Natural Resources Committee on March 11th, 2008

[The Chair, Conservative, Leon Benoit]

Good morning, everyone.

We're here to continue our study on the opportunities and challenges facing the forest products industry.

Today as witnesses we have, from the City of Prince Albert, Jim Scarrow, mayor; from the Université du Québec en Abitibi-Témiscamingue, Hugo Asselin, professor, Department of Humanities and Social Development; from the City of Kenora, Leonard Compton, mayor; from Weyerhaeuser Company, William Candline, plant manager, Kenora Laminated Strand Lumber Facility; from the First Nations Forestry Council, Bill Williams, director and chief; from Corporation agro-forestière Trans-Continental Inc., Francis Albert, president and chief executive officer.

We will have the presentations in the order that you are in the orders of the day. We'll start with the mayor of the City of Prince Albert for up to 10 minutes, please.

[Jim Scarrow, Mayor, City of Prince Albert]

Thank you, Chair.

Good morning, everyone. It's wonderful to be here to speak on behalf of forestry, which has always been Canada's largest export-based resource. It has built the fabric of Canada and has been a part of the economic base of the Prince Albert region for about 100 years. Saskatchewan can boast several achievements in the forest industry: the largest sawmill in the British Commonwealth was at Big River; the first oriented strand board or OSB mill in Canada was at Hudson Bay; and Canada's first closed-loop hardwood pulp mill is at Meadow Lake. Forestry has created secure, well-paid jobs for residents and has created healthy communities. It has earned the right to be considered for national support that is at least equal to other industries.

In the fall of 2005 Weyerhaeuser announced it would be closing the Prince Albert pulp and paper mill. In January 2006 the paper line was permanently shut down and on April 12, 2006, the pulp mill closed its doors.

In August 2006 a merger between Weyerhaeuser and Domtar was announced, and Domtar took possession of most of Weyerhaeuser's Prince Albert assets. Today we approach the second anniversary of the mill closure and the loss of thousands of pulp mill, sawmill, and associated jobs in my city and across the province. The entire province has felt the impact of the closure of the Prince Albert pulp and paper mill in terms of losing jobs and economic activity. Clearly the greatest impact has been in Prince Albert, Big River, Carrot River, Hudson Bay, Meath Park, Nipawin, Holbein, Green Lake, and communities throughout the forest region where much of the direct employment took place.

In terms of jobs, families, institutions and schools, health services and charities, etc., the social impact of the closure has been large. The city of Prince Albert is affected directly as the majority of employees live in the city. The surrounding communities where employees lived were affected, as were supporting and dependent companies--for example, harvest/haul operators and sawmills. The impact has expanded further to include communities outside the forest region where support companies exist--Saskatoon and Regina.

In purely economic terms, the pulp and paper mill was a significant component of the Saskatchewan economy. It contributed 0.5% to the provincial GDP on its own and 1.2% when the combined effects of sawmill, harvester, and support jobs were included. It directly employed 690 people and supported an additional 1,380 indirect jobs throughout the province. Just as important was the effect on local sawmillers who eventually closed their doors, and in this way an additional 1,883 jobs were affected, bringing the total to 3,953 jobs lost as the result of a single mill closure.

The closure has had a ripple effect throughout the province. For example, ERCO Worldwide, a chemical company in Saskatoon, supplied the mill with inputs for production of pulp and paper, and the company employed about 100 people and was significantly affected by the closure. Other Saskatoon- and Regina-based businesses that supplied products and services to the forest-based companies, such as trucking, packaging, supplies, and consulting services, lost a key customer. The impact is wide in scope and not yet fully understood.

The City of Prince Albert is hard hit by the closure of the mill. It stands to lose $1.7 million in property tax revenue and has already lost $1.6 million in energy surcharges. The total of the lost revenue exceeds $3.3 million annually; the pulp and paper facility provided 19% of the city's total budget.

Schools in the area have been hard hit through lost taxes and also through lower enrolment. The Communications, Energy and Paperworkers Union, CEP local 1120, calculates a loss of over 1,000 students in the school system.

Many charities and other groups are feeling the impact of lower financial support from the forest sector.

A provincial task force was appointed the day after the closure was announced by Weyerhaeuser. Included in the task force was the mayor of the City of Prince Albert and union and community representatives. Further community involvement came in the form of business leaders who formed the Prince Albert Forest Action Committee, which lobbied on behalf of the Prince Albert businesses and acted in an advisory capacity to the task force and as a conduit for communication to the community.

Despite extended closure, the city has not lost hope. I have not lost hope myself. There is a future for the sector, but concrete steps are needed to build this industry.

Challenges faced by the forest sector are both global in nature and local in circumstance. International competition has been building in the pulp and lumber industries. Fast-growing trees and lower labour costs in South America and Pacific Rim countries have been too attractive for forest companies to ignore. Many of these companies have moved production of pulp and paper to these regions, abandoning their North American mills.

Other nations have moved faster than Canada to maintain their forest sectors. Scandinavian countries, Finland in particular, have supported their industries to the detriment of ours, and much of their growth has been at the expense of the Canadian forest industry, as Finnish product has out-competed ours on the global market.

When combined with decreasing demand for paper worldwide, the softwood lumber tariff, and the slowdown in housing starts in the United States, it spells a downturn for the Canadian forest business.

