convinced that with that kind of leadership we can absolutely guarantee that the industry and the provinces will be quickly willing to come in line. In fact, they've also given that indication.

We have an excellent track record, as you're probably aware, in bringing together and leveraging shareholders for forest sector research. The trust fund would support technology and innovation that's relevant to the industry, improve information and technology uptake, improve focus and coordination of university R and D, support national demonstration projects in locations like Thunder Bay, or in the Quebec City or St-Felicien area--these are things that are currently under discussion--and support sector-wide industry-led technology and innovation fora; in other words, find ways to really profile the importance and the application of R and D and incent industry as well as other players to invest more in that.

Quickly, take-home messages. The sector is weathering an unprecedented crisis. Technology and innovation are key to helping us cope with today's problems as well as positioning us to take full advantage of new opportunities. Sustaining current product streams and moving into new advanced products and applications require new knowledge and technologies. The Government of Canada can help in several ways that I've mentioned: increase receptor capacity for companies; help by being an investment partner in industry-led sector-wide initiatives; incent companies to implement new technologies through fiscal and regulatory means; and create the national innovation trust. The key success factor, of course, is building around a public-private partnership.

We're going through tough times as a sector, but we have, I believe, an incredibly promising future if we work together and we harness the full potential of technology and innovation.

Thank you, Mr. Chair.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. de la Roche.

We go now to the Fédération des producteurs de bois du Québec, to Mr. Dansereau, the director general, for up to 10 minutes.

Go ahead, please.

[Jean-Pierre Dansereau, Director General, Fédération des producteurs de bois du Québec]

Thank you, Mr. Chair.

Mr. Gagnon, the president of the Fédération des producteurs de bois du Québec, and I were delighted to take you up on your offer to discuss with you the unique challenges and opportunities surrounding the forestry sector. We were particularly pleased to be invited because we represent private woodlot owners and, unfortunately, the voice of those that we represent is not being properly heard at this time of crisis.

There are some 450,000 woodlot owners across Canada. I am the secretary and treasurer for the Canadian Federation of Woodlot Owners, an organization that represents eight provincial associations. Private woodlots make up around 10% of Canada's forestlands and supply around 15% of our industrial wood requirements. Woodlots, therefore, play an important economic role.

I would like to begin by apologizing for not having submitted a written brief. I hope that you will accept our apology and believe me when I say that this is indicative of the difficulties that we are currently facing. Our resources are limited and somewhat thinly spread. We try to focus on putting out fires, and, consequently, we were not prepared early enough to submit a brief to you.

Woodlot owners face multiple challenges.

Firstly, they must try to weather the current storm. The woodlot owners that we represent are facing declining market share and a significant drop in prices. The crisis is seriously affecting families, communities and businesses that depend on woodlots for their livelihood. As we have said in our press releases and in communiqués that we have sent to members of Parliament, woodlot owners are the forgotten foresters. It is imperative that they be provided with support immediately. I will address solutions in which you could be involved later on in my presentation.

You must also keep in mind the challenges that the industry will face when the crisis is over and normal activities resume. There will be two major challenges for woodlot owners. Firstly, how to make both a bigger and better contribution to Canadian society. Woodlot owners can contribute in a number of different ways: We are involved in the production of traditional forest products, with which we are all familiar; we could supply the new industry that Mr. de la Roche discussed; and we could be able to play a role in providing Canadians with forest-based environmental goods and services.

One such example would be carbon sequestration, which has already been mentioned. It is a little-known fact that the forests with which Canadians are the most familiar, the ones that they visit most regularly, are private woodlots. Private woodlots are generally situated near inhabited areas of Canada.

The second major challenge is to implement a legal, administrative and economic framework to encourage the woodlot owners active involvement in developing and managing their land, and looking for ways to use both land and the resources it provides sustainably. The federal government could help develop a legal framework to this end.

What can be done in a short time? You could start by simplifying tax policy to make it easier to deduct forest management expenses.

We also recommend that recognize prescribed forest management plans for woodlots be considered proof of a reasonable expectation of profit. I do not want to get into all of the details, but we have provided you with copies of the IT-373R2 bulletin. I hope it has been distributed to you. At point number 7, on page 3, you will find a list of the dozen or so factors that the taxation authorities use to determine whether there is a reasonable expectation of profit.

