Natural Resources Committee on Feb. 19th, 2015

[James Gorman]

I'll defer to Rick Jeffery from the Coast Forest Products Association, because that's primarily an issue from the coast.

[Rick Jeffery]

John, as you well know, the issue of log exports is contentious. Mr. Matters spoke to it earlier.

We as an industry have a diversified basket of goods we sell across the world that emanates from our forests. That can include anything from salal for floral arrangements, to mushrooms, to logs, to lumber, to pulp and paper, to bioenergy products. It is healthy to have that diversified basket of goods.

The issue is really with the appropriate numbers of logs exported. We have systems in play in British Columbia that ensure those logs don't go offshore if a domestic user requires those logs for their own uses.

So there is a system in place. It's not perfect, but at least it's there.

We promote the use of wood in all jurisdictions. The use of logs in China ultimately ends up increasing the familiarity and acceptance of wood products in building, and that ultimately helps us sell wood in those markets at the end of the day.

I will also note to you that the Chinese....

[John Rafferty, NDP, Thunder Bay—Rainy River, ON]

I wonder, Mr. Jeffery—

[The Chair, Conservative, Leon Benoit]

Mr. Rafferty, you're actually out of time, but I'm going to allow Mr. Giroux to answer that question as well. He had indicated he would like to.

Go ahead, please.

[Michael Giroux]

I have just a very short comment, and it's a twist on what we're saying here, and it could speak to roles.

Environmental reputation here is very key with regard to the actual access to markets. As you're looking at and analyzing what you need to do in the future, bear in mind who has responsibility for that.

I can't sell or do well in markets if I don't have peace in the forest. That's the only comment I wanted to make.

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Mr. Rafferty.

Mr. Regan, go ahead please, for up to seven minutes.

[Geoff Regan, Liberal, Halifax West, NS]

I have lots of questions and only a few minutes, but I would like to let Mr. Jeffery finish his answer if he wants to.

Did you have more to add?

[Rick Jeffery]

What was I going to say?

I'll pass at this moment.

[Geoff Regan, Liberal, Halifax West, NS]

All right. Fine.

Mr. Gorman, I think you said the U.S. industry's share of the domestic market in the U.S. has risen under the softwood lumber agreement to 71%. I forget what it was originally. Is that correct? Am I right about that number?

[James Gorman]

Yes. Back in 2006 the U.S. share of the U.S. market was 61%. That market share the United States has of its own market today is at about 71%. The Canadian share of the U.S. market over that period of time, which the agreement capped at 34%, is now at about 29%. In many respects that is the softwood lumber agreement doing what it was intended to do. It was intended from the United States perspective to protect their market and to protect the amount of share that could come. British Columbia and this country have done well by diversifying their markets in order to respect that.

[Geoff Regan, Liberal, Halifax West, NS]

Where do you see it going? Are you satisfied that we are going to stay at 29%, or is that trend going to continue? We don't know what's going to happen with our dollar, obviously, at the moment. We know that our dollar has dropped but not nearly as much as the Brazilian real or the Russian ruble. Where do you see it going?

[James Gorman]

Sir, I think there are two really important factors that are going to be the key determinants of where this goes.

In our view our share of the U.S. market is going to remain flat or potentially slightly decline. There are really two reasons for that. One is much of what this discussion has been about today, which is a sustained commitment to the expansion and diversification of our markets. We really see the tremendous potential that continues to exist in Asia. We do subscribe to the view that China is the new China, that there is a tremendous opportunity there to continue to expand our footprint and the range, diversity, and use of our products there. That's one thing that will keep the percentage down.

The second one, and perhaps this is much more crucial, is British Columbia is at 52% of softwood lumber production in this province and we are facing a timber supply crisis. You only have to get into a helicopter and fly over British Columbia to see the extent of the devastation and what that has meant. We are coming through the end of what is a 10-year period that has been the greatest salvage effort in the history of this province to try to salvage some economic value from dead timber. We are going to watch the annual allowable cut, which in the interior part of the province was traditionally around 55 million cubic metres, come down to around 42 million cubic metres and it is going to stay there for the better part of a century. We see about a 17% decline in our production between now and 2020.

[Geoff Regan, Liberal, Halifax West, NS]

Some might argue that what we've seen over the past year is that Russia is the old Russia in some respects.

Considering the cheap fibre that Russia can supply to China, considering the advanced technology and the ability of the Chinese engineers and so forth to develop, and adapt, and borrow technologies, when you look at the U.S. and other markets but especially when we think of market diversification, what is Canada's competitive advantage?

[Rick Jeffery]

We have several competitive advantages. First, we have high-quality fibre. Second, we have great people. Third, we have great technology, building systems, and a network of professionals and research and science that make Canadian products the pre-eminent wood products in the world and Canadian building systems and technologies world leaders. Those are the things that we will play on as we move up the value chain in China, because that's the game there, to move up that value chain. It's not a volume game anymore, as James has said; it is a value game. We'll move up the value chain there. We'll move up the value chain in Japan, and at home, through the efforts of the Canadian Wood Council and others to move up the value chain here, and diversify into places like India, which is looking at high-value products for doors and windows for their domestic markets.

So our focus won't be volume; it will be value, and we're well situated in that regard as Canada.

[Geoff Regan, Liberal, Halifax West, NS]

Are there others among the witnesses who would like to answer that question about competitive advantage?

Second, aside from the stage of development of the markets, what differences do you see in the market in India versus China? Are there any other different challenges that exist?

[The Chair, Conservative, Leon Benoit]

Would anyone else like to answer that?

[Geoff Regan, Liberal, Halifax West, NS]

Nobody wants to answer that at all, apparently. I'll go on to my next question.