Unique and significant challenges for Saskatchewan would include climate change. Indications are that Saskatchewan's boreal forest may disappear as we know it today. Ground zero for climate change impacts is Saskatchewan. Today's forests are projected to move north. What will take its place is not yet fully understood, and time is short to develop this scientific understanding.

A whole industry was centred on one mill, the Prince Albert pulp and paper mill, and when it closed, our forest industry went with it. Without other pulp mills close by, many sawmills closed because of lack of sales for chips. Despite the advantages of high quality and lowest delivered wood cost in western Canada, ongoing operations could not be sustained.

With less than equitable treatment under the softwood lumber agreement, Saskatchewan received a quota well below its ability to deliver. The last softwood lumber agreement provided less than 0.5% of the national quota to Saskatchewan, but the province has the potential to meet about 2% of that market. Many mills lost access to the U.S. market during its historic high period as a result.

The recently announced funding by Ottawa for communities hard hit by closures is good for the communities that are moving away from forestry, but additional efforts are required for those communities that desire revitalization and want to stay in this sector. New initiatives are needed that could maintain the sector until the United States' housing market rebounds or, more importantly, can move the industry away from its commodity-based reliance on the U.S.

Forestry has a history like many other resource-based sectors; once upon a time, profits could be raked in on commodities alone. However, times have changed, and different approaches are required. Today, wood byproducts can be used in explosives, pharmaceuticals, and polymer feedstock for clothing and tires, to name a few. Technologies exist to automate the timber harvest, provide x-ray scanning to optimize lumber recovery, and deliver “smart” paper with memory. Technologies are emerging to convert wood fibre to ethanol and other biofuels. In short, our industry must move away from high volume and towards high-value production. More research and development investment is needed to fully exploit these opportunities.

To learn how our forest sector can become a globally competitive growth area, one need only look at one of our keenest competitors. Finland, a country with a forest 1/20th the size of Canada, exported about $17 billion in forest products in 2005, compared to about $42 billion for all of Canada. It also is home to three of the world’s largest forest companies; Canada has none. The recent mergers of Abitibi and Bowater, and Domtar and Weyerhaeuser's paper division, began to create companies of scale in a sector that Canada should dominate.

Finland's forest industry faces the same global challenges as Canada's, so how are they succeeding? They have driven significant support into several key priorities: they supported industry consolidation to drive efficiencies and economies of scale; they prompted development of forest clusters to recognize efficiency brought on through minimized product handling; they grew the market for wood products by demonstrating superior wood qualities compared to steel or concrete; they involved labour in sector redesign; and they significantly increased support for product development and transfer of new technologies to a ready industry. Through this, they established the fiscal and intellectual capacity to grow their industry and help it adjust to changing world economies.

As mayor of the largest city in Saskatchewan in the forest belt, I am embarrassed; as a nation, Canada should be embarrassed that a smaller country with a smaller resource should be so much further ahead. So what can be done?

Science is our best answer to these challenges, and I call on the government to make good use of the scientific knowledge that has been built.

You can use that science to refute claims by environmental groups that our boreal forests are in a poorly managed condition. Our forests are not poorly managed and we can prove it.

We can use Canada's science to show that human management is part of the natural cycle and that our role can maintain healthy forests. Global warming is changing our forests, and science shows us the way to manage that process for economic and ecological benefit of the forest resource, and to use Canada's science base to increase public understanding of our forests to show that our forests are well-managed.

You can use Canada's science to expand products and markets and develop new manufacturing processes that can keep our industry competitive. You can use science to increase biofuel, pellet, and energy cogeneration potential for our forest resource. We can use science to increase the viability of our tree species, both economically and tied to climate change.

Agencies like the Saskatchewan Forest Centre can lead development of an industry built around high-value products, built around new markets for these products, and built around cost-competitive delivery to these markets.

New markets are required. Work is needed to expand the products from our forests and their markets. More national coordination is needed to expand markets in China and India and establish a carbon trading system to significantly change the economics of forestry. Carbon-neutral and carbon-positive forests could reduce Canada's CO₂ imbalance and be a real revenue source for the industry.

Support industry consolidation and capital reinvestment. This is needed. Measures announced in the 2008 budget should help, but more is needed.

One simple objective that could be adopted naturally is to double per capita consumption and use of wood. Finland did it.

You can support the development of the Port of Churchill as an alternative route to markets for Saskatchewan. This would greatly improve accessibility to our products and place our province's exports closer to Europe than export through the St. Lawrence does.

Canada's science can be used for an international “wood is good” campaign that shows superior qualities of wood construction over steel and/or concrete. Wood use should be doubled and wood fibre utilization improved nationwide through several avenues. A national building code to further encourage wood use would be a start. As mentioned, setting a national target to double per capita use of wood would show Canada's commitment to the sector. Investing in research and development, promoting forest business clusters, allowing industry consolidation, establishing a carbon trading system, and promoting the use of wood as green energy should follow.

As mayor of Prince Albert, I am poised to assist in any way I can to renew and revitalize this sector in my city and my province. I just need the support policies in place to begin my role.

Achieving many of these goals requires national coordination, financing, and determination. The provinces may be responsible for forestry as a resource, but I believe that the nation is responsible for forestry as a future.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mayor.

