Evidence of meeting #21 for Natural Resources in the 39th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was need.
A recording is available from Parliament.
11:05 a.m.
Conservative
The Chair Conservative Leon Benoit
Good morning, everyone.
We will start our final meeting, with witnesses at least, for our study on the unique opportunities and challenges facing the forest products industry.
Madame DeBellefeuille, are you looking to be recognized?
11:05 a.m.
Bloc
Claude DeBellefeuille Bloc Beauharnois—Salaberry, QC
Thank you, Mr. Chair.
Before you start, I want to ask for a small favour. Can you give us a list of motions that have been tabled with the committee in chronological order, so you can see where we were at? A number of motions have been tabled but not called. On other committees where I have replaced members, a list of motions is tabled each week so that everyone can follow.
Would it be possible to have a list like that for next Tuesday, Mr. Chair?
11:05 a.m.
Conservative
The Chair Conservative Leon Benoit
Madame DeBellefeuille, we do put out the lists every now and again. The order of the tabling of the motions or the order in which the motions are presented to the committee doesn't necessarily mean that's the order in which they'll be dealt with anyway. It's up to each member to decide whether to bring forth a motion.
For example, I was given notice this morning that at the end of today's meeting we will deal with a motion from Mr. Trost. It's up to each member, as you well know, to decide when to actually deal with a motion. They could be on the list for a long time--and some of them have been.
11:05 a.m.
Bloc
Claude DeBellefeuille Bloc Beauharnois—Salaberry, QC
I agree with you. This committee is quite convivial. If we had to consider Mr. Trost's motion and a motion from another member, which one would take precedence? To my mind, if we had to choose between two motions today, the one that was tabled first would take precedence. May I interpret it that way?
11:05 a.m.
Conservative
David Anderson Conservative Cypress Hills—Grasslands, SK
It might be in order just to mention that some committees have made a different decision about how motions are handled. There are some that have made the decision that they will only handle them in the order in which they come in, as part of the decision when they set up the committee.
We have not done that here. What we have agreed on is that the motions can come forward as the members bring them forward.
11:05 a.m.
Conservative
The Chair Conservative Leon Benoit
Yes. It's pretty difficult to manage them in the order they are taken. For example, I've already been given notice that a member would like his motion dealt with. All of sudden, if we do it in the order in which they are presented to the committee, then members--
11:05 a.m.
Bloc
Claude DeBellefeuille Bloc Beauharnois—Salaberry, QC
That is not what I am asking for, Mr. Chair. I did not ask for motions to be tabled in chronological order. I simply asked for a list of motions that are currently under consideration. I agree with debating Mr. Trost's motion. I simply asked for a list of motions that are currently before the committee but that have not yet been debated.
11:05 a.m.
Conservative
11:05 a.m.
Conservative
The Chair Conservative Leon Benoit
We do that occasionally, but I will do it. If you'd like it every time, we can do it every time.
11:10 a.m.
Bloc
11:10 a.m.
Conservative
The Chair Conservative Leon Benoit
Great.
Let's get to the business of today's meeting. Again, we will be ending our meeting at a quarter to one to deal with the motion.
We have witnesses today. Thank you all very much for coming this morning.
We have, from the United Steelworkers, Bob Matters, chair, Steelworkers' Wood Council; and Joe Hanlon, president, Local 2693.
We have, from the Université Laval, Luc Bouthillier, full professor, Department of Wood and Forestry Science, Faculty of Forestry and Geomatics.
We have, from J.D. Irving Limited, James D. Irving, president; and Christopher MacDonald, director of government relations.
We have, via video conference today, from the University of British Columbia, David Cohen, professor, Faculty of Forestry; and Jack Saddler, dean of the Faculty of Forestry and professor of forest products biotechnology.
We will now go directly to the presentations in the order listed on the orders of the day. We'll start with the witnesses from United Steelworkers.
Of course you understand we'd like you to keep the presentation for your group to less than ten minutes. If two of you are giving presentations, make sure the combined time is under the time we have allocated. We have a large number of witnesses.
Go ahead, please, gentlemen.
Mr. Matters, you're starting.
11:10 a.m.
Bob Matters Chair, Steelworkers' Wood Council, United Steelworkers
Thank you very much, Mr. Chairman.
I am Bob Matters. I am chair of the Steelworkers' Wood Council. With me is Joe. Joe is going to go first and I will clean up.
First, some people question why steelworkers are concerned about the forest industry. Just as a quick history, IWA-Canada used to be the Industrial, Wood and Allied Workers of Canada. It merged with the steelworkers in 2004.
Joe and I represent workers predominantly in the sawmills and logging manufacturing all across Canada. That's what the steelworkers' role is today.
I'm going to let Joe speak to northern Ontario for a bit. Then, as I said, I'll clean up.
11:10 a.m.
Joe Hanlon President, Local 2693, United Steelworkers
I'd also like to thank the natural resources committee for the invitation. We made the same presentation to the finance committee yesterday.