Growing trees takes decades, and the current taxation regime does not reflect this. I would be delighted to answer any questions you may have should you wish to give further consideration to the problems that this causes. At the end of the day, however, we are suggesting a simple amendment. Rather than using a dozen factors to determine whether there is a reasonable expectation of profit, we believe it should simply depend on whether a prescribed forest management plan for woodlots exists and is being followed. Furthermore, we have a precedent to support our argument. I believe that we provided you with documents on the matter. There is a federal regulation setting out what is required of the prescribed forest management plan that is used for intergenerational transfers of woodlots.

Our second recommendation would be to allow income averaging. Woodlot owners pay higher taxes on revenue earned compared to other taxpayers as they tend to receive a large, single payment and are restricted in what they can deduct as expenses. This means that they are often in the highest tax bracket. We would like to see income averaging introduced, particularly to deal with income shocks related to epidemics and natural disasters that force woodlot owners to harvest their forest stands earlier than expected. The pine engraver outbreak that is currently ravaging British Columbia is a very good example. It means that our colleagues in British Columbia are having to harvest their forest stands in the space of a few years rather than over the course of 10 to 20 years as would normally be the case.

My next point primarily concerns Quebec, but it is one on which you could all work together. The logging operations tax is a strange mechanism of uncertain origin. Foresters earning $10,000 or more have to pay a provincial tax and then ask for a tax credit at both the provincial and federal level. We have provided you with an example of a logging operations return. As you can see, it is a number of pages long and has to be filled out by all foresters in the aforementioned category, often with the help of an accountant. Clearly, it involves administrative costs, yet this is a tax that only earns the provincial government some $7 million. It would be both worthwhile and affordable for both levels of government to simplify this procedure, thus making life easier for these taxpayers.

With regard to the current crisis, we are aware that a sizeable trust has been set up. The money is to be used to help the forestry sector and affected communities weather the storm. However, no money has been earmarked for, or is available to, private woodlot owners. I cannot give you figures for the entire country, but I can tell you that, in Quebec, thousands of private woodlot owners are estimated to have lost almost $100 million over the past two years. What is more, 2008 is expected to be the most difficult year yet.

If you want woodlot owners to be able to step up to the table and help the industry recover by providing wood resources as well as environmental goods and services, now is the time to help them. With markets at a low, now is the time to invest in our forests so that planning and sylviculture activities can be undertaken. This would allow us to ensure that we have access to high-quality, abundant resources. This would be the best way for private woodlots to contribute to the recovery of the forestry sector.

Thank you for your attention.

[The Chair, Conservative, Leon Benoit]

Thank you very much.

We will now go to the next witness, as listed on the orders of the day, who is Mr. David Coles from the Communications, Energy and Paperworkers Union of Canada.

Welcome, Mr. Coles. Go ahead, please, for up to 10 minutes.

[David Coles, President, Communications, Energy and Paperworkers Union of Canada]

Thank you very much, both you and the panel, for inviting us.

Before I start, seated beside me is Mr. Keith Newman, who is my assistant. He also is an economist who has spent at least the last 20 years dealing with forestry and pulp and paper issues for our union and our predecessor unions.

Some of you have heard this about me: I am the president of the Communications, Energy and Paperworkers Union, but I am also a fourth-generation forestry worker, probably the last of the chain. Most of my family, since immigration from Europe and from Great Britain, have worked both in the United States and Canada as forestry workers or pulp and paper workers. I myself worked in sawmills and plywood plants, and for 18 years in a newsprint mill on Vancouver Island.

We have given the clerk a copy of our brief. I am going to read from it. Because of the seriousness of the crisis in the industry, I want to make sure that your committee has, for the record, our position on the situation in the forest industry.

The Communications, Energy and Paperworkers Union of Canada, the CEP, is Canada's forest union. We represent 55,000 workers in pulp and paper mills, sawmills, board and box plants, and forestry operations. Most work in small, forest-dependent communities. Our union also represents approximately another 100,000 workers in a variety of different industries right across Canada. We're a multi-sectoral union, both private and public sector.

