Natural Resources Committee on May 7th, 2015

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much, Mr. Chairman.

I was interested in Dr. Gray's comment about Procter & Gamble. I've heard it argued that the U.S. has about 20 enormous companies like Procter & Gamble that can afford to do a lot of their own research, which gives that country an enormous advantage in the research area. I don't know how we create more of those in Canada. Think about that for a moment while I turn to Mr. Pelletier for a moment.

Mr. Pelletier, you talked about the need to attract new players to the industry. How can we do that?

[Yvon Pelletier]

Many of our clients elsewhere in the world don't have any production facilities in Canada. I think that if we were to work with the federal and provincial governments to put in place programs that would help them set up in the provinces, certain production sectors could be very competitive. Those efforts would help bring clients to us. We know of some who consider setting up in Canada, but they don't take the next step. With the right conditions in place, I believe we'd be able to attract them given the tremendous advantages we offer. As was said earlier, we have a considerable amount of fibre. And if you look around the world, our fibre is of high quality and competitive. It's not the same as what they have in Brazil, but it is competitive.

Energy-wise, some provinces have very low energy costs as compared with the rest of the world. So we do offer certain advantages.

And you are no doubt aware that the cost of investing in Canada is quite high. I know, having done it myself, back with my old company and now. New investors are reluctant to invest $100 million, $200 million or $300 million in Canada. We need to encourage them to set up facilities and make new products here.

[Geoff Regan, Liberal, Halifax West, NS]

Should we be doing more biorefining in Canada? Is that something you see happening? What role would the government play in that area?

I would also like to have the comments of Dr. Gray and Dr. Rakshit on that, if possible, if there's time.

[The Chair, Conservative, Leon Benoit]

We'll hear from Mr. Pelletier, first.

[Yvon Pelletier]

Okay.

Thank you.

Our mill is moving toward biorefinery.

We talked about the IFIT program, which is excellent. The problem right now is that we submitted...and not enough funds are available. We have a two-to-five-year plan to go more into biochemical and bioproducts, but our financial capability right now is not strong enough to do that on our own. These are new products, and there's risk, etc. The IFIT program is a good fit for us to help us get there faster, not in 10 years, but maybe in two to five years. We're also working with the provincial government to see if there are avenues to expedite some of those investments. It's definitely a model that works.

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Gray.

[Dr. Derek Gray]

Going back to your first question, it's hard to fight Procter & Gamble. It's no easy task.

I think we have to take an end run around Procter & Gamble. There's a lifetime for all large corporations. Small countries like Finland manage to develop world-class industries from nothing, using a population base that's much smaller than Canada's. We need to encourage the entrepreneurs to start the next Procter & Gamble.

[Prof. Sudip Kumar Rakshit]

I'd like to answer the other question about the biochemical tertiary-level product.

One of the key problems with that is the cost of crude petroleum. There are many examples of products that can be made from bioresources, but they are not made economically in the correct scale. There are a number of parameters. It has to be in the correct scale and it has to be made more cheaply than the raw material cost, especially now with crude at $60—or even $100, if we're not competitive, but at $60 we'll have to wait. One of the first comments I made is that we'll have to wait for the petroleum price to rebound before we think of some of them. In the meantime we have to see if we can cut costs in different ways.

For example, in the case of bioethanol, which I see as the lowest denominator, we've been trying to do this for maybe 25 years. These traditional things will not work, and we'll have to do genetic engineering and such things to get there. I'm not saying that we have to stop; we have to go on to look for a cheaper technology.

[Geoff Regan, Liberal, Halifax West, NS]

Mr. Voss, I mentioned to you earlier that my mother was born in Medstead, and you said you were born 10 miles down the road. She grew up there, I should say. She was born in Glenbush, as a matter of fact.

That isn't the only the reason I want to ask you a question, though. You talked about the need for expanded and enhanced programs. What federal programs would you like to see created, enhanced, or expanded?

[Ben Voss]

IFIT has been mentioned, and that would be a great one. We've been interested in applying for that particularly related to our bioenergy initiatives because they are somewhat cutting edge, and when you can't attract funding, you're typically always defaulting to lower technology solutions that are more comfortable for banks. Innovative investing is directly linked to the leading edge, so if you're going to try something new, banks aren't interested, and investors aren't that excited about risk.

So you default to the proven technology, the ones the engineers will guarantee will work, and that's what you build. If you want to build something exciting and new and adapt technologies from universities, which we would love to do, qualifying for funding is tough.

There are all kinds of things that were mentioned. In the pelleting industry we could go with torrefied pellets which is a brand new market that replaces coal. It would be a fantastic new technology, but it's a little bit unproven in Canada. We would have to import the technology from other places or work with universities to develop it further. We would love to partner more in that.

The programs I did mention that work for most of the forest companies, like accelerated capital cost allowance or SR and ED programs, don't work with first nations-owned companies. Our corporate structure doesn't qualify, so there are some gaps there. We would love to see those gaps addressed because we're being penalized, essentially, compared to our peers.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Voss.