I'd just like people to know that we recognize in the forestry industry the need to work to create a future and to sustain the jobs in Canada. But I want to speak a little bit in regard to the workers and some of the effects and impacts on them, and some of the solutions to help them get through this crisis. So I'll be directing my comments to the forestry industry in northern Ontario, which has been hit hard.
As Bob said, we're the United Steelworkers, representing about 280,000 members across Canada, 50,000 of whom work in the forestry industry. Our local represents approximately 3,700 members in the forest sector, in a number of communities across northern Ontario. These members work in woodlands operations, sawmills, plywood plants, wafer plants, remanufacturing plants, trucking, lumberyards, chipping operations, and equipment repair and sales—or at least they used to.
As we speak, we do not even have 700 members working. These workers and their families reside in communities that have been hit hard by the downturn, such as Hudson, Atikokan, Ignace, Thunder Bay, Greenstone, Nipigon, White River, and Dubreuilville, to name a few. We are talking about 3,000 people who are unemployed, people who have families, many of whom have lived most, if not all, of their lives in these communties.
The majority of these communities are one-industry towns. A good example is White River. In July of last year, Domtar curtailed its woodlands and sawmill operations, putting 240 people out of work. We are talking about 240 people who live in a community of 1,000 people, or 24% of the total population. Just imagine if Ottawa announced today that 24% of the people who live in this city are going to lose their jobs. There'd be mass hysteria and immediate help from the provincial and federal governments. But in northern Ontario, it's just a news story for a day or two.
One of the largest one-industry towns in Ontario is Dubreuilville, with a population of 900. Dubreuil Forest Products employs 340 workers, and announced last week that it would call back the employees who have been laid off since last November. It should be good news, but it's not. They're only going to be called back for about a month; the company wants to clean out the inventory and close the doors, with no indication if and when the mill may reopen.
The people of White River and Dubreuilville, and other communities who are affected by the same fate, deserve more. These are real people, real families, and real communities. In many of these small communities there are no other jobs. How can these small northern Ontario towns continue to afford to provide public services if no one can pay their taxes? How can these people and families continue to live there? They can't—their EI will run out and they'll have no other means of income. The bank will foreclose on their homes and they'll have to use all of their savings.
Perhaps it could be said that before that happens, they should look for work elsewhere. Maybe they can go out west. Well, many have left, but they also face problems. The equity they've built up in their homes is gone; their homes are worthless. The hard part is trying to find somebody to even buy it.
Another problem is when only one family member goes out west to work, who will deal with the social impact and the loneliness of raising your kids as a single parent?
Let us not forget the high cost of living out west, which is a huge challenge for someone who has had their credit rating affected because they could not pay their bills, taxes, loans, or mortgage. Right or wrong, many workers believed they could wait out the storm. They believed the operations might reopen. They believed the provincial and federal governments would not just sit back and watch all of these people, their families and their communities, be destroyed. They know now they were wrong.
Many have taken their severance pay in the hope of catching up on outstanding bills, or to use it to start a new life; but reality sets in very quickly when they find out that the government wants it. They can't pay anything off. They have to use the money to feed their families, because their own means of income, EI, is cut off until their severance is used up. How can we as a society take money away from those who need it the most, money they've worked for and are relying on—especially when there's a surplus in our EI fund?
Our workers are told they can be retrained. Many are upgrading their skills, but they continue to ask, once they receive the training, where are the jobs? Who is going to hire them? In the end, if they want to work, they'll still have to move.
These are a couple of stories from northern Ontario about job losses. These two communities lost about 600 direct forestry jobs. We are just a small local in northern Ontario. There are other steelworker locals, other unions, community leaders, and industry who can tell you the same story. There have been thousands of people who have lost their jobs in northern Ontario, tens of thousands across Canada.
Today is a start, but we need to ask, where have you been for the last two to three years? The devastation that has taken place in the forestry industry is not new. Government will hear from us today, but where were the public hearings that allowed workers and communities to give their input on the softwood lumber deal? Maybe if this had been done, the government could have negotiated a good deal for Canadians and kept working families first.
We ask the natural resources committee to ensure that the federal government pays attention to these people, their families, and communities, to union leaders, the forestry industry, and provincial governments. We need to work together. We need to listen. We need to move fast so that people can get back to work, instead of out-migrating, or being retrained in limited programs where there are no jobs and before any more lives or communities are destroyed.
As for a plan for the future, employment insurance needs to be extended and changed to ensure that severance pay does not take away or defer EI benefits. Taxation and regulatory policy need to be changed to encourage firms to develop new processes, find new markets, and create new products. Training facilities should be located in forestry-based communities. Companies should have to discuss alternatives to shutdowns, and we need the appointment of a jobs commissioner. Furthermore, we need a jointly sponsored provincial and federal fund to support forestry workers. Governments need to target job creation, and governments need to ensure that wages and pensions are protected from companies that declare bankruptcy.
Bob.
11:15 a.m.