I would like to ask you all to ensure that you keep your briefs under 10 minutes.

Now Professor Asselin from the Université du Québec, go ahead.

[Hugo Asselin, Professor, Department of Humanities and Social Development, Université du Québec en Abitibi-Témiscamingue]

My opening remarks will be in French and in English. I will hand out a copy of them.

Good day to all and thank you for giving me the opportunity to share with you my thoughts on the future of Canada's forestry industry.

I am a professor at the Université du Québec en Abitibi-Témiscamingue, where a group of several specialists is working on questions related to forestry and local and regional development.

It seems as though the comfort zone into which Canada's forest industry has been for several decades is now uncomfortable enough for many stakeholders to ask for a drastic paradigm change. I am more than happy to share today the talking stick with chief Williams, since I believe we can learn a lot from first nations about how to live in close harmony with forest ecosystems. Indeed, I think we have forgotten for too long that we are a part of the forest ecosystems we inhabit.

Before speaking about the opportunities and challenges facing the forest industry, it is worthwhile to first stress—no one will be surprised—that Canada's forest industry is presently in a state of crisis. In Quebec—and probably in other provinces as well—it is the worst crisis since the Great Depression of the 1930s. The crisis has major drawbacks in Canadian communities, starting with aboriginal communities, single industry towns, and small isolated communities. In these communities, the crisis translates into impoverished social networks, depopulation, discouragement, and loss of leadership and capacity.

I do not want to comment for too long on the subject of the causes underlying the crisis, but I think it is important to make a distinction that will be of great importance for the rest of the discussion. To explain crises in the forest sector, we often hear about conjunctural and structural factors. We presently are in the fourth crisis since the 1970s. I believe that crises start because of conjunctural factors, i.e. factors external to the industry and thus out of its direct control.

The most important conjunctural factors are the increased value of the Canadian dollar compared to the U.S. dollar, increased crude oil price, and decreased prices of forest products. What is important to understand is that the severity of a crisis, in terms of mills closed, jobs lost or plummeting profits, can be explained, in my opinion, by structural factors, i.e. factors due to the functioning of the industry itself. As every crisis has been worse than the preceding one for at least the past 40 years, it looks as though some major structural problems were left unresolved.

The most important structural factor is the massive production of low-value products such as lumber and newspaper, and massive exports towards a single market: the U.S. This has resulted in two major challenges: diversified products by focusing on high value and certified products, and markets, by reducing dependency on the American market and by considering emerging countries as major markets instead of competitors. To succeed in such initiatives, we need to focus on our strengths. Apart from having an important number of highly qualified personnel, Canada is known as an international leader in terms of environmental certification. The market for certified products has been increasing exponentially for about a decade and Canada is in a good position to take the lion share of this growth.

Amongst the envisioned solutions, we often hear that consolidation, i.e. the grouping of companies into bigger and bigger entities, is inevitable and even a good thing. My own observations lead me to believe exactly the opposite. Without neglecting the important socio-economic role of large companies, it is the middle-sized companies that are best able to stay afloat in times of crises, owing to their unique resilience and stability. Small companies are not able to absorb a crisis, while large companies choose to turn their back on Canada, waiting for better times to come. However, it should not be possible to switch communities on and off, as we do with light bulbs and televisions.

We need to abandon the model of massive production of low-value products, pushed into a market without considering demand, leading to reduce prices, instead, we should aim to optimize the production chain in order for the industry to be more flexible and to be able to respond more quickly and more efficiently to market fluctuations.

The crisis can be considered in two complementary, but different ways. It can either be seen as workers losing their jobs and communities losing their mills, or it can be seen as companies losing money or not making enough. Possible solutions will be different for one or the other aspect of the problem and I think that we have to cease trying to grow money in trees and that we should instead make sure to create and maintain stable and high-quality jobs, in prosperous, healthy and happy communities. We have to go back to a forestry for the people and give more power to local communities and regions to choose what kind of forest use they think is the most suitable and that will take into account environmental, social and economic sustainability.

We have to adopt a holistic view of the forest ecosystem and stop seeing the forest as a wood-fibre warehouse. The numerous ecosystem services and non-timber forest products of the boreal forest should be valued, and communities should get their fair share of the associated socio-economic benefits. It is thus more than time for a paradigm shift toward sustainable forest management and integrated resources management. It is very disappointing that many Model Forests from the Canadian network have had their funding interrupted, since model forests are responsible for developing regional frameworks of criteria and indicators of sustainable forest management. These frameworks are essential to the verification of forest practices and to eventually reach our sustainable development objectives.

Conservation of healthy forest ecosystems should be at the very heart of the Canadian forest strategy. Researchers from the University of Alberta developed an interesting and original way of seeing things: the inverse matrix. Hence, instead of considering protected areas as isolated islands in a matrix otherwise dominated by human activities, we should instead consider human activities as islands in a matrix dominated by natural ecosystems. Ecosystem conservation, through, for example, an increase in protected areas—Canada, I should recall, has only a little more than half of the global average of protected areas—will allow us to keep a safety net to face climate change, market fluctuations, and the uncertainty inherent to the management of complex systems such as Canadian forests. And that does not even include the strong ethical reasons for preserving one of the last frontier forests on earth.