Our forests—Canada's and Quebec's forests—are the foundation of an $80 billion industry that provides direct employment for approximately 300,000 people. More than 300 communities rely on forests for their very existence. Unfortunately, the industry is faring very poorly. In the past we have faced cyclical ups and downs, but this time is different.

Today the industry faces a perfect storm of difficult challenges: strong competition from Asia and Latin America; a currency that has appreciated beyond all expectation and that now sits somewhere at or above the U.S. dollar; permanent decreased demand for newsprint, which was the cornerstone of the industry until recently, and this decrease applies for western Europe as well; a cyclical reduction in the demand for lumber resulting from the U.S. housing crisis—everyone has heard, of course, about the subprime debacle that has hammered the housing industry in the U.S.—and, as was alluded to by the previous speaker, wood shortages in some parts of the country; in particular in Quebec there are fibre shortages.

Thousands of jobs have disappeared over the last four years, endangering dozens of single-industry communities across the country. Since the middle of 2004, 17 paper mills represented by the CEP have closed, as have at least 40 sawmills and board plants. At least as many other locations have been partially closed. In all, more than 20,000 good jobs have been lost.

And these numbers are just affecting us. This is not the non-union group and the other organized mills that are represented by other unions across Canada and Quebec; it's just what affects us. Those are conservative numbers on the number of jobs we've lost. If nothing is done and we just wait for the crisis to pass, thousands more jobs will be lost and dozens more communities will turn into ghost towns.

A time of crisis is also a time for change. We should seize this opportunity to recast our industry to face the future. The industry's biggest asset is its forests, and they're renewable. It should be the perfect green industry. It is essential that the industry be sustainable, both environmentally and economically. A healthy forest is the basis of a dynamic and prosperous forest industry, one that will provide stable employment for our communities.

We absolutely reject that the forest industry is a sunset industry. I'm thinking now, in conversations with the industry, that more and more of the CEOs of the industries across Canada are agreeing with us on that issue.

The key to a healthy forest is to manage it in harmony with its ecosystems and to ensure its long-term survival. Biodiversity and the multiple needs of its users are important. We need to honour international treaties for the protection of the environment--including those relating to global warming--and the UN convention on biodiversity, which requires the creation of protected areas that total 12% of our territory.

Indeed, environmental issues are more present than ever on the public's mind, and the demand for green products is increasing. We believe the environmental certification of our forests is a major asset for selling our forest products here and abroad.

To support a healthy forest, the federal government must or should increase the funding for research into forest ecosystems and into the natural and man-made disturbances they face. Better control of insects, diseases, and especially the impact of climate change should be priorities. Funding for research into management systems best suited to our many forest ecosystems should be expanded in consultation with all the stakeholders, first nations, environmentalists, and the like. The federal government should support the most environmentally sound third-party certification for forest products right across Canada and Quebec.

For the last century, the forest industry has been oriented mainly to the export of commodity products such as market pulp, newsprint, and lumber. Competition for these products has become intense, and many countries can now produce them more cheaply than can happen in Canada. To survive in the new commercial environment, the industry must develop better synergies between industry and subcontractors in order to make more efficient use of the entire resource. The waste from one part must be the raw materials of the next. It should redirect itself toward high-value-added products for sawmills, the pulp and paper industry, furniture, doors, windows, pre-fabricated homes, wood-based insulation, sanitary products, etc.

Also, there should be investment in new equipment for more efficient production, for example, cogeneration facilities for electricity production and the most up-to-date equipment to reduce atmospheric and water pollution.

To support a dynamic and prosperous forest industry, the federal government should or must offer financial incentives for research in biotechnology, nanotechnology, innovative products in construction and bioenergy to develop new wood-based products.

It must also improve financial incentives for the commercial development of new products and the development of new production technologies that ensure forest products companies can effectively take advantage of existing incentives.

It should provide targeted incentives for more rapid capital renewal. Those of you who have been around our industry will know that our industry is very old, and in relative terms our most modern mills are other countries' oldest mills. We should include processes to reduce emissions of pollutants by reducing the effective tax rate on new capital investment, through an accelerated capital cost allowance on machinery and development.