Chair, Steelworkers' Wood Council, United Steelworkers
Thank you, Joe.
Mr. Chairman, I'm going to keep on track. I have copies for everybody of an article from The Vancouver Sun of two weeks ago about 10,000 forestry jobs gone in the last year alone. Those are in British Columbia, the undisputed logging capital of the world, quite frankly.
Of the 50,000 steelworkers we represent, 20,000 are not working today. And as Joe said, the real sad part is that this is in real Canada; this is rural Canada, single-industry towns. Most often, when you have people displaced in one-horse towns, it's a real problem. That is not recognized, by and large, in the big communities.
I'm not going to go into a lot of the history. You guys have heard this stuff too many times already.
As far as the future, what we have to do is to deal with softwood--that is, the softwood lumber agreement. If the crisis we're facing currently weren't bad enough, the industry has been served poorly by policy-makers.
I'm going to remind everybody that days before a U.S. court ruled the tariffs illegal and ordered the U.S. government to give back all of the $5 billion it had collected—all of the $5 billion—this government accepted punitive terms in exchange for an 80% return, and a softwood agreement that is hindering provinces and the government from helping their citizens. The softwood deal has to be revisited. Quite frankly, we think it should be turfed. It has to be revisited first and foremost.
We need healthy forests. We all know, and all of you guys have heard, about the pine beetle plague in British Columbia, which is starting to hit Alberta. The devastation is unprecedented. What we have to do is to redevelop a serious reforestation and intensive sylvaculture program. It isn't going to do anything for the markets today, but it can employ people today in their communities, keeping them active and keeping them buying things and supporting their communities in rural Canada. We need an intensive sylvaculture and reforestation program all across the country.
We obviously need to provide incentives for domestic manufacturers—not to do what we're doing today, but to do something different and better to get more value-added out of our projects.
As for the training that Joe and others talked about, we need to do some more serious training. But again, the key is to train people not for potential “what if” jobs, but to train them first and foremost, so that when this industry recovers—and it is cyclical and will recover, though it won't be this year, and maybe not even next year—all of our workers are properly trained to man the machinery and equipment to make this thing go when it kicks back again.
One thing that's been missing all across Canada is federal-provincial cooperation on log exports. Log exports are a crime against the citizens of Canada, quite frankly. We are exporting millions and millions of man-hours. The constant buck-passing, if you will, between the provincial and the federal governments has to stop. There has to be cooperation, so that we completely stop the export of raw logs and keep those jobs here in Canada.
One last thing I was going to touch on was the round-table summit. We do have to get all of the players from across Canada in the industry, and workers, to sit down and talk about what we can do, so that when this thing turns around, we are in gear and not idling. But we have to be in gear so that we can take off when this thing turns around.
Thank you very much.
11:20 a.m.
Conservative
The Chair Conservative Leon Benoit
Thank you, Mr. Matters and Mr. Hanlon.
In regard to your last point, that is exactly the motion we will be debating at the end of this meeting, so it's very timely.
I go now to the second group of witnesses, one witness actually, from the University of Laval, Luc Bouthillier, full professor in the department of wood and forestry science, the faculty of forestry and geomatics.
Go ahead, please.
11:20 a.m.
Luc Bouthillier Full Professor, Department of Wood and Forestry Science, Faculty of Forestry and Geomatics, Université Laval
Thank you Mr. Chair, ladies and gentlemen, for welcoming me. As I only have 10 minutes, I will speak French, but during the discussion, I can answer in English.
The point is to be effective in my message.
The Canadian forestry sector is extremely important. The two previous witnesses made excellent presentations on the crisis we are currently facing. According to them, the crisis is having more of an effect on rural Canada. Bear in mind, however, that 85% of the population of Canada is in urban areas. This crisis has made us forget that Canada as a country depends on forestry, and that our forests can help generate wealth and confirm Canada's identity.
We are facing five challenges. The first one deals with streamlining. In a recent report entitled Mission Possible: Sustainable Prosperity for Canada, the Conference Board of Canada states that given international standards, our conventional industry must be streamlined and become significantly larger. Our companies will have to get much larger, which could mean going from 80 pulp and paper mills to about 15. You see the size of the job.
However, not only does our traditional sector need to get much larger, and to generate more economies of scale, but it must also be modernized. Finland, a forestry-dependent country par excellence that dominates the pulp and paper world, invested $2 billion in the industry in 2007. Let's look at an economy of similar size: Quebec. That province invested a mere $300 million in the forestry sector. That hardly covers maintenance of our old mills, which are 30 years old on average. In Finland, the mills are an average of seven years old. We are competing with them, and we have a problem.
We are facing three challenges: streamlining, modernization, and creating a value chain. We are no longer competitive because we have lost our competitive advantage along the chain, from the stump right through to the final consumer. We are operating on automatic pilot. We must look at all opportunities for savings to reduce the cost of the raw materials, the cost of manufacturing and marketing, and to recover our competitive advantage in the context of a strong dollar.