Climate change will constitute a major challenge to sustainable management of Canada's forests. The frequency and severity of insect pest outbreaks and other illnesses will probably increase. The mountain pine beetle has already crossed the geographical barrier represented by the Rockies in some places and threatens to destroy the country a mari usque ad mare. In addition, climate change will trigger the development of unknown forest types, as each species—trees, plants, or animals—responds uniquely to climate change. Thus, forest types will not simply migrate northwards as monolithic blocks. Furthermore, the migration capacity of certain species will be strongly hindered by landscape fragmentation due to human activity, mostly land-use change.

With respect to first nations, although aboriginal forestry is one of my main research interests, I think that chief Williams will explain this perspective much better than I could. Nevertheless, it is important to stress that aboriginal communities face enormous needs in terms of training and capacity development. Without meeting those essential conditions, first nations' participation in planning and management activities will remain marginal. Full participation requires strict measures being adopted to ensure the protection of intellectual property and fair share of economic benefits. Finally, supplementary efforts will have to be made in order to accelerate the settlement of negotiations on land ownership and treaty rights that have been dragging on for too long.

As a professor, you will allow me to stress the utmost importance of massive funding inputs in training and R&D. All the challenges I have mentioned will require enormous efforts in that regard. We have to bring back youth to forestry programs, for example by giving scholarships. Funding must also be considerably increased for R&D, not only from government—which already does a lot but could do more—but also from the industry. Suffice it to mention that American and Fennoscandinavian industries reinvest three to four times more of their gross profits in R&D than Canadian companies.

I will conclude by saying that the challenges and opportunities are numerous and gigantic. There is no magic solution, but rather a set of different solutions—some that we are already aware of, and others that still need to be discovered. One blindly- applied solution to everything will at best put off these problems for a few years. What we need to do is courageously face the problem on all fronts at the same time.

I wish us all good luck.

[The Chair, Conservative, Leon Benoit]

Thank you, Professor, for keeping your presentation under the 10 minutes and for being here today.

Now we have, as a group from Kenora, Leonard Compton, the mayor, and William Candline, plant manager, Kenora Laminated Strand Lumber Facility, Weyerhaeuser Company.

I understand, Mayor Compton, you are going to make the presentation. Is that correct?

[Leonard Compton, Mayor, City of Kenora]

I'll speak for the first few minutes, and then I'll pass it to Mr. Candline, if that's acceptable.

[The Chair, Conservative, Leon Benoit]

Go ahead.

[Leonard Compton]

Good morning, Mr. Chairman and honourable members. My name is Len Compton. I am mayor of Kenora, Ontario.

Kenora is Ontario's most westerly municipality, located on the Lake of the Woods and on the Trans-Canada Highway, just 50 kilometres from the Manitoba border. Kenora has a population of 15,177 people, with a service area of over 20,000 people. In the summer, Kenora and Lake of the Woods are home to cottagers from Manitoba and mid-west U.S., which doubles our population.

I see Mr. Comuzzi here today, and Mr. Boshcoff. They know our area intimately, and it's good to see them here this morning.

Let me start by providing you with a brief overview of the current state of the forest products industry in Kenora.

Since 2005, we have suffered from the closure of Abitibi Consolidated's pulp and paper mill, losing 361 workers; Devlin Timber's sawmill, 50 workers; and layoffs at iLevel Weyerhaeuser, 40 workers. Most recently we have the curtailment of operations at Kenora Forest Products, cutting 105 workers. That's a total of over 550 workers.

If we look across northwestern Ontario, the pattern is similar. Shutdowns, layoffs, and curtailments in the forest products industry have affected Sioux Lookout, Dryden, Atikokan, Thunder Bay, Red Rock, Nipigon, Greenstone, Wawa, and many northeastern Ontario communities. The current downturn in the U.S. housing market, the high Canadian dollar, and high energy and road-building costs in northwestern Ontario have combined to create the perfect storm for this industry.

Kenora has adopted an economic development plan, a recovery strategy for the area, which is being aggressively pursued. Our plan builds on the resource-based assets of our community in the forest products industry and on our natural attractions to turn Kenora into a destination community for new full-time and seasonal residents and visitors alike.

We are moving to diversify, but we must protect the foundation of our economic well-being too. Losing the forest sector altogether is just not manageable. In other times and in other jurisdictions, the federal government would have intervened early with various forms of assistance, but this has not occurred.

The January announcement by the Harper government of $1 billion in community development trust money is much appreciated, but needs to be made available at the community level as quickly as possible. In many ways, we feel it's almost too late.

In order to prepare for this briefing, we met with our local forest products companies and liaised with several regional and national organizations. We feel that this is a story that must be told by industry. Therefore, I am pleased to introduce Bill Candline, manager of Kenora Timberstrand, iLevel Weyerhaeuser.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Candline.

[William Candline, Plant Manager, Kenora Laminated Strand Lumber Facility, Weyerhaeuser Company]

Thank you, Mayor Compton.

My name is Bill Candline. I am general manager of Kenora's Timberstrand mill, which is a division of iLevel by Weyerhaeuser.