Mr. Matters, you talked about the challenge of recruiting skilled workers. What has changed in the past six to eight years in terms of how the industry recruits skilled workers? What role does your union play in that regard?

[Bob Matters]

The timeframe you pose is rather tricky.

[Geoff Regan, Liberal, Halifax West, NS]

I'll let you choose the timeframe. How's that?

[Bob Matters]

No, I'll answer your question. I want to explain my answer.

Our industry, particularly in rural areas, whether they be in British Columbia or northern Ontario, has been fighting in that time period with natural resources who've had much deeper pockets to, frankly, bribe and steal our good hard-working members whom I think James or Rick referenced. That's been a problem. There was a huge shortage there for a while. That's being slightly corrected right now, particularly with what's going on with resource prices. Again, we're talking about northern Ontario, British Columbia, Alberta, and Saskatchewan.

One of the things that I took out of my original presentation, because I didn't want to be too critical of the world, was training and retraining. Governments—and I'll just say “governments”—have a history of packaging training opportunities and retraining opportunities to what they think is most efficient, which usually means partnering with an institution that has a different agenda, frankly, and that's making sure the cash comes in and the cash goes out.

We struck a unique partnership with the Government of British Columbia to do a one-off training program in Prince George, as a result of some of the downsizing we've seen. I use this stat because I think it's really telling. We also have apprenticeship training programs in our industry in British Columbia. In order to get access to these training programs, you have to pass a series of tests that are already established. The average pass rate was just north of 60%, which isn't great for a whole lot of our members, obviously. When this crunch happened and we set up this unique training program in Prince George, we took those folks who were losing their jobs and we actually got them upgraded, employable, and with those who then went on to take the apprenticeship test, our success rate went to 89%. We're talking about the same workforce, but just making sure we get them the immediate skills they need to get themselves employable in their communities, because again, far too often many of our training programs are for jobs that are, frankly, not available to those in rural areas.

That was a unique effort. It's still evolving a little bit, but it doesn't fit any of the normal government tick boxes to establish a program. That's why I wanted to raise that.

[The Chair, Conservative, Leon Benoit]

Thank you.

We go now to the five-minute round. We'll start with Mr. Leef, followed by Ms. Perkins, then Monsieur Caron, and then Ms. Crockatt.

Go ahead, please, Mr. Leef.

[Ryan Leef, Conservative, Yukon, YT]

Thank you to all our witnesses today.

Mr. Gorman, my first question will be for you. I represent Yukon. In comparison to British Columbia, we're pretty small scale in terms of our timber market potential, but we do periodically fund timber inventory studies through the Canadian Northern Economic Development Agency. One of the things you touched on was the dead timber issue in B.C. We're seeing a bit more of that up north as well. When we did some of the timber inventory studies there, the biomass potential was very much there from a forest use perspective. What we started hearing back, though, was that the consumer base wasn't there.

Could you talk a bit about the consumer-based R and D that might be needed? How do we create that consumer interest? How do we create the technology at the consumer end? This is one thing we've heard clearly here today, that we could invest in the forest sector directly. However, you can have all the product in the world, but if you don't have the people prepared to consume it, it becomes a little bit more challenging. We haven't heard a lot about that domestic market diversification in terms of consumers, B.C. being a fairly significant player. Maybe you could provide some insight for us.

[James Gorman]

I think there are a couple of issues to talk about with respect to biomass.

The first problem that we face collectively from that perspective is an economic problem. It's about how to get that timber out of the woods, and how you make that biomass economic, how you make it pay for itself to bring it out.

At the moment, and British Columbia is not unique in this regard, a sawlog business pays to bring wood out. It is the highest value you can generate. We have two sets of residuals. We have residuals that are created at the mill and we have residuals that are piled in the bush.

In British Columbia we are doing a lot of thinking about how we can make those bush residuals more economic. I'll tell you a very important consideration that's under way here in British Columbia as we are watching our cut come down quite dramatically is the amount of residuals that sawmills are creating is necessarily going to decrease. At the moment we use the sawmill residual biomass for everything from the pulp and paper industry. We generate pellets and we generate electricity with it to power our kilns, our mills, and to sell back to the grid.

I think there is growing concern in British Columbia as the sawmill side has to consolidate and shrink as a result of the timber supply. The worry is that a lot of that residual fibre, that residual biomass, is going to be scarcer, particularly from the milling side. Does that change the economics as our folks need to go back to the bush and be able to pull out some of the roadside debris that we've left?

I think some of the programs that the federal government has in place like IFIT, for example, that allow us to try to understand and bring together near commercial-ready technologies to be able to find some higher value economic uses for them are very important programs that can really help this industry in the long term.

[Rick Jeffery]

If I could just jump in on that, work is being done through FPInnovations around taking things like nanocrystalline cellulose and cellulose fibres and those kinds of new age materials that can be extracted from the biomass. We've got to the point where we can produce the stuff and now we are reaching out to the automotive industry and 3M and places like that to say that we've got the stuff, now where is the commercial application for it. That work is ongoing and that is the work to try to create the consumers you're talking about.

[Ryan Leef, Conservative, Yukon, YT]

Thank you for that.

This isn't so much about the market diversification piece, but if you look at British Columbia and other places that have a considerable amount of dead timber, some of that is still continuing to support pine beetle.

As we figure this out, how long do we let that sit waiting for the things you just talked about to advance themselves? This is obviously a provincial question, but do we get to the point of triggering things like prescribed burns where you lose the timber resource value but it starts forest regrowth and regeneration, maybe helps stop some of that proliferation of beetle kill or other diseases that are coming along? How does that question factor into the speed of innovation versus speed of action?