If we rise to these three challenges, that will mean huge job losses. So that means dealing with a fourth challenge as quickly as possible: developing new products. Wood products are clearly the avenue to explore to develop new products. Non-commercial construction uses a mere 3% of wood materials. There is a huge market to conquer if we can emphasize the environmental properties of wood as compared to concrete, plastic and aluminum. Canada is a forestry country.
We must also develop green energy. Sweden is a very interesting case. Sweden has made a commitment to replace 42% of oil, particularly by making more room for wood, by the year 2020. By 2012, in the energy supply pie chart, wood should represent 12% of requirements. At present, it is a mere 3%. That is the target for 2012, in other words four years from now. Sweden will develop a technological lead that we currently have.
The notion of green chemistry, all of these products... A cellulose molecule is 10 times more complex than an oil molecule. You are aware of all of the products that we can make with oil, be they plastic, or synthetic chemical products. We can make 10 times as many. We are leaders in this technology. The Canadian government, through its granting councils, saw that coming. We have new wood products that use wood chemistry. All that is missing is the industrial development.
However, the real challenge is employment, and the previous speakers clearly pointed that out. For all of these people who lose their jobs, the situation will continue, because rationalization, modernization, and the search for enhanced productivity through the refinement of the value-creation chain will lead to job losses. We must find something to offer to these people, not only because we are sensitive to the fate of rural forestry communities in Canada, but also because we need these people to reinvent the forestry industry, to make it into a knowledge industry.
The manpower challenge is crucial. If you compare current figures to those of 2006, you can see that job loss is about 20%. Over the next year, we will probably realize that one third of jobs have been lost. Out of 300,000 jobs, that means a lot of people. But we need these people. Putting them into early retirement is a waste of talent and energy as well as a waste of money. It is very costly, especially given the fact that the age of the largest cohort of workers is between 35 and 49. It is true that in the pulp and paper industry, workers are slightly older. However, in the wood industry, we are dealing with young workers. We must benefit from their ingenuity and from the fact they have been sidelined to increase their skills.
A report published about a year ago by the Canadian Forestry Service painted a picture of forestry and the mill workers. This study shows that in the forestry sector, both in the mills and in the forest, workers without high school diplomas are the most numerous. The smallest number of workers with a technical diploma. In Sweden and Finland, it is exactly the opposite. The forest is recognized as a resource that can generate wealth. Workers in that area are valued.
We are facing a crisis. So I propose that we draw some inspiration from the Danish model and that we begin work immediately on a flexible security program. That will give the industry the flexibility at needs to streamline and modernize their operations. This flexibility will enable them to hire fewer people, but in exchange, they will be in a position to offer income security to people who have been laid off.
What will we expect of people who will be offered income security during the layoff period? We will expect them to improve their skills. They will have to receive training in order to develop their skills in the area of computer literacy. It is somewhat astonishing to see, in our plants and in the forests, the extent to which people are lacking skills to deal with the knowledge economy, which requires mastery of computerized tools.
Tailor-made training programs will also have to be developed. Considerable time is wasted when people who have been laid off are sent to develop the skills needed to draw up a resume. That is not what we need. We must also take advantage of the fact that these workers have in-depth knowledge of what happens in the mills. It is important to take advantage of this work stoppage in order to enable a few of them or the older ones to reflect on ways to enhance productivity. We must practice what management experts call organizational innovation. Good ideas to improve efficiency are close to the machines and not in the head of high-level planners.
In order to improve skills, we will need to focus on more community-based institutions. You should focus on joint undertakings between the unions and the companies. For the time being, the companies are looking for compensation and want to open collective agreements in order to reduce wages and benefits.
In exchange, workers are being offered a possibility, hypothetically, to keep their jobs. I think they should be offered to possibility to participate in the new forestry industry that will continue to manufacture basic products, but that will invest a new production base on what we call precision cut, green energy and green chemistry. To do that properly, we will have to benefit from our domestic market. Canada is an exporting nation, but in the case of developing new products, there is nothing better than starting with our domestic market to differentiate our products internationally.
Thank you, Mr. Chair, ladies and gentlemen.
11:30 a.m.
Conservative
The Chair Conservative Leon Benoit
Merci, Monsieur Bouthillier.
We'll go now to Mr. Irving, from J.D. Irving Limited. Also here today is Christopher MacDonald, director of government relations.
Go ahead, please, gentlemen, for up to ten minutes.
11:30 a.m.
James D. Irving President, J. D. Irving Limited
Mr. Chairman, ladies and gentlemen, we appreciate the invitation to be here with you this morning to express our views concerning the forest products business here in Canada.
For those of you who don't know anything about J.D. Irving Limited, our head office is based in Saint John, New Brunswick. We've been in business for about 125 years. We're a fully integrated forest products company, from timberland through to lumber, pulp, paper, tissue, and corrugated medium packaging. We're also in a number of other businesses, as outlined in our presentation. I won't take you through all the details.