We should develop a renewable energy strategy that provides incentives for more rapid conversion from fossil fuels to green biomass energy. We should provide assistance for export and development of new markets for Canadian forest products. We should stop producing the cheapest products we can and start developing high-grade, high-profit products.

I'd like to talk a little bit about the softwood lumber agreement. The softwood lumber agreement with the United States also needs to be reviewed. In the current economic circumstances, many sawmills have curtailed their operations or shut entirely until the situation improves. Under the “use it or lose it” quota system under the softwood lumber agreement, companies will lose their quota for the next year as a result. We understand some lumber companies are buying wood from other producers and selling it in the United States just to maintain their quota allotment. This makes no sense to us and should be corrected.

I understand in Ontario there's the example of the Buchanan Lumber Company, for which we have a number of certifications. All their operations are down. We're informed it appears they will lose all their quota because they can't afford to run; they're on the verge of bankruptcy. There's a flaw in the softwood lumber agreement.

I want to talk a little bit about communities and workers. The CEP is working to support forest workers and their communities. When a mill shuts down we do whatever we can to find a new buyer who either modernizes the mill or produces a new added product.

Starting this Friday--and I think this is important for the committee to understand--we are meeting with AbitibiBowater, the biggest producer of newsprint in Canada, to look at ways of providing security for our members and the industry. We're going to the bargaining table a year early to sit down with AbitibiBowater to see if we can find a solution. The CEP is taking steps and doing what it can to find a way to resolve this.

Nonetheless, the magnitude of the crisis has severely restricted what we can do and what the employers are able to do. For a century this industry has been the mainstay of hundreds of our rural communities; now it's helpless.

In the event of plant closures, special programs must be established that provide financial assistance for workers, especially older workers, and their communities. A transition fund to assist communities to diversify their economies must be a priority.

If you take a look at the brief, you'll see it speaks more and more about the support for workers.

I'd like to close by saying we need to have the federal government call a national summit of all the stakeholders in Canada--the industry, the workers, the communities--to deal with this crisis. We've been asking the Prime Minister; I've spoken to him personally. We need to ensure the stakeholders are at the table to find a way through this crisis. We don't accept that it's a sunset industry. We think if we put all the minds together we can find a way of rejuvenating this industry and moving forward.

Thanks a lot.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Coles.

We will go, finally, to Emilio Rigato, appearing as an individual. Go ahead for up to 10 minutes, please, Mr. Rigato.

[Emilio Rigato, As an Individual]

Thank you very much. I'm very pleased to be here.

When I got the notice, I must confess I thought we could finally make our point. But in doing a little bit of the research that's required, I want to present the industry in a bit of a different context. I must admit that you forced me to look at it through different eyes. So bear with me just a couple of minutes while I tell you how I've seen it.

The industry, in my lifetime of 30 years, has always had cycles. They were three to five years. They always happened. The cycles were tied to negotiations in Canada or the U.S., to labour agreements, and the 30 days of inventory that the publishers always carry. So if they wanted a price reduction, they upped the inventory to 45 days, etc. The power in those years was with the producer. Demand for newsprint products was increasing 1.5% to 2% a year, so we weathered the cycles and we did what we had to do.

In those days, there were five manufacturers of paper machines in Canada. The newsprint industry was invented in Canada in the 1900s. All of the paper machines in North America, the original ones, were built between 1908 and 1918, 1920. The technical session of pulp and paper in Canada in the 1960s and 1970s used to attract 15,000 people. Margins were double digits, and they used to start with twos and threes.

Everything started to change in the 1970s. The power--if I can call it power--shifted to the consumer, and the consumer was also the purchaser. There are probably only 12 or 13 individuals in North America who buy 75% of the newsprint produced in this country. The publishers became protectionists, because of the cycles, and they started to build and own their own mills.

Another fact was that because margins were so high, newsprint and paper was a commodity that was sold FOB the purchaser's dock. What did that mean? We shipped it anywhere in North America, price of freight included. But remember that in North America the infrastructure is built from east to west and we do business from north to south. There's a huge cost. It's three times more expensive to ship to San Francisco than it is to Japan.