The focus of iLevel has been on the residential housing market, and Weyerhaeuser has really gathered together all those businesses they have acquired over the years and built over the years under the iLevel banner to really focus on the residential housing market, mostly within North America. This includes oriented strand board; lumber; plywood; laminated strand lumber, as in the plant in Kenora; laminated veneer lumber; i-joists; etc.

The Kenora mill opened in 2002. October 2002 is when we pressed our first board in Kenora. It's a new mill and it's very modern, and we produce value-added engineered wood products. We are one of two plants in the world that now manufacture this specialized laminated strand lumber product.

It's a product made from previously underutilized species of mostly poplar and some birch, utilizing some German technology like a steam injection press to produce a billet that's 64 feet long, 8 feet wide, and up to 3.5 inches thick, weighing up to 7,500 pounds. And then we take that billet and we run it through what is almost like a traditional sawmill to produce beams and headers, and we even cut it all the way to two-by-four studs. So it's a very unique process.

Our company has invested $300 million in our Kenora operation. We have 160 associates currently. We have a very diverse workforce--25% of our workforce are female, and 25% are also aboriginal.

We have worked continuously since 2002 to reduce our costs and increase efficiencies in our operation. Like most facilities in Canada, we have been significantly affected by the downturn in the U.S. housing market. Three years ago there were well over two million housing starts across North America and we're likely to see around one million this year. We are now operating at about one-half of our capacity. But to our credit, we remained open last year when Weyerhaeuser was shutting down a sister operation just across the line in Minnesota. The majority of our costs are fibre, so our plant economics are very closely tied to provincial policy around natural resources.

My presentation here is going to focus on five main areas of opportunity: taxation, markets, greenhouse gases, the quota system, and aboriginal partnerships.

On item number one, taxation, our industry is seeking full refundability of the scientific research and education tax credits to support innovation and research by Canadian companies, and an extension of the two-year capital cost allowance for a minimum of five years. The recent budget did not act on either of these recommendations.

In my view, the Kenora Timberstrand plant is the perfect example of the type of innovative development that should be supported by this program. We earn credits in Kenora on innovations in technical advances that were incorporated into the new Timberstrand plant. We also received support on developmental activities undertaken on the process side as we struggled to expand the products made at the Kenora plant. While the Kenora facility has benefited from this program in the past, it is currently undertaking no development activities.

I think our message on Kenora is very clear. This is the type of development that comes from supporting the SR and ED program. This program does not provide support during an industry downturn, and a program like this that does not provide support during an industry downturn is of much less value to the industry and results in much less innovation and development. And it's really innovation and development that will help this industry recover.

We need access to new technology to see our forest sector companies perform like their Scandinavian counterparts. Support is necessary to encourage research and development to identify new products and value-added additions to existing companies, explore lower-cost energy options, and open markets beyond the U.S.

On item two, outreach to markets, Canada has a good story to tell regarding the forest products industry. We also have some of the best fibre and resulting products in the world. We'd like to recommend the establishment and funding of a multi-year, national-level initiative to deliver facts and information on Canada's forests and forest products industry in significant markets. It is our understanding that the recent federal government identified $10 million to be used as part of such an information campaign. We believe this is a positive step and we congratulate the government.

We would further like to recommend an extension of funding for existing initiatives targeted at developing new markets and uses for Canada's wood products.

Item number three concerns greenhouse gases. The forest products industry has invested billions of dollars over the past 15 to 20 years to reduce emissions from their facilities. We would like the federal government to provide credit and recognition for the industry's progress to date with respect to lowering greenhouse gases. We also urge you to continue to work with industry to ensure that the government's air quality regulations are implemented in a manner sensitive to the industry's current economic circumstances.

Other environmental considerations include greenhouse gas offsets. The federal government has started to address whether and how to develop a greenhouse gas offset system. The system would outline the potential for greenhouse gas emission reduction opportunities for non-regulated facilities and from biological sequestration.

The Forest Products Association of Canada is finalizing its position on this issue. Having a properly designed offset system could be a huge benefit for the forest industry. Specifically concerning Kenora facilities, if such a system were in place we could generate offsets by reducing the amount of fossil fuel we use through fuel switching. On the forestry side, offsets could be generated by activities such as forestation, reforestation, avoided deforestation, and forest management.

Also, recognition/credit for what we have done to date is key. We also support the Forest Products Association of Canada forestry coalition position regarding exclusion from applying VOC emission targets to the wood products sector. In addition, we support their position regarding applying particular emission targets only to wood product combustion units.

Item number four deals with the softwood lumber quota.

Before I go much further, I want to confess that I'm not an expert on the softwood lumber wars. Thankfully, my operation in Kenora is not affected by the current softwood lumber agreement; however, Kenora and the region have a vital interest in how the current agreement is being managed.

The original softwood quota system was developed prior to the latest set of unprecedented and unforeseen market circumstances. Prices and demand are at record low levels for wood products entering the United States. The Ontario industry has worked very hard to get consensus to provide a two-year change to the provincial lumber quota system, which would allow mills to make rational economic decisions regarding market supply without prejudicing their ability to restart after a curtailment.

[The Chair, Conservative, Leon Benoit]

Mr. Candline, I'm going to have to ask you to wrap it up. We have two more groups to present still. We will have very little time for questioning if we don't get through the presentations.

[William Candline]

I'll move on to aboriginal partnerships, which was my fifth point.