Just as these other presenters have said, in the forest products industry we're going through a transition today unlike anything we've ever seen before, certainly in living memory. It's tragic and destructive, and its effects will be long-lasting. There's no doubt about that. It's a major restructuring.
We have the record-high Canadian dollar, as you folks are very much aware. If you're from rural communities or communities where your constituents depend on exporting for their livelihood, you know the pain that the Canadian dollar is causing us, certainly in eastern Canada. It's enormous. The volatility of high energy prices is affecting our transportation costs for bringing our goods to market. In the case of the softwood lumber business, there's a total collapse of the U.S. housing market at the present time.
At the same time, we're dealing with enormous change in competitors in the marketplace. The marketplace is shifting dramatically, and competition for skilled workers is intense. The knowledge-based economy is changing our fundamental world. That's fine; that's life; that's the world and we're prepared to deal with it. We have to deal with it because hiding our heads in the sand is not going to fix this problem.
The good news, at least in our particular case and for most of the Canadian forest products business, is that the markets are increasing globally for the products we're making, whether it's tissue, pulp, paper, or even newsprint. So there is opportunity out there, and there are opportunities for good, solid companies that are dedicated to making a difference.
The federal government has a major role to play in making sure we're there and we survive for the long term in this country. I give the federal government credit for the recent announcement made on carbon sinks. You included forestry in the carbon sink announcement this week, and that's a positive and important note. We hope the details that get finally published on this are extensive enough to be of value, and encourage and recognize good forestry practices that have been going on in some jurisdictions in this country for a very long time. We think that should be recognized.
Extending the capital cost allowance on the depreciation rate was another good move, and I'm going to talk a bit more about the importance of that in a second.
Clearly the federal government can't fix everything. A number of our policies are directly related to provincial regulations, whether it's management of crown land, local power rates, or infrastructure costs. Those are provincial problems or opportunities. But from the federal government's perspective, the ability to encourage capital investment is enormous, and we have to handle that in the proper fashion.
This shouldn't be done through subsidies; it should be done, as far as we're concerned, through the tax system. There are different ways to do it, but if you take some of the examples, in terms of scientific research and experimental development, there are things that are fundamental to our business.
Some of the other presenters talked about new products. That's what we need. We need to be creative and innovative. Finland is a great example. It's a small country, but that's where we go to buy our logging equipment and our paper machine equipment. That's where we go for our technology. We don't have any of it here in Canada, and it's a national disgrace. It's a shame.
We have to use the tax system to encourage that. Today there is SR&ED, but if you're not making any money and you do research, you can't claim it and get a refund. You should automatically get a refund. In the province of New Brunswick today, as I understand it, about 15% is refunded. If we spend a dollar, we get 15% back, whether we have taxable income or not. But we don't have that with the federal government.
Quite frankly, 20% or 15% is pretty measly in terms of not just the forest products business, but research in general in this country. We need to be really constructive, aggressive, and bold about encouraging research. We should take the shackles off. Let's really go at that. Put a cap on it if you want--so many million dollars a year per company, or something--but let's really encourage it. We should be innovative, and we think we have the opportunity to do that.
I'll talk about the available-for-use rules and half-year rules. This comes back to depreciation and the capital cost allowance. I don't want to make this any more complicated than it has to be, but people in this industry have to spend billions of dollars. We spoke about the $350 million or so spent in one year against the $2 billion or more spent in Finland in one year. That's criminal. We have to spend enormous amounts of capital to be up to speed with the new technology. We've got paper machines running this country that were built in the 1920s. That's no good.
In our organization, for the last 15 years or so, we have spent about 125% of our depreciation. A good company needs to spend at least 100% of their depreciation a year to reinvest in capital and technology. The North American average in the forest products business is about 60% at the present time. It's way underfunded.
That was all built around the ready-for-use rules. Today, if we make major capital expenditures in a pulp and paper mill, these are hundreds of millions of dollars, and they sometimes take two and three years to complete. We made this presentation before to the federal government, and we said, look, once you've committed to the project, once you've issued the purchase order, allow your auxiliary depreciation to start. It's a form of financing. We'll take depreciation. We can sell that depreciation to General Electric, if you will, or some other company. It's a great way to finance projects. The capital money gets spent. Yes, the federal government will get less income tax this year, but as soon as the depreciation is used up, there's taxable income available. Yes, it's a deferral in revenue for the federal government, but you get modern technology. You get new plants. You have places for young people to go to work with all the skills we need.
We have to be creative. The capital cost allowance that's been put in place in the last year or two has been a good start, but it's only for a year or two. We're talking capital projects that take two and three years to build. We need some certainty. We need a longer timeframe. We need to get rid of the half-year rule, which means you can only take your depreciation for six months, regardless of when you spent the money, even if you had 12 months ahead of you. We should get rid of the ready-for-use rule, or put that in place, if you will, so we can take the depreciation immediately upon issuing a purchase order.
These are small details, maybe, but they have an enormous impact, and the subtleties shouldn't be lost on anybody.
