Natural Resources Committee on Feb. 26th, 2015

[James D. Irving]

The aboriginal community want to work in the industry. We need people. We're training people. That's universal. I would even say that probably the aboriginal communities have better access to funding for training dollars than the rest of us in certain aspects. There are combinations that maybe will be successful. But I think, at the end of the day, the fundamentals are that we all have to recognize that whatever we're making we have to sell it on the global market, and it's very competitive. We have to have that in mind.

[Geoff Regan, Liberal, Halifax West, NS]

Mr. Martin, speaking of selling in the global market, you mentioned one product that sells terrifically. What other products and what markets do you have in mind? What markets do you already sell to or what products do you already produce, or which ones you foresee?

[William Martin]

I think it's important to clarify, too, that in the example of niche products, I went to the most extreme, right? It's great when you can do it. It is true that an industry has to operate actually at multiple scales. I think that's one of the challenges. The way our industries are structured, we tend to have either very large-scale, or increasingly large-scale, operators and mills, and they are not flexible enough to operate at the smaller scales or serve those niche markets. From a strategy perspective, we have to work across the different scales in the industry.

In terms of niche market opportunities, we can't anticipate all of the products that may be produced, but we can create a viable timber supply that is diversified and we can create market structures that are flexible and dynamic so that those best opportunities can be achieved.

[The Chair, Conservative, Leon Benoit]

Thank you.

We go now to the five-minute round. We have Ms. Perkins, Ms. Crockatt, and Monsieur Aubin.

Ms. Perkins, you have up to five minutes.

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

Thank you very much, Mr. Chairman.

There's been such a tremendous amount of information, and I appreciate all of it, and you all seem to tie into one another quite nicely in your presentations. I don't know if you noticed that, but certainly it all seems to tie together quite nicely.

One of the things that did come up was the IFIT program. I think it was you, Mr. Irving, who brought it up. It was a program that you did like. It's a program that you thought you would like to see continue. I would suspect that there have been some success stories with that program that you might want to share with us—I would hope there are anyway—with respect to any high-value products that came out of it, any strategies that came out of it.

[James D. Irving]

I referred to one on lidar. There are other things on our lab, on our budworm resistance in our....

[Blake Brunsdon, Chief Forester, J.D. Irving, Limited]

That's been supported through the IFIT program, so we're working to improve natural budworm resistance in the trees we plant. It's fairly risky work that's been—

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

How far advanced are you with that work?

[Blake Brunsdon]

We hold patents on the technology, and we're working with it commercially ourselves, and we're selling the technology.

[James D. Irving]

Just last month we opened a $3.2-million lab in Sussex for our genetics. We've been working with the lab at CFS in Fredericton for a number of years, and now we just opened this new lab, and a good amount of this work will be located there. Plus, further advancements are on how we further enhance the productivity of various species of trees. We're not talking about genetic engineering or anything like that. We're just working on how we improve the quality of a white spruce tree or a black spruce tree, the shape and branches, and budworm resistance. We're doing a lot of work. I don't believe that anybody else in Canada has spent any amount of money on it.

Your federal program, it's getting good value for those dollars, I can tell you. We're excited when we see the federal government partner on something that gets real, tangible results. That's great. It's good for Canada.

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

When that funding flows, you obviously have to report back with some successes, and so on, with your process. Do you have to do that on an ongoing basis?

[James D. Irving]

With some of those programs, as we commercialize the budworm efforts, for example, on our patents, as we sell it we have to repay a certain amount of the money back to Canada. We can achieve a certain level of commercialization, then we pay more money back to Canada, which is good, which is the way it should be.

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

On the value-added side, I really like some of the examples you've given. Are there any other value-added things we're seeing coming out of the industry?

[James D. Irving]

I think there's a large spectrum. If you talk about everything from the traditional hunting, fishing, and outfitting types of jobs through to very specialized grains and veneers types of things or to tissue, the good news is that the forest is very dynamic and we can adapt, as you pointed out, to do different things.

