Natural Resources Committee on Dec. 12th, 2011

[Avrim Lazar]

I hope I wasn't blathering too much.

[David McGuinty, Liberal, Ottawa South, ON]

No, that's okay. You've been great.

I think one of the reasons we called this meeting today was to examine just how far we've come since the last report of three years ago. I wanted to focus on the report. I'm sure your team had quite a bit to say about that in terms of input and testimony, and I'm sure you watched it carefully. I'm sure you've read the report many times.

An awful lot of money and time went into that report, that process. I wasn't part of it, but my former colleagues who I've spoken to have told me it was a very big effort.

Some 23 recommendations flowed from it. I'm not going to ask you to be an Auditor General, but can you help? If you can't do it today, for example, maybe you can give us an idea. How many of the 23 recommendations have been implemented? You've just touched on ACCA. This committee asked for a five-year guaranteed lockdown commitment for ACCA. You've continued to get one-year commitments, which makes it very difficult for planning.

Can you give us an idea...? Of the 23 recommendations, in your estimation how many have been implemented?

[Avrim Lazar]

We could go through them, but as you said, I haven't done the audit against recommendations.

I can tell you some of the big ones that really stick out that I'd love to see us...or I could talk about long-term planning for capital projects, because short-term capital projects usually aren't what you need.

One calls for an overall framework. I don't remember how it's worded in the report, but it says let's not do stuff one piece at a time. Let's develop a vision shared between government and industry of what's needed to keep the jobs in the forest industry, and let's use that vision, that framework, that concept, to have a long-term steady plan of transformation. So that's a big one.

Another one we'd like to see action on is rail service. The report noticed that we are dependent upon an unregulated near monopoly for rail service. That so many, 80%, of our mills are captive to one rail line dramatically increases our cost, not just in freight rates but also in service. While the government did the right thing in doing a rail service review and in announcing a mediator for the implementation of it, it has all taken years and years and we still haven't seen any impact on the ground. We've had years and years of process. We don't have the results in terms of requirements for service and we still have rate problems.

Those are two big ones that are not being dealt with.

On the R and D, the government has been generous, but not as generous as our industry competitors have been. Again, both the R and D and the export development money is all the right stuff, but it's given two years at a time, which leads to uncertain planning and a lack of business confidence.

[David McGuinty, Liberal, Ottawa South, ON]

On a go-forward basis those are three areas your members would like to see addressed?

[Avrim Lazar]

Yes.

[David McGuinty, Liberal, Ottawa South, ON]

Would you be able to help us come to grips with the 23 recommendations? Would your team be able to pull something together for us? It doesn't have to elaborate, just to say yea, nay, maybe, halfway, one-third of the way, no way—because it's very difficult for us to compare what we've seen proposed.

[Avrim Lazar]

We'd be happy to do that, and where circumstances have shifted we'll even note where we'd like....

I think, actually, both halves would find it useful, because government gets credit for what it's done, which is a lot, and you guys get to remind them of what they haven't done, which is also a lot.

[David McGuinty, Liberal, Ottawa South, ON]

Yes, except that this is not about the government or the opposition. I think it's about the folks you've talked about in over 100 communities right now who are very frightened about their future. It would be important to know. It would also be very helpful to know from your sector....

Twenty-three recommendations is a lot of recommendations. It would be nice to know if the three you've just mentioned are your top three in terms of where to go next.

I know recommendation number 1 from the report was that the Prime Minister would convene a national summit with all stakeholders. This Prime Minister has not convened a national summit on any industrial sector since becoming Prime Minister. In fact, I don't think he's convened a national summit on anything, despite parliamentary reports, despite votes on the floor of the House of Commons, despite calls for it by the Council of the Federation.

It would be really helpful for us to know whether these are the top three for the sector that ought to be addressed first. The vision thing, the rail service, and the R and D support, which is not as generous as for competitors—are those the three?