Earlier I talked about training our workforce. There is big opportunity. This is a big issue. We need to get our workforce trained. Let's find a way to do that in such a fashion that it's productive, whether it's off of our EI payments or through some other method that allows for people to get properly trained. Encourage it. Encourage industries to be proactive.
We also believe, given the technological changes that are going on--which are enormous for the working man and management--that the federal government would be wise to put a tax-free incentive in for the first 5% for anybody making up to $50,000. If the money comes from incentive-based pay, productivity-based pay, treat that as you would medical or pension benefits. Give everybody a little bit of encouragement to not fight it. Let's not fight the change. Let's not fight the system. Let's say, “Folks, step up here. We're going to change a lot of things. You're going to have to be a partner.” Let's encourage those people and give them a little bit of a boost.
There are some other issues around biomass, heat incentives, energy policies. We think at the present time some of the energy policies--which are good--are restricted to using biomass to make electricity. If you just want to burn biomass--and for you folks, that means bark and sawdust and branches from the forest--or you want to make steam and reduce your oil input costs.... It's $110 for oil today--my heavens--so we should be all over this one. Let's create a policy broad enough so we can use biomass not just for creating electricity but for steam and to reduce our costs. It's a big environmental boost. Why not? It's a smart thing to do from the government's perspective.
In conclusion, we'd like to make sure that we encourage you to really think about the tax issues. We don't believe in subsidies.
We'd like you to really think about helping the workforce transition, because it's critical. The government has a role to play through incentives and encouraging a very broad and progressive attitude about it, and helping things like cost competitiveness through better use of biomass and cogeneration. Also, you can help the provincial governments, I think, at least in the case of New Brunswick. We've had enormous cuts in the bureaucracy, to the point that we don't have enough people around to really understand what the competitive issues are and how we're going to deal with them locally.
This is not “one size fits all” in Canada. It's a complex country, a complex business. At least in the case in New Brunswick, somehow we need more support to say, “Folks, for you down here—the province with the biggest percentage of GDP from the forest product business—we're going to give you a hand to try to figure out some of these complex problems”, because they are complex.
Thank you very much, sir.
11:40 a.m.
Conservative
The Chair Conservative Leon Benoit
Thank you, Mr. Irving.
We now go by video conference to Professor David Cohen, from the faculty of forestry.
Go ahead please, sir, for up to ten minutes.
11:40 a.m.
Dr. David Cohen Professor, Faculty of Forestry, University of British Columbia
Thank you for inviting me.
I hope you received my brief. I did get it in about ten days ago. Hopefully you have it, because there were some pretty pictures in there.
I'd like to take a step back a bit. Rather than talk about a specific policy there, I'd like to talk more about what's going on. There is a crisis going on in the forest sector in Canada. Rural communities are in deep trouble. I spent 12 years in a community of 850 people, and I empathize completely. But there are also things going on in the global industry. There are huge changes in the global structure of the forest products industry, and how we address the current crisis must take into consideration how we fit in with the new global competitive structure in the forest industry.
I'll try to keep this to about seven or eight minutes, but I'd like to talk about what's been changing globally and how that might affect this. I'll use the value chain, and I'll start with where the wood comes from.
We've seen a sea change shift in where the raw material wood resource comes from for the global forest sector. It used to come from northern boreal forests, forests in the temperate zone--Sweden, Canada, Finland--and it's shifted. It's shifted to plantations that are around the equator, where they can grow trees very quickly, they can grow trees very fast, and they can grow different-quality trees, such as eucalyptus, rubberwood, and radiata pine. Today over a third of all the wood resource comes from these plantations, and it's predicted that will go up to 50% or 60%.
Canadian market share of the wood products industry worldwide is declining, because we cannot compete with these fast-grown plantations. It takes us 50, 80, 100, 150 years to grow a tree. You can grow a tree in Brazil in seven years. We get about 2.7, 2.8 cubic metres per hectare per year. They get 40. It's just very difficult for us to compete.
So there's a shift in wood supply. Yes, our fibre has some advantages, but there have also been changes in the manufacturing, two big changes in particular.
First, we have used technology and computers to be able to take very low-grade raw material and produce very high-grade products. We've been able to do that through engineered wood products, using an I-beam and a floor joist instead of a two-by-ten. We've been able to do that by using aspen to make oriented strand board instead of high-quality Douglas fir to make plywood. We've done that in thousands of ways. Probably most important to Canada, by using processed control and computers we can make very good pulp from very lousy fibre. Our strength has been our very high-quality fibre. The problem is that you can take fast-growing eucalyptus, you can take fast-growing species, and make pretty good fibre. You can take recycled paper and make pretty good fibre. And they now use our pulp as an additive. If we make too much of it, the value of it declines tremendously.
