Natural Resources Committee on March 4th, 2008

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

Would you agree that we should look to our domestic markets before considering foreign markets?

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Ouellet.

Your time is up.

Ms. Bell, you have seven minutes.

[Catherine Bell, NDP, Vancouver Island North, BC]

Thank you, Mr. Chair.

This is a very interesting discussion. My thanks to all the witnesses for their presentations. They were very thorough.

I want to address a couple of issues. One was the land use planning that was brought up, I think, by Ms. Granskou and Mr. Roberts.

This is important, especially for our first nations, who are looking to build and improve their economic security and their economic base. I'm curious to know how the organization you mentioned, the Forest Stewardship Council, is working with first nations and community partners and industry to develop those relationships and improve economic security.

The food, fuel, and fibre issue was very interesting. It has to do with land use planning, and it needs to be addressed in a large way. It will affect how first nations and others use the land and where we're heading in respect of land use. Maybe you could touch on some more of that.

Before I let you answer that question, I have another issue I want to talk about—raw log exports. I understand we are exporting a lot of logs to South Korea and China. I've heard we're exporting between 8% and 30% to Asia. The numbers vary widely, and I'm not sure what the percentage is.

We're looking at increasing our exports to Asian markets, which I think are big. Are we looking at more log exports or are we looking at value-added products? Are we looking at fibre exports? I think this would make a lot more sense if fibre is going to be the income generator of the future.

Also, how much pressure is going to be put on Canada to export our raw logs if Russia is increasing the tariffs, which are going to limit their export to those countries? And what can we do to make sure that we maintain employment here in Canada, that we keep the processing jobs here? We want to look after our employment.

Ms. Granskou, in your paper you talked about things such as lengthening the rotation age of the trees. In British Columbia, they actually have shortened the rotation, which is causing trees to be cut smaller and younger. This in turn is forcing the mills to retool. I know there are mills out there that can accommodate larger logs, and they are actually exporting that wood to the Asian market.

Could I have some comments on those points?

[The Chair, Conservative, Leon Benoit]

Ms. Granskou, I think the first question was to you, and then we'll go to Mr. Roberts.

[Mary Granskou]

Thank you. It's a very good question.

On land use planning, I think the best way to look at it is that land use planning is becoming increasingly required as one means to help resolve questions around the need and in fact the duty the crown has for aboriginal consultation. What's happened, particularly over the last ten years, is that there have been affirmations of aboriginal rights in case law that require consultation, and land use planning is a key mechanism through which to do that.

Governments are behind on actually moving forward on land use planning in a way that goes beyond putting a little bit of money towards it. Effective land use planning requires anywhere from a $5 million to a $10 million exercise over a period of five to eight years, and it's comprehensive. The Canadian Boreal Initiative is probably one of the lead partners out there in the field working with governments, first nations, industry, and others to advance that kind of sophisticated exercise that then can reduce conflict in the field.

It's absolutely fundamental, but because it's a process towards an outcome that takes time, you can imagine it's not the highest priority around cabinet tables. That's why we urge you to support it as part of increasing certainty for the forest sector.

On the co-benefits in carbon, there are ways through land use planning now to actually bring carbon into the game in a pre-market way, because carbon, and forest carbon, will be on our markets in the future. Canada should get into the game and through land use planning have that be one of the filters or priorities that is looked at in terms of making choices on what land goes into what type of activity.

There's a good policy environment in Ontario and B.C. right now to look at carbon offsets, and that would then be brought into land use planning decisions.

That's on the first question. Would you like me to touch on the--

[The Chair, Conservative, Leon Benoit]

I think we'd better go to Mr. Roberts to answer the second question, as there are 45 seconds left.

[Don Roberts]

I'll deal quickly with the carbon issue first. I think we're in agreement that you should manage for it. I think the devil is in the details of how we do it. To some extent, it's important to recognize that you're dealing with a biological resource, and if we don't harvest often, in some cases nature will, in the form of fires or insects. We have to be mindful of that. We could well see the boreal forest being a source, and not a sink, of carbon for the atmosphere.

One argument I'll put out is that instead of going for a longer rotation, you should go for shorter, because how we take carbon out of the atmosphere is through sequestering it. This is through growing. The key thing then is what product you produce from it. If you store that, for example, as lumber in homes, that's not going back into the atmosphere. You can see how this works over time and the whole life cycle, but it's open to debate how we operationalize this. I think where we're in agreement is that one should manage for it.