I think you need creativity and you need energy, as with anything else in life. The problem is that Canada had a big role at one time but we didn't really advance very far in the sophistication of value-added products. We were seen as quite complacent, and we stayed for 100 years making newsprint and lumber and craft pulp and didn't really get into the value-added chain very much.

The world has changed. Brazil is the dominant player in the pulp business today. It elbowed us out of the way. The Internet elbowed us out of the way in the newsprint business. Okay, now what else can we do? So we make tissue or we'll make the guitar tops or we can find other opportunities. But we have to have a fire in our belly to want to run in the race, because it's too easy to quit, and the money moves offshore and then we're left with communities that are decimated.

We can do it, but that's why we're back at the tax treatment, you know.

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

You have other markets that you're looking at, international markets, and you're exploring there, but I'm hearing about this 45% royalty. Is that something that's static in the industry? You were indicating it was higher than others.

[James D. Irving]

That's right. This is in the context of the softwood lumber agreement. It's a fairly complex puzzle, but fundamentally, royalty rates in Atlantic Canada were always high because of our private land mixture vis-à-vis the percentage of crown land in the rest of Canada. Our stumpage rates were high while the rest of Canada had low stumpage rates, but they had a duty, which sort of equalized the whole calculation. Now, the duty has gone away because of the price of lumber. Once lumber got above a floor price then the duty disappeared, so we've resided with a high stumpage rate.

This is an internal problem in Canada and the Maritimes is a small player in this whole exercise, so we have to find out again how we fit in that world.

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

So within—

[The Chair, Conservative, Leon Benoit]

Thank you. Sorry, Ms. Perkins, you're out of time.

Ms. Crockatt, you have up to five minutes.

[Joan Crockatt, Conservative, Calgary Centre, AB]

Thank you very much.

I'm going to pick up a little bit where my colleague, MP Perkins, left off here. This is a fascinating discussion. One of the people we recently had before this committee was Professor Chui from the University of New Brunswick, who described to us that really we're the envy of the world, as he put it, regarding this large Canadian innovation network that's been put together in Canada to talk about new innovations. Part of this, the wood science research centre, is the only one in Atlantic Canada serving 30 to 40 companies from Canada and the U.S.

I'm wondering, Mr. Irving, if you're the beneficiary of that. It sounded like quite an interesting area of innovation that was being moved forward quite dramatically. Are you the beneficiary of any of that?

[James D. Irving]

I'm not sure which program particularly....

[Blake Brunsdon]

We worked with Dr. Chui, because he has a lab at the University of New Brunswick, to test processes or test wood properties and wood qualities. I'm not familiar with the exact initiative you're talking about, but yes, we utilize the services of his lab, which benefits from some of the innovation programs you're talking about.

[Joan Crockatt, Conservative, Calgary Centre, AB]

Okay.

We've also heard about basically the resurgence in the forest industry and that it's looking like it has quite an exciting future now, even though we've seen a decline in the U.S. market, which I think is similar to what's happened with oil and gas. They're becoming more self-sufficient and wanting to use their own products.

But there has been the expansion of the markets in Japan, in Korea, and now in China. Apparently there has been a 1,400% increase in the export of wood products to China since 2007. Is that a market that is accessible to you?

Also, perhaps you could comment on the EU trade deal and whether you think that's going to benefit you.

[James D. Irving]

Are you asking me?

[Joan Crockatt, Conservative, Calgary Centre, AB]

Yes, I am, and then I'll go to Diana with the same questions, please.

[James D. Irving]

Predominantly, exports to China is a west coast opportunity. You get a big increase but from a very small base, so that's why you get the big percentage increase.

Notwithstanding all the innovation and all the things going on, I can tell you that it's still a very competitive business because we think we're doing a lot, perhaps, but I can tell you, everybody else is doing a lot and the bar keeps being raised, whether it's in Brazil or the southern United States or other jurisdictions around the world.

When you look at the mill closures and the capital that's been written off and the high-paying jobs that have been lost globally, this is quite a serious problem. So we have to really fight hard to hold on to what we have.