Kenora is partnering with first nations on economic development, because our futures are intertwined. We are treaty partners and recognize that first nations have constitutional and treaty rights to their traditional land use areas. This very much affects the forest sector. We are now seeing first nation and private sector projects emerging in the private sector. These are very important, but they are imperiled by the fragile state of the forest sector. There are limited markets, export barriers are present, and the forest economy is impacted by the U.S. slowdown.

In summary, each region of Canada is different with respect to the opportunities and challenges facing the forest sector. Northwestern Ontario needs federal and provincial policy support that is sensitive to the unique challenges facing our forest products companies. We need to see the federal and provincial governments working together. This is more important than ever at this time. The private sector and first nations must also be engaged. We must come together in ways unlike any in our history.

[The Chair, Conservative, Leon Benoit]

Thank you.

We go now to hearing, from the First Nations Forestry Council, Bill Williams, director and chief.

Go ahead, please.

[Chief Bill Williams, Director and Chief, First Nations Forestry Council]

Ha7lh kwakwayel.

[Witness speaks in his native language]...B.C. First Nations Forestry Council.

I would like to thank you for bringing us this unique opportunity to discuss the challenges that face the forest products industry as a whole.

I would like to particularly talk about the mountain pine beetle crisis that affects British Columbia at this time. This poses an immediate threat to 103 aboriginal communities and directly affects their lives. There is the need for pre-emptive actions.

This crisis of our forests has been given attention on an international level by Mr. David Porter in Bali last December, so it is starting to get to that level of information. Mr. Porter was in Ottawa last December, and unfortunately the Ottawa meetings produced fine words with the minister of forests, but little else. The budget completely ignored the crisis that exists in British Columbia and that is now being deemed the biggest natural disaster in British Columbia's history.

It is hoped that this committee can raise the alarm bells and generate some action in the face of what is happening in British Columbia. Please make no mistake about this: lives as well as livelihoods are on the line in the coming months, and the long-term survival of entire communities is at stake. I'm talking about schools and homes.

The area we're talking about is 103 aboriginal communities with about 100,000 people. They're scattered across an immense area of the interior of British Columbia, and it has turned out to be a huge tinderbox of dead and dying pine forests. The aboriginal communities are starting to live in fear, as the fast-approaching fire season starts in June and ends in September.

The area we're talking about covers 13 million hectares of land, which is bigger than the land mass of Nova Scotia and New Brunswick combined. If you want to take a look at one country in the world, take a look at Greece; it's about the size of Greece.

The last geographic comparison is particularly apt, because the conditions of our dead forests have potential to create fires that would completely eclipse those that ravaged Greece last year.

I don't know whether you had a chance to take a look at the pictures of what happened in the Okanagan about five or six years ago. There were flames 100 to 200 feet tall when they were burning those thousand or so homes in the Okanagan. This will be twice to three times that problem; it is going to be huge.

The damage cannot be reversed. Even containment will be extremely difficult. For now, our priority is survival. How can we survive a forest fire with this new reality? Ironically, the lack of forest fires through the years, together with the high temperatures as a result of global warning, has created a pine beetle crisis. Indeed, a fire will be one of the ways in which the forest will be able to begin to heal itself, but it will also be able to destroy communities and lives.

The problem is that 103 of our first nation communities are in the midst of the fire zones. There are 300 reserves that require a minimum of two-kilometre wide firebreaks cleared around them to prevent the fires from simply obliterating them. Fires move quickly. The majority of our communities have schools, houses, and community buildings, and they are all in remote areas. An evacuation will be difficult, if not impossible.

We need firebreaks and proper evacuation plans. Achieving both firebreaks and a plan will cost some money. We estimate right now that it's going to cost about $1,000 per hectare, but we're also looking at 135,041 hectares surrounding 300 aboriginal communities. So we're looking at $135 million.

The risks have been identified for the last few years now. When the last federal election was held, we thought we would get some funding. The Liberal government at that time had already given $100 million to help B.C. address the beetle crisis, and it made a campaign promise to provide $1 billion dollars more. The Conservatives matched the election pledge of $1 billion. We took them at their word. B.C. Premier Campbell's new relationship program has identified 20% of the $1 billion, or $200 million, that will be transferred to first nations to deal with the crisis that exists today. We continue to work with the B.C. government, but we are falling short of what is required for our crisis.

The Conservative government, unlike the previous Liberal government, is refusing to transfer money directly to the aboriginal communities. They are selectively choosing different projects they want to fund. An example would be an airport expansion; even though it's probably needed for the community, it does not help our aboriginal community in the crisis we're facing with the pine beetle.

First nations have seen little money. The latest figures provided by the Department of Natural Resources indicate that less than $5 million has been spent or committed since 2006 on affected first nation communities.

We know what the threats are, and we know what the challenges are. What we need are the resources to help our communities, and our homes and schools, and our elders and children.

Huychexwa. I thank you for your time.

[The Chair, Conservative, Leon Benoit]

Thank you, Chief.

We go now to the Corporation agro-forestière Trans-Continental inc., and Francis Albert, president and chief executive officer. Go ahead please, for up to 10 minutes.

[Francis Albert, President and Chief Executive Officer, Corporation agro-forestière Trans-Continental Inc.]

Good morning, Mr. Chairman.

Good morning, members of the committee. On behalf of the Corporation agro-forestière Trans-Continental I would like to thank the Standing Committee on Natural Resources for having invited us to speak about the challenges facing the forest industry. The main issues in this context of globalization are economic, social and environmental issues.

I would like to start by saying that I did not speak to the economic impact in Quebec of plant closures and thousands of job losses. Mr. Asselin spoke to this earlier. Because I have a limited amount of time, I did not address this in my brief. I focused rather on the kind of action that must be taken in order to resolve this situation.

The Corporation agro-forestière Trans-Continental is a collective, a forestry association that includes more than 450 voluntary members including owners and shareholders. Therefore, this is a collective enterprise.

Our mission includes intensive forest management, both private and public forests, and the creation and an increase in socio-economic activities stemming from natural resources in rural areas, more specifically the maintenance and increase of quality employment. Furthermore, we are also partners with the NBG sawmills group and the Bégin & Bégin hardwood group. Both plants are 50% owned by woodlot owners. That is rare in Quebec and in Canada. The communities and the woodlot owners own more than 50% of that plant.

I'd like to explain the terms that I will be using. Our goals involve intensive forest management, labour, industrial development and forest certification.

Allow me to begin with intensive forest management. The forestry industry depends on one main resource: wood. For an industry to be competitive, it has to have a sufficient supply of quality wood in order to meet market needs. Intensive forest management on lands with high wood production potential will increase the productivity of our forests and protect other resources. Furthermore, a healthy forest will also capture carbon. That is not trivial. It has been scientifically proven that more wood production results in less greenhouse gas emissions.

Private forest in Quebec provide more than 20% of the wood to plants. These are forests that are close to communities and to mills. This therefore results in savings in transportation and reduction in greenhouse gas production. I mentioned greenhouse gases earlier. If wood is transported over long distances, greenhouse gases are produced. This type of forest has the highest production potential and forestry workers can earn a decent living from it.

Nonetheless, it is essential that funding to private forest be increased in order to meet intensive forest management goals. A study on the impact of public investment in private forest was undertaken by the Université Laval together with the Canadian Model Forests Network. It showed that public spending on private forest management is a structuring investment for the government. You can find this study on the Canadian Model Forests Networks website. I also have a copy of the study with me.

For those reasons and many others, we recommend that the Canadian Department of Natural Resources invest in intensive forest management program for private forests in Canada. In Quebec, we have a program for private forests. However, additional amounts are necessary in order to meet expected outcomes, that is, an increase in the quantity and quality of stable supply at competitive prices for our forestry industries. Cost of fibre constitutes a significant part of the industry's production costs. If fibre costs go down, then those costs also go down. In order to achieve this, we need to increase the forestry potential of our lands.

With respect to labour in the forestry industry, I only dealt with one aspect, and that is aging workers. We have good training programs. However, we need a new generation of workers and we need to assist young people in going back to school in order to get the forest training they need. In Quebec, and elsewhere, the forestry crisis has led to an abandonment of this area. There are no young people going back to school.

Forestry workers, whether they be in mills or in the forest, are the cornerstone of our industry. They're all aware that the current crisis is disseminating the industrial sector: temporary or permanent shutdowns, consolidation, technological change, etc. Forestry labour is generally very experienced and its average age is often over 55 years. However, the majority of workers, especially those in the forest, have no retirement funds. They therefore have to work for a longer time period. A sylviculture worker, whether they be a logging seller or a brush cutter make a considerable physical effort. These people are going to require special assistance in order to be able to continue developing this collective wealth which is the forest.

We recommend creating a fund for forestry workers and plant workers who do not have a pension fund, under the national community development trust, that would take them to their retirement years in dignity, given the efforts they have made. This program should be set up with each of the provinces in order to meet the needs of their clients. The objective of the program is not to put them completely out of the loop, but to help them through the current crisis, because at this point in time, they are having trouble working a sufficient number of weeks to be eligible for employment insurance benefits.

I will now talk about industrial development. The value-added forestry resources industry is a very important sector for the economic development of many communities. Thousands of jobs are directly tied to it, both in plants as well as in the forest. There are many others that are indirectly related, such as the transportation and building of processing equipment for wood products.

Within the context of globalization and competition from emerging countries, we must face the challenge of increasing industry productivity by developing a strategy that is based on high value-added products. In order to do this, we will have to work very closely with all of the provinces.

We must understand that industry consolidation will not settle all of these problems, quite the contrary. As Mr. Asselin was saying, in our region, it is the smaller mills that are still open. The big mills are virtually all closed, for all kinds of reasons: their production costs are too high and very often, they are bringing their wood in from too far away. Ideally, we should invest in small communities so that they can make a living from this industry locally.

We recommend the following measures: adapt the investment programs for small- and medium-sized businesses; give refundable tax credits to businesses in the resource processing sector, particularly for those who turn to value-added; develop the wood, forestry biomass-based energy and bio-refinery sectors; and increase the use of wood as green material, particularly in public and commercial buildings, as a replacement for more energy-consuming, non-renewable and more heavily polluting materials.

One issue that will allow the forestry industry to set itself apart on the world stage will be to have a forestry sector that respects the criteria of sustainable development. Several countries require that the wood used in the construction of public buildings comply with these criteria. Forestry certification will allow us to meet these requirements. We believe that each province is responsible for having its public forests certified. However, the costs that the industry must bear to comply with certification standards are very high. Private woodlot owners must band together in order to lessen certification costs. It is very difficult to have a private forest certified because cost is so high. The owners must therefore set up a forestry cooperative.

We therefore recommend the following measures: the creation of a refundable tax credit program so that the industry can move forward with forestry certification; the setting up of technical assistance adapted to each region so that they can better meet certification criteria; the creation of a funding program for small private woodlot owners, in order to decrease certification costs.

In conclusion, the forestry management and forestry resources processing industry is and will remain an important pillar of the Canadian economy and that of its provinces. Currently, we are experiencing a crisis. We know that this is temporary; the wood will be resold in the form of other value-added products. However, manufacturers and small communities must take on responsibility for themselves and they will need assistance to do so. The forestry crisis will require major changes in our industry. The Government of Canada must support this industry so that it can make this critical change from tradition to innovation.

Thank you very much.

[The Chair, Conservative, Leon Benoit]

Merci, monsieur Albert.

Mr. St. Amand.

[Lloyd St. Amand, Liberal, Brant, ON]

Thank you, Mr. Chair.

I will be deferring the bulk of my time to Mr. Boshcoff. I thank all of the presenters for their thorough, comprehensive presentations.

Mr. Compton and Mr. Candline, our colleague Roger Valley has continually stressed in caucus and other settings the importance of the forestry sector to the people of his riding. He's not a member of this committee, but I know how much he values your input and how pleased he is that you were able to come this morning to present to us.

My only question is to Mr. Candline. You appropriately, yet still somewhat modestly, took proper credit for a new product devised by your company. You mentioned some technology from Germany or some such place. Can you tell us how that came about? Was it by way of a grant or an initiative within the plant itself?

[William Candline]

The original engineered lumber that's being marketed right now as Timberstrand is a laminated strand lumber. It was developed by Trus Joist, an American company that was on the leading edge of engineered wood and was one of the leaders in the world. They were actually the developer of the I-joist that you see in most flooring systems in houses today.

They and the original MacMillan Bloedel developed the technology for laminated strand lumber, which uses a process similar to oriented strand board. We take poplar logs, strand them into strands that are six inches long and three-quarters of an inch wide and very thin, then glue them back together in a panel. This uses that same process for structural beams and structural products. It actually aligns all the strands in the same direction.

The German technology I was referring to was really developed in conjunction with Trus Joist and with a German company called Siempelkamp, which developed the steam injection press, which is the real key to making structural beams like this--the very thick products--that you need to cure.

[Lloyd St. Amand, Liberal, Brant, ON]

Thank you very much.

We'll go to Mr. Boshcoff.

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

Thank you.

Your Worship Jim Scarrow, you mentioned earning the right to national support, and Your Worship Leonard Compton, you talked about a recovery strategy. I don't know if either of you are aware that the $1 billion community trust fund is a three-year program. We had asked for $1.5 billion per year, but this comes to about $330 million per year. It's not just for forestry; it's divided across all industries.

I'm asking you, Mr. Scarrow, if you think that amount of funding would be adequate for a national program, seeing as it will be distributed by the provinces and territories.

Mayor Compton, do you think a recovery strategy or having a plan should be a requirement for accessing any of this money from the fund?

[Jim Scarrow]

If I may, I again thank you for the opportunity. I apologize for running overtime in my enthusiasm.

Saskatchewan will receive about $30 million under the plan, I understand. Saskatchewan is going through an economic boom of unprecedented growth in a very short period of time.

The thing that is interesting to me is that there's some flexibility. Originally it was cast for those communities that were devastated by job loss, and permanent job loss. I understand that there's more flexibility in that. Those flexibilities are being considered by the government in Saskatchewan. My view is that it should go to training, particularly for first nations--aboriginal job training and education--because the skills that are required in forestry are transferrable to any number of industries.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mayor Compton.

[Leonard Compton]

Our recovery plan in Kenora is an economic development plan. We're attempting to increase our assessment tax base to bring some new people into the area. It's not totally forestry related, but the amount of money that is being talked about over three years is likely minimal, as far as we're concerned in Kenora. I know of little or no movement in Kenora to get any money out of this fund. I don't think people really know what it's all about, even the people in the industry.

If you took our loss in Kenora of 550 jobs, which is about $16 million annually, and transferred that to Toronto, their loss in the GTA would likely be in the area of $1.2 billion. There would be a lot of activity if a similar disaster happened in the GTA.

The fact that we're in a self-adjustment area in northwestern Ontario--and by that I mean that the federal government forgets about us and lets us adjust to whatever the water level is in the area--means that virtually nothing is happening from the federal government that's going to assist us. You likely would agree that we're considered a self-adjustment area in northwestern Ontario.

We are optimistic people in Kenora. We're not waiting for all these things to happen, but we're worried about the forest industry, because we can't turn our back on it. We are looking to other economic development activities in our area.

I don't know if that answers you, Ken, but that's our take on it.

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

Thank you.

Bill, can you tell us how an accelerated two- to five-year capital cost allowance would help your company specifically? That could be helpful to us here in committee.

Thank you, Mr. Chair.