[Avrim Lazar]

It's pretty close, yes.

It's market development; environmental reputation; R and D, not just in the labs but bringing it up to commercial scale; rail; and continued long-term dependability of accelerated capital depreciation. And we would like another couple of billion dollars for green transformation, but given the fiscal times, we don't think it's the right time to ask for it.

[David McGuinty, Liberal, Ottawa South, ON]

Could you talk a little bit about environmental reputation for the sector?

[Avrim Lazar]

Sure. It's got two pieces to it. The first is obvious: that the sector's acceptability in the marketplace depends on its environmental credentials. It used to be that most people thought environmental problems were industry's fault. It's no longer true; most people now hold themselves personally accountable as well as holding industry accountable. You'd think that would be good for the industry, but it's bad for us because when people buy something, they judge themselves on whether or not they're making a responsible choice. We had to change our brand, which was quite negative environmentally, in order to sustain our place in the market.

In addition, because it’s gone through such hard times, the industry has a bad reputation with investors. Investors think, “The Canadian forest industry? Oh, you've got to be kidding.” Without that investment, all the government programs in the world won't save us. We had to do something to say to the whole world that this is an industry that gets it; this is an industry that's capable of bold moves. What's bolder than getting Greenpeace to hug the head of the forest industry on national television? What shocks the brand more than 21 multinational forest industry corporations together with the most radical environmental groups saying that we are in a uniquely Canadian experiment? We're going to stop fighting and start figuring it out.

[David McGuinty, Liberal, Ottawa South, ON]

From an environmental reputation perspective, what you're saying, Mr. Lazar, is that for the natural resources sector, in this case the forestry sector, environmental reputation has a very big bearing on consumer choice. You're also saying that environmental reputation has a profound impact on the markets in terms of investment choices and decisions made by institutional and individual investors.

[Avrim Lazar]

Toyota sold more SUVs because of the Prius than they sold Priuses. It labels itself as a company that gets it.

[David McGuinty, Liberal, Ottawa South, ON]

So environmental reputation is not an aside in your sector?

[Avrim Lazar]

In our sector it's part of our good name. All business is dependent on social capital, dependent on brands. Whether it's your customers—we're going to have a huge shortage of employees—whether it's recruiting young people, recruiting employees, work satisfaction of our existing employees, confidence of our investors, confidence of provincial governments that control the resource. All of those things depend on our brand, on our good name, and because we work in the forest, they depend on nature. Our capacity to demonstrate that we can do it respectfully is a big part of our good name.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. McGuinty.

We go now to the five-minute round, starting with Mr. Allen.

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

Thank you very much, Mr. Chair, and thank you, Avrim and Catherine, for being here today.

Just a couple of things. Having been on the committee when the report was written a few years ago—and it seems like only a few years ago—one of the things we noted is that Minister Lunn did have a summit around the time the report was produced. A number of the forest industry executives, coordinated by FPAC, came to Ottawa to discuss and look at the long-term vision for that. So I'd suggest that there was at least a discussion, a summit, convened by the minister at that time. That was one thing that I think was very positive and led to a number of changes and government initiatives.

Another thing important to note is the billion dollars in the community adjustment fund, which is made for forest communities to help them transition to, in some cases, other forms of industry or value-added, or those types of things, but specifically associated with the pulp and paper green transformation fund. In my riding, AV Nackawic was a recipient of pulp and paper green transformation money. They've done a significant amount of work for environmental improvements at their operation there, their dissolving pulp operation. One comment they made to me was that our Canadian program was head and shoulders above the American program, which was only a subsidy, as opposed to the Canadian program, which was intended to improve environmental performance; otherwise, you didn't get the money.

Would you care to comment on that?

[Avrim Lazar]

Sure, and I have publicly many times.

The U.S. program was basically cash in the pocket, without any change in behaviour. So the American companies were rewarded for using green energy, which is a fine thing, but they didn't have to use any more green energy. They didn't have to change anything; they just got a pile of money. They were able to take that money and do what they wanted with it.