The second thing in manufacturing is one word: China. China has taken over the wood manufacturing industry in the world. They are the largest exporter of furniture in the world, surpassing Italy in 2006. They are one of the largest plywood producers. They produce a third of the world's medium-density fibreboard. They export almost $10 billion a year of value-added wood products, including hardwood flooring. If you go into a store and buy hardwood flooring, engineered wood flooring, or laminate flooring, chances are it's made in China. These are all wood products. China has become the manufactured wood centre of the world. Its biggest competitors are countries like Vietnam, which has increased from several hundred million dollars a year of exports to almost $3 billion predicted for this year.
So these are our competitors. The manufacturing has changed.
The third area in which there's been tremendous change is the markets. The markets have been taken over by large retailers. And when I say the markets, I mean the markets in developed countries--Europe, North America. Whether it's Home Depot, or B & Q in Europe, whether it's Wal-Mart for clothing, whether it's such house-building companies as Pulte, Centex, or D.R. Horton, there's been tremendous concentration. And these companies demand certain things. They respond to aggressive environmental non-governmental organization attacks on various companies. Unfortunately, wood-producing companies in developed regions tend to be the prime targets of ENGOs, because they can't have much effect in a place like China or a place like Malaysia or a place like Burma.
So we have a situation that is really aligning to make it very difficult for us to compete in doing what we're doing. Our industry, in response, has put up the trenches. They're really in a situation where they're trying to defend their situation. They're playing a strategy of last man standing. They're saying if they can just survive this current downturn, they can go back to producing two-by-fours, they can go back to producing the commodities, and be very successful.
I know, based on some research we're currently involved in, that the European players are waiting for the U.S. market to pick up; then they will try to capture the top end of the commodity market and leave the bottom end for the Canadian producers because of what you previously heard: not enough money in research, not enough diversification, etc.
I'm suggesting we need to take a different approach. We need to address the immediate situation while putting on spectacles for a long-term vision. We have to be able to ask what we do to help the people struggling today, which is critical, making sure what we do leads to a better competitive structure in the future.
My fear is if we just look at survival, we're going to end up with some very large, very successful companies, a bunch of very small companies, and a lot of small towns with nothing: wood being logged there but moved to large manufacturing facilities. My deepest concern is to develop sustainable rural communities, and I think we have a tremendous opportunity to do that.
I want to get away from the idea of this barbell industry structure, which is happening in a lot of sectors, a lot of really small mom-and-pop operations, a few big ones that are huge, no small and medium-sized enterprises. I think those small and medium-sized enterprises are the ones that really drive successful industry structures. They're the ones that create jobs; they're the ones that pay taxes; they're the ones that innovate the most. They don't have the big bureaucratic structure.
What can we do about it? In my briefing I really came down to three things. One was to build capacity in rural communities, and I don't mean extending runways and putting in industrial parks. If I get one more phone call from someone getting my advice on putting a value-added industrial park somewhere in northern name-the-province, it'll drive me crazy. Putting in an industrial park doesn't create capacity. Releasing the innovative entrepreneurship of the people who already live there does.
So when I talk about building capacity, I'm talking about building the human capacity: training and education, training to include manufacturing skills. We here at the Centre for Advanced Wood Processing are developing a program for wood manufacturing councils to upgrade the managerial skills of those currently working in the value-added sector.
That could be revised to do more basic training to teach people at the managerial levels who aren't in this sector some basic ideas. Train them, but use web-based and on-site course training. We need to use the current technology to make the best use of what exists in cities, as well as getting out to the rural communities or getting them to the facilities in the big cities. Training should include developing real business plans for real money.
The second thing is to focus on the total forest value. The crisis is with the wood, not with the forest. There are values in the forest that there are opportunities to commercialize. I did a talk a few years ago to the registered professional foresters associations, where you're supposed to look 20 years in the future. I'm convinced the forestry in B.C. will be incredibly economically valuable because of the water it produces, not because of the wood. Wood will be produced, but the most valuable resource will be water.
We don't know what the most valuable resource in our forest is going to be in 20 years: it could be water, it could be carbon sequestration, it could be biodiversity credits. But we have to manage so we can maximize the value of the forest, not of the wood resource, and that requires a bit of a different mindset.
So we need to focus on the value of the forest, and that's where the first nations people can come in, because they have a different understanding, and many of the local people have a great understanding. I'm in a project looking at a small town in the interior of B.C. With the large sawmills shutting down in the early eighties, what have they done to maintain a viable community? It's through those small and medium-sized enterprises, it's through going into snowcat skiing, but it's also through wood production, and that includes biofuel.
The third one is to support innovative small and medium-sized enterprise start-ups, right? It's very important to encourage business start-ups. Having worked with many provincial and federal programs, I have recognized that what tends to happen is if there's a failure, the program stops. Failures are not allowed. In real business, you start new products, and out of a hundred that make it through the first funnel, ten might go through the second funnel, three might be taken to market; if one makes it, it you've got a success.
We have to allow failures. If there's support of start-up businesses, one has to expect there'll be 30%, 40% failure. That would be a great percentage, 60%, 70% success rate.