The environmental groups in the 1970s started to ask for elemental-free pulp, recycled newsprint, and to get rid of the sulfide mills. So TMP mills were built. The technology by then had switched to Scandinavia and Europe. The industry was only some 60 years old and already the technology had switched to Europe. All of us went to Europe and Scandinavia to buy our new paper machines.

The policy--if there was a policy in Canada--was to facilitate the extraction of the fibre resource. I say that tongue-in-cheek because I was part of the process. We got loans for capital and grants to increase production. Provincially, the policy was that we had a hundred years' supply of the world's best fibre and it was renewable, so use it. Because of the grants and because of some of the environmental pressures, the job creation program said, “Let's have a policy on how we use this fibre. We're going to force it through a sawmill to make better use of it, and that's going to create jobs.” So the program came in the 1970s where stumpage was tied to the price of the product and how it was used. It was a windfall for the provincial governments. It created jobs. It created wealth. In those years, there were 24 newsprint machines being built in North America in one single year, all of them costing around $200 million. It was a huge industry with very significant jobs and capital. Fibre was plentiful.

Then a little bit of a bug came, and the bug was South America.

We invented hardwood pulping in northern Ontario, believe it or not. It was one of the first jurisdictions in the world to use poplar for pulp. The South Americans discovered it right away, and immediately, because technology moves faster than people nowadays, they built pulp mills that were twice as big as ours. So there was a challenge on price.

In the 1980s the industry responded. Dave is quite correct; they responded with five-year contracts. Increases were twos and threes. There was more tonnage being built everywhere to drive down unit cost. That's the way Canada responded. Industry started to consolidate. Offshore shipments came into North America for the first time. Most of the mills converted because of low energy; electrical costs became unstable. Plants were being started up all across Canada and the U.S. There was U.S. protectionism. That was the idea: if you were a Canadian manufacturer, you should have a plant in the U.S., and we were all doing that.

The problem was that in the mid-1980s the capital cost was not being met. Returns were single digits and always below ten. In the 1990s and 2000s--and this will wrap it up--the 100-year supply of fibre was not so realistic any more. South America drove down pulp prices to the very bottom. Cycles were one and two years now. Consolidation and going back to core business became the norm. Publishers pulled out, and the demand for newsprint started its negative slide and never stopped. Every year from the mid-1990s it decreased 2%. In the last few years it has actually exceeded that, at 2% and 3%.

China started to build two machines a year, and it now had almost two times the North American capacity to make newsprint. Europe and Scandinavia reinvented themselves, going out of newsprint and into printing grades. Their national policy of being competitive through innovation, writeoffs, and technical support are all integrated. All the North American paper machine builders disappeared in the 1990s. The technology was very firmly planted in Scandinavia and Europe. North America became totally focused on cost-cutting, outsourcing, flexible work practices, longer contracts, and 25% recycling--all the things that drove our prices down--but in Canada and the U.S. all the mills except for a few shifted to the right-hand side of the cost curve. We started the downward trend that can't be stopped.

What I'd like to say now is that the pulp and paper industry is what it is. We need to build on our strengths; our strengths are that we have the best fibre in the world. No one can take that away from us. No, we cannot compete with the Asians and the South Americans. Their mills are 10 years old; ours are probably, on average, about 50 to 60 years old. We can't compete with them on costs. Power is no longer 3.5¢; it's 6.5¢ across the country.

Dave is quite right, and I commend him for what they have done. We used to be five man-hours a tonne for newsprint; now we're around two, so labour has brought itself up to the table.

In the future, what I think we need is both a national and a provincial policy for the forest industry. An example is the beetle infestation in British Columbia. It is the largest in North American industry. The technology does exist to control it, but it's not applied.

In five to seven years there probably will be a 20% to 30% drop in the allowable cut in British Columbia alone. Quebec has decreased its allowable cut by 30%. Ontario—and I say this a bit tongue-in-cheek—would like to drop its allowable cut, but hasn't yet announced it, which will probably be in terms of 20% to 25%.

The Scandinavians, through their national policies, grow two to three times the amount of fibre on the same hectare; same climate, same topography.