Thank you, Mr. Regan.

We'll start the five-minute round now with Mr. Trost, followed by Ms. Block, and then Monsieur Caron.

Mr. Gray, you talked about having to do an end run around Proctor & Gamble. Why not sell the technology to them, or work with them?

[Dr. Derek Gray]

Yes, this works in some circumstances. You must have a receptor. You must know someone there who's keen and who trusts you. It takes time to build this up. The company's almost too big. It's difficult to move in any given direction. They're not going to risk their markets by wasting time on something that's not clear.

But the answer is yes. You can certainly work with them, and you can certainly work with them as a supplier. For example, a supplier of nanocrystal cellulose will get validated by Proctor & Gamble, and they will buy it. But they will almost certainly want to make sure they have two suppliers. This is the other facet you always meet up against.

[The Chair, Conservative, Leon Benoit]

Sure. Thank you.

Mr. Trost, go ahead, for five minutes, please.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Thank you, Mr. Chair.

Some of this has been a little bit covered, but I want to ask the question more directly. I guess Mr. Pelletier would be the best person to answer the question.

You referred to both the green transformation program, and we've had quite a bit of discussion about IFIT. Walk me through again why those programs were productive, not just for you as a company. I'm not trying to be ungracious here, but everyone who comes in front of us always says whatever money you give me is good money, and so we are a little bit interested in not just how it was good for the company, but how it was good as a program for the overall industry, and of course, for the communities affected.

So walk me through green transformation. That was a bit of a bigger program not carried forward in quite the same sense, but IFIT has been renewed, and it's possible it could be renewed again in the future.

So walk me through. Why were those two such strategic investments for the industry overall? Use your company as an example, and work from there.

[Yvon Pelletier]

We've been involved since the beginning of the program many years ago with the government and FPAC and so forth. That has allowed us a lot of potential in our industry to improve product cost and productivity and so on. The green transformation program was related mostly to existing assets and to improving the current assets.

The problem is that we've had a period of very challenging times and difficulty accessing money. The green transformation program helped many of us in the industry to get from one quartile to the next on the cost curve. It did made a difference so that perhaps 50% more assets weren't closed in the last five or seven years. They're here today and they're thriving and they're building and developing and so forth. That program, I think, was key in keeping many assets thriving today.

I hope that answered the question.

I think IFIT has been a good program. A lot of good projects have come out of it. Under the recent renewal, which I think I mentioned earlier, it was oversubscribed more than 10 times, with a billion dollars plus in projects submitted versus $94 million or $96 million being available over the two- or three-year period. So further to the points made by my colleagues earlier, a lot of good research has been done, but to finance those projects today we need government assistance.

As was mentioned by my colleague earlier, we can't go to our bank or typical financial institution to finance these projects. We don't get the money, so we need the provincial and federal governments' assistance to move forward.

Tons of projects are available today to get us to another level of competition.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Would I be correct—

[Marco Veilleux, Vice President, Business Development and Special Projects , Fortress Paper]

If I may say, in the application for the PPGTP program especially we did not face the constraints we normally do for pre-funding or pre-spending, so the application rules of the program were much easier. I think that's one of the keys, along with the spirit of the program, which was to modernize the industry, namely, the ease of access to the fund and the ease of access of applications. There was good governance through the NRCan team and a very rapid deployment of the fund, with a couple of criteria that made it very easy. That's in line with some of the comments made earlier today.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Let me just close this, because I have about 20 seconds for the other panellists.

Would that flexibility you observed in working government programs make the dollar value go further than having overly prescriptive, narrow programs? That's what I heard from the testimony here. I want to know if the other four gentlemen, more from academia but also from business, think that would be a correct observation.

Mr. Gray.

[The Chair, Conservative, Leon Benoit]

I'll just take an answer from one of you.

Mr. Gray, go ahead then.

[Dr. Derek Gray]

The answer is yes.

Certainly from the academic point of view, the flexibility of the discovery grants, which are essentially seed grants to try what you like, is absolutely great. I'm the envy of all my colleagues south of the border.

[The Chair, Conservative, Leon Benoit]

If someone would like to ask that question to the others, that would be fine.

We'll go now to Ms. Block.

You have up to five minutes. Go ahead, please.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you very much, Mr. Chair.

I want to echo my colleagues' comments in welcoming you here today. It has been a good discussion so far. It may come as no surprise that coming from Saskatchewan, I'm going to direct a lot of my questions to Mr. Voss.

I will state for the record that my family and I spend a fair bit of time in Meadow Lake Provincial Park. I guess it's involved with a facility that's on Jeanette Lake. I can recall about a decade ago attending consultations when the park was doing some work to try to reconfigure the roads to accommodate your industry, and I think even your organization, in trucking lumber out of park. While we lost direct road access to Flotten Creek, we got great roads out of it and the access to our facility greatly improved. We're grateful