Quickly, on the sawlog exports, people don't generally like to export logs. You do it because there's no other alternative. The reason you don't is that when you ship a log as opposed to lumber, your transportation costs go up dramatically. Right now it's interesting, and my sense is that probably the biggest advocates of softwood log exports from B.C. are the aboriginal groups, because they've got some cutting rights and they don't have a market at home.

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Allen, for seven minutes.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you, Mr. Chair.

I thank the guests for being here today. I appreciate it.

I have a couple of questions.

I want to focus on two major areas. One is on our competitive position going forward, and the second is on the R and D and the innovation side.

On the competitive position that we talked about in the future, you talked about Russia putting tax on its exports. If you look at some of the studies that have been done before, Russia is way behind Canada with respect to innovation and its technology. The questions are these. First, is there going to be a good opportunity for us to step into this market in the future, because Russia does not have the technological or transportation systems and that will create an opportunity for us? Second, other countries are using land for agriculture, taking it out of forest production. Does that represent an opportunity for us?

On the R and D side and innovation, one of the comments was that we have an R and D and innovation fund set up under FP Innovations, but—and I guess it's to Mr. Gagnon's point—where are the people? We're not going to have the people five or six years down the road. We can do all this innovation, but we're not going to have any receptor capacity for it.

I'd like your comments on where the industry is with respect to that. Is it generally going to be a problem for us to spend all this money and not get anything in return?

[Don Roberts]

Just quickly, is there an opportunity in the fact that the Russians don't have...? Again, it's not just the physical infrastructure, it's the social infrastructure, the tremendous lack of transparency. They will have difficulty here.

As they pull these logs off the market, there will be a window. Our sense is that it's at least five to seven years before they get their act together. Where they will come in first is on the solid wood side. They're going to do lumber and plywood first, that's clear. Then they will hit us; they'll use it for the domestic market first and then they'll focus on the Chinese and the Japanese market. They have high-quality product.

As for their Achilles heel, you think we have a labour problem? Look at the Russians. It's much bigger there.

So one of the reasons our competitive position is actually going to be improving is that a lot of these competing regions are going to have negative things happen--not that we get better; they're going to get worse. We can see it in spades with regard to wood. An interesting fact is that right now the market price of hardwood pulpwood logs in Brazil is higher than in eastern Canada. It's partly currency and partly the fact that they're building their pulp mills a lost faster than they can put in their plantations.

You're seeing cost pressure go up. It's also partly due to their restricted land base, which you alluded to on this food, fuel, fibre issue. They will pull it out. We're aware of a situation in Vietnam where a three-year-old eucalyptus plantation was cut down. They replaced it with palm oil. This is good news, from a market perspective, for the Canadians.

So as to opportunities, yes, we do have them. The receptive capacity is certainly a source of anxiety. It is. But the good thing is that things can turn on a dime with perceptions. People are interested in getting into green careers. We have to be sincere in how we manage our forests sustainably. That will be an advantage.

When I go to other countries, I think we have a sincere interest on the part of the companies that do that. We have to communicate. We need people out there speaking positively on this. This isn't just a sunset industry. I believe it has some opportunities as well. One of our cards to play will be that we can do things sustainably where there is green energy. We can produce renewable plastics, at the end of the day. But we're not there yet.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Mr. Gagnon, would you comment on the resource side?

[Réjean Gagnon]

Do you mean our research capabilities?

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

The capacity to receive it in the companies.

[Réjean Gagnon]

In the companies? There will clearly be difficulties recruitment-wise. We are having difficulty convincing our students to opt for forest-related work. There is a lack of interest. However, I believe that this is not specific to forestry. Generally speaking, there are few young people in Canada. Our population of young people had decreased. Furthermore, there are many other sectors that are very attractive, if you think healthcare or commerce. Many more students are enrolling in those programs.

Also, in Canada and the United States generally, students are losing interest in the sciences. There are not many students enrolled in chemistry or in physics, but there still are some in biology. There has been a real decline in enrolment in the sciences, as well as a drop in the interest of students for these fields. This will clearly have an effect on Canada's forestry industry. We need engineers and chemists to work on the processing of wood as a material. We also need engineers for the processing of wood per se. Here, in our plants, we do not have many young people. There is a shortage of engineering students and graduates for work in mills.