Now, the piles were so big that a lot of them paid down their debt and became more competitive than we are. If you're not that smart, but you've got huge piles of money, even an unstrategic program has a lot of good.

Our government spent the money much more strategically. In the industry, we did not get access to that money unless we made an investment in a Canadian mill. So we could not take the money and pay down our debts, or go home, or get into another business. We had to invest in a Canadian mill, and that investment had to be an environmental improvement. So we got a green dividend, in the sense of environmental progress, and a job dividend, insofar as we were upgrading our mills. That was much more strategic than the U.S., and it helped offset the difference in the amount.

If you had asked our members if we would have preferred that you had just shovelled cash at us, probably we would have said, yes, please, but as a taxpayer, I'm very respectful of what you did.

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

Concerning the accelerated capital cost allowances, one of the dynamics in the conversations we had when we did the accelerated capital cost allowance was the kind of timeframe you put on that.

One of the things we were very concerned about was wanting industry to invest, whether it be the forest industry or any other industry, which is sort of why we did that. So we have had a scaling down in the last couple of years, and then we extended it again.

If you're trying to create an incentive for companies to invest through a program like that and you make it permanent, and then they decide to not invest for years and years and years, have you really benefited the economy and benefited their operation?

I understand the planning horizon. I do get it, because in big capital projects you really need to have some kind of planning horizon. But how can you balance that decision to make companies move on it, as opposed to just leaving it open-ended and they decide to invest maybe 20 years down the road? That's the challenge we have as a government.

[Avrim Lazar]

I understand the challenge. But I have to respectfully—when you say “respectfully” it means it's not going to be a nice answer; I don't how we've managed to twist that language so badly. I have to respectfully reply that, seeing as we've extended it year after year, it would have been more effective if the government had decided on five years, six years, seven years, or ten years to begin with, because we're not getting the maximum benefit by offering it year by year.

I'll be clearer. It's a great thing, and we're grateful for the year by year; it's just that the cost-benefit for Canada could have been much better if that planning horizon had been longer.

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Mr. Allen.

Mr. Anderson, go ahead.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Thank you, Mr. Chair.

I want to thank both of you for being here today.

Today there was an article...I think one of the managing partners of Brookfield Timberlands talked about a potential super cycle in 2014-15 and extending from there. Do you have any comments on that report, or are you familiar with it? Do you see that kind of thing taking place, or is it too early to tell?

[Avrim Lazar]

Predicting the economy these days is a really hard thing. We know there's going to be a global fibre shortage. Of that we're very certain. We think there will be a price peak for lumber, followed by a drop, and for us, one of the key things is not to overreact on either side.

One of the things the Chinese are most worried about with us is that we're there holding interminable dinners with them and selling them stuff because the Americans aren't buying it, but we'll abandon them as soon as prices and demands go up. So it would be very important for the Canadian industry—and I'd say for the government—not to lose sight of the importance of diversifying our customer structure, and to stay in China, even though the prices go up.

I saw the report. I didn't read it in detail. Due to the pent-up demand sitting there, as soon as you take all the surplus capacity off the marketplace, all of a sudden people haven't been producing; they've been responding to the surplus that's there. But the global economy has not been the most predictable of phenomena, so who knows?

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I will go in a little bit of a different direction.

You have been proud of the environmental adjustments you have made in the boreal agreement. I want to know how that works a little bit more, on a practical level. We have a situation in Saskatchewan right now where industry is gravely concerned about the application of a woodland caribou recovery strategy. They're questioning both the science and the application of the strategy.

When things like this happen, do you actually expect your boreal agreement partners to be there to defend industry?

[Avrim Lazar]

We certainly do. The agreement is quite long and detailed. It sets the terms and conditions for engagement, but it is the responsibility of all signatories to defend the jobs and to defend the caribou.