We need a national policy that converts us from a pulp and paper industry to a biofibre industry in Canada. Canadian companies cannot do this on their own; their balance sheets don't allow it. At best, they can provide depreciation capital—and some, indeed, are—but they sure can't convert to biofibre based on their balance sheets. And oil has to stay at $60 to $70 to permit this.

And there's the Chinese and Asian industry, a huge industry right now, dependent on insourcing all of its fibre, as it doesn't grow any of its own trees—or very little.

The technology is not in North America to make pulp and paper. It's not. We are not the world leaders, okay? China, Asia, and Scandinavia are, and we have to recognize that.

I think we have to start the process of reinventing the industry, leapfrogging the technology to biofibre industry, and do it quickly. There are some alliances in North America, which we need to build on, but I also think what we need to do in Ontario and Quebec is to build on our strengths, not our weaknesses. We do have the best fibre in the world. Why not increase its yield through national and provincial policies? Why not leak the technology in pulp and paper to biofibre through the centres of excellence that we have and use the talent that still exists in North America before it disappears? We do have the people who invented some of the industry.

Last, I think our strength, which most people think may be a weakness, is the one-industry towns that Dave talked about. They have the infrastructure to collect this fibre. They're destitute, but their outlook is a strength that can be focused to do this differently. I think we need to provide the leadership and the policies to light the way towards this—not necessarily pave it.

That's all I wanted to say. Thank you very much.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Rigato.

Thank you for all of your presentations; they were very helpful to the committee.

We'll go directly to questioning, starting with the official opposition, Mr. Boshcoff, for up to seven minutes.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

Thank you very much, Mr. Chairman.

And thank you, presenters. Input such as yours will go a long way to helping us produce a much stronger set of recommendations to Parliament, leading to a national strategy. So I want you to know that your time here is extremely well spent.

I have two questions, and those of you who choose to answer may do so.

On the human side of the restructuring, this committee was instrumental in getting the government to advance the community development trust. Once we heard from the deputy minister of natural resources that it would simply be sent as cash to the provinces, we were somewhat dismayed, as well as surprised.

Question one: do you think this should have some federal earmarking so it could be directed specifically to something such as biofibre for forest industries and its workers, whether employed or laid off?

The second is a general question. Within the federal government's role of understanding provincial jurisdictions in natural resources, what would you suggest to help us drive a policy that will allow us to make these kinds of biofibre technological leaps?

David, please.

[The Chair, Conservative, Leon Benoit]

I'd just like to say there are about five and a half minutes for all of you to answer. So if you could each keep your answers brief, we'll get to as many of you as possible in the time that is available.

Go ahead, please, Mr. Coles.

[David Coles]

On your first question, about giving the support for the communities to the provincial governments, if it helped one forest community or one forest worker, we'd like to know about it. It has not been our experience. It was disappointing that it wasn't targeted to forest communities.

The issue of intervention in the industry is big. You need to go to Scandinavia, South America—anywhere where capitalism is successful. The federal government plays a key role, whether the provincial governments or territorial governments are in place or not. We need intervention on the issues of research and development and encouragement to go to biodiversity.

Capital can't do it; it doesn't have the wheels. It doesn't matter where you are on the political spectrum; you need to look at the world and why we are getting the can kicked out of us. It's by intervention by the state, not in subsidy—I agree with my friend beside me that it's not in subsidy—but in pointing the light in research and development, in technological advances, things that corporations cannot, under these current circumstances, afford.

That's our position on those issues.

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Rigato.

[Emilio Rigato]

I agree, and the comment I'd like to make is that community-based control is an excellent program, but it would be a superb program if the federal government policy said, “We're going to fund biofibre projects only. We're not going to use it to prop up an industry that is past; we want to be ahead. Let's reinvent what our forefathers did in 1908.” I think that's very much doable.

[The Chair, Conservative, Leon Benoit]

Thank you very much, and thanks for being concise.

Monsieur Dansereau.

[Jean-Pierre Dansereau]

On your first question, whether the federal government should earmark funds or decide what the development trust should be used for, from our point of view it certainly should be done, because we are resource producers. I don't want to object to Mr. Rigato's position, but if it's earmarked only for the industrial side, our people once again will be left out. We're very much afraid that this is what will be happening if the provinces are left to decide by themselves: they once again will forget about us.