[The Chair, Conservative, Leon Benoit]

Mr. Allen, you have about one minute left.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Ms. Granskou, you talked about the fund in terms of the management. We all know that natural resources management is a provincial jurisdiction. In New Brunswick it's about fifty-fifty private land and crown land.

What challenges do you see in some of these jurisdictional issues by having a fund at the federal level to sort this land management out?

[Mary Granskou]

Yes, good question. On land use planning in particular, it would have to be done in partnership. A number of provinces--Manitoba is one, Ontario is coming, Saskatchewan--are knocking on the door for land use planning funds, but it's just not being responded to.

So it's collaborative. And the same goes for carbon management; it would be in collaboration with provinces and stakeholders.

Does that answer your question?

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Yes.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Allen. Your time is up.

We go now to the second round, for five minutes to each questioner or group, and we'll go first to Mr. Tonks and if there's time left, Mr. Alghabra.

[Alan Tonks, Liberal, York South—Weston, ON]

Thank you, Mr. Chairman, and thank you all for being here.

You've given us, and reinforced, some of the themes that have come from other deputies in terms of a balanced approach, a strategic approach. The future looks good, but there are short-term issues with respect to the various points you brought forward--the dollar, U.S. housing, the pine beetle. We've heard these things before.

Mr. Allan, on your points with respect to a balanced approach, you cited five areas, and there was a resonance from the other deputants with respect to that strategic approach.

We're trying to grapple with the short term, if I may bring back that focus. Mr. Allan, you talked about the softwood lumber agreement, and you cited it as a strength, that we should avoid litigation. It seems litigation keeps coming back. We're currently involved in litigation. I wonder if you could expand on how the softwood lumber agreement could be strengthened in the short term, or what this committee could do with respect to it. I confess I don't know the details of the agreement, but it seems the very thing it was attempting to avoid seems to be coming back. I may be wrong.

The other question was for Mr. Roberts. You talked about R and D and the conversions of R and D and innovation. You also said efforts should not be diluted with respect to marketing and R and D. Could you expand on that for the committee? I think this is a very important short-term catalyst that the industry is looking to.

Thank you.

[The Chair, Conservative, Leon Benoit]

Mr. Allan first. Go ahead, please.

[John Allan]

Thank you.

The softwood lumber agreement provides a framework, and within that framework is a process that's very important for industry and governments—the Canadian, the U.S., and provincial governments—in a period, as you pointed out, of great instability for markets, industries, workers, and communities. It does it this way. It was anticipated, in negotiating and drafting the agreement, that there would be disputes under the agreement. This morning we received the first report from the London Court of International Arbitration on the first arbitration filed under the agreement. It was a decision that went in favour of Canada on the one hand and in favour of the U.S. on the other hand. There were two issues—Canada won one of the arguments and lost one.

Having said that, the arbitration process under the agreement is a very efficient process. It provides results in a very objective and timely manner. The alternative would be court litigation within or outside the agreement, and that is not a very efficient and objective process. If we did not have the agreement, my premise to the group today is that we would be in litigation, and that litigation would drive import duties in the U.S. far in excess of the current border measures we have in place today. Alberta and B.C. pay a 15% export tax; Ontario, Quebec, Manitoba, and Saskatchewan have a 30% market share quota and a 5% tax. If we were in litigation, given where the dollar is, given where markets are, I expect those litigation rates would be in excess of 30%. So it's a matter of which alternative you want to live under.

My recommendation to this committee is that the federal government, the provincial governments, and industry—it's up to industry as well—not participate in what I would call behaviour that would threaten the longevity of the agreement.

[The Chair, Conservative, Leon Benoit]

Mr. Roberts, a very short answer, please, to the second question.

[Don Roberts]

The bottom line is on the duty, 30% and even more, and it's because of the anti-dumping concern; it's not a subsidy. It's because we're running our sawmills to supply chips to the pulp and paper mills.

With regard to diluting the efforts in R and D, I see a plethora of regional efforts. We're looking at everyone wanting to have in their own backyard a demonstration project or a new centre looking at bioenergy or something that's related. We're doing, essentially, a typical Canadian thing: by spreading ourselves too thin, getting regional representation, we're sentencing ourselves to mediocrity to some extent.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Roberts, for your short answer.

We go now to Madame DeBellefeuille for five minutes.