Unfortunately, when there's government support, if there's one failure the program tends to get cancelled. We have to recognize that in the business community failure is part of growth. If we're going to talk about restructuring our industry, then this perception is necessary.
There are tremendous opportunities. The waste from the forest, the waste from wood manufacturing, is going to become more valuable. The waste currently is chips for pulp mills. Soon it's going to be fuel for bioenergy and material for pellets or new types of panels. We're going to have a different product range. We are going to have a higher-value product with more waste, because there will be more markets for the waste.
These are the three things I'm recommending. We try to build the human capacity in the rural communities, and that's mostly entrepreneurial business capacities and technical capacity. We need to focus on the total value of the forest and not just the wood. This is difficult, because our tenures are based on wood and not on forests. There are a lot of values that aren't wood-based. Supporting innovative, small and medium-sized enterprises and recognizing the changes that are going to happen with the waste stream gives us an opportunity to produce medium and small quantities of high-value product that can go into value-added manufacturing.
With that, I will close without having to get my warning on time.
11:55 a.m.
Conservative
The Chair Conservative Leon Benoit
Thank you, Professor Cohen, from the University of British Columbia.
Our final presenter today is Professor Jack Saddler, dean of the faculty of forestry and professor of forest products biotechnology at the University of British Columbia.
Go ahead, please, sir.
11:55 a.m.
Dr. Jack Saddler Dean of the Faculty of Forestry and Professor of Forest Products Biotechnology, University of British Columbia
Thanks very much for the opportunity to talk today.
I want to pick up on some of the comments that were mentioned earlier. My colleague Professor Cohen said one of the main issues is that globalization is a reality. In Vancouver this week, I think we have Minister Lunn as a member of the GLOBE conference, which has about 10,000 delegates. Again, this is an indication that the environment and globalization is a reality.
I want to cover two main points. One is timeframe. I tend to use this example. At a university we look at a 40-year to 50-year timeframe, because if anyone has come through tertiary education, hopefully the education they pick up is relevant for about 40 or 50 years. The other point Professor Cohen made is that it takes about 100 years to grow a tree. We don't have a very good idea what that tree will be used for in that 50-year to 100-year time, so we have to be innovative.
There are multiple values from our forests. We've had very good experience with a group such as Greenpeace. If we're seen globally not to be managing our forests in an environmentally sensitive way, that has a big impact on our markets. If we're not seen as good stewards of this resource, we're not going to be able to sell many of our products. We know that's a reality.
My main punchline today is that we have to focus on the three Rs. Number one is recruitment. We mentioned the example of Finland. I think one of the problems we have in Canada is that many of our young people don't want to work in the resource sector. If you look at forestry, agriculture, even mining, which is very hot now, it's problematic to get young people into universities to do research in those programs. We have the statistics that tell us there's a problem getting people into forestry, agriculture, and mining. Considering that is Canada's bread and butter and that it will continue to be so, that's a problem. So the first R is recruitment.
The second one we've heard about is research. Our investment in Canada is terrible, so looking at how we can be innovative and the products we can get from our trees, we have a big problem. I think the current industry is struggling. If you look at the companies at the GLOBE conference, for example, it's not the traditional forest companies; it's the energy companies, the oil companies. There's a recognition that we're going to move away from a hydrocarbon economy, from coal and oil, to an economy based on carbohydrates. It's going to be agriculture and forestry. It's interesting that the research part of forestry may well come from outside the traditional forest sector.
I call my third R reinvention. We heard earlier about the cyclical nature of the forest sector. We're not in a cycle now, we're in a major sea change. We may come back a bit, but as Dave pointed out, if we're relying on market pulp or two-by-fours, we're not going to make it. We're going to have to be very innovative in terms of the products we get from our forests. More importantly, if you look at how the global economy is going--this bio-refinery concept--the same way we look at refining oil, we're going to have to refine biomass. We've talked mostly about oil--$110. Within this 50-year timeframe, if I again come back to how long our students should be relevant, it's inevitable we're going to be making a lot more than two-by-fours from our forests.
I will finish with an example. One of the earlier speakers talked about Denmark. Denmark now gets about 25% of its electricity from wind. If you fly to Denmark, you'll see windmills. I heard the minister of environment say that the national flower in Denmark is the windmill; that's how prevalent they are. The more impressive statistic from Denmark is that 50% of all windmills sold globally are made in Denmark. We should be aspiring in Canada to not only use our resource in a very innovative and effective way, but to be the developers of the technology that we can sell to the rest of the world.
My punchline is that we need to concentrate on the three Rs: recruitment, let's get our brightest and best to work in the resource sector; research, we need to be innovative with the resource we've got; and reinvention, how are we going to reinvent the forest sector.
Thanks very much for this opportunity to give my two cents' worth.
Noon
Conservative
The Chair Conservative Leon Benoit
Thank you very much, Dean Saddler.
We will now go directly to the questions. In the first round we have Mr. Alghabra, Madame DeBellefeuille, Ms. Bell, and Mr. Allen.
For up to seven minutes, Mr. Alghabra.