About what should be done to help leapfrog, I would strongly support Mr. Cole's proposition for a national summit on forestry. I had the opportunity to visit Finland some years ago. That country decided that forestry isn't a sunset sector, but it was one of their main industrial sectors and they should be building and making policies to decide that it would be one of the foremost pillars of their society. They did that some years ago, and it's actually happening.

It would be an interesting thing for the federal government to be the leader of such a national forum, but the forum should focus on policies to make forestry a future sector, not a sunset one.

[The Chair, Conservative, Leon Benoit]

Merci.

Mr. de la Roche.

[Dr. Ian de la Roche]

Thank you very much, Mr. Chair.

I personally have had a lot of long-term experience, when I was in government before, in dealing with provincial-federal areas of cooperation. I think the question you asked really impacts on that.

With the community trust of $1 billion, the question could be whether it is enough money. The way it was done has posed some very interesting dimensions. It has actually forced the provinces to decide what the priorities are.

I can say from personal experience recently—and this is talking about Nova Scotia, Quebec, Ontario, British Columbia—that the feedback we're getting is challenging us to say that we see forestry as being key with this money that has come in, and that it will be involved. It really fleshes out where the provinces stand on issues, when you go across that, which is a different dimension from what I've heard most people talk about.

On the other issue, concerning the $1 billion, I would say based on the magnitude of the problem, particularly since the money could go to other sectors also, that it's probably not enough money. But having said that, it's a start, and I can tell you that I've seen a very positive response by the provinces I've mentioned to looking at that money in a partnership way, whereby we'd also come in with industry money to move ahead certain agendas.

On the respective roles of the provinces versus the federal government, I believe when it comes to forestry—granted that the provinces, you can say, own the resource, and there's a jurisdictional issue there—that truly it is a federal-provincial partnership again. The provinces might own the resource, but both are ultimately concerned with manufacturing, small communities, job losses, wealth creation, etc. And when we talk about markets—market access, developing new markets, new applications, support of R and D—the federal government is in there in spades. That's a mandate.

So I see it as that there's so much in common on which we can be working together that it's not, to my mind, a jurisdictional question of one versus the other. It truly should be a partnership arrangement.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Boshcoff.

We will go now to the Bloc Québécois and Mr. Ouellet for seven minutes.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

Thank you Mr. Chair.

I will be asking short questions, and I would appreciate short answers, since that will allow me to ask all of my questions.

Mr. Coles, you said, and rightly so, that the forestry sector is currently in crisis. You spoke of a number of things that could be done to improve the situation: developing renewable energy, foreign markets, research, etc. Do you think that the $10 million budget announcement will manage to cover everything that you have listed?

[Keith Newman, Director, Research, Communications, Energy and Paperworkers Union of Canada]

Thank you, Mr. Ouellet. I will respond on behalf of the union and of President Coles.

The billion dollars that were supposedly allocated to all of the industries is far from adequate. In no way does this amount meet the needs of the forest industry. Because of the huge scope of the problem, the tens of thousands of jobs that have been lost in this industry, not to mention the hundred of thousands of jobs that have been lost Canada-wide in other manufacturing industries, these amounts are essentially laughable.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

Mr. Newman, you mentioned the $1 billion, and we knew that it was not enough, but the budget provides for $10 million. Would you not agree that this is simply a drop in the bucket?

[Keith Newman]

It is not even a drop, but a molecule. It is very little. It makes a mockery of the situation. Frankly speaking, I would say that the amount is so laughable that it is really just a joke.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

Mr. Dansereau, you said earlier that the best time to work in the forest was when things were quiet. It takes time and money to hire people. How do you feel about the fact that the accelerated capital cost allowance also known as the accelerated CCA, was not extended for another year when the entire Canadian forest industry had asked to have the program apply for five years? Moreover, after the current year, it will be gradually phased out.

[Jean-Pierre Dansereau]

This program was of little benefit to the small scale private woodlot operators. Their investments in machinery are limited and they spend even less on industrial processing equipment. So, for the people whom we represent directly, this measure would have no short-term impact. However, the fact that there are measures to allow the forestry industry to put itself on solid footing and devise new ways to operate, as we stated earlier today, is of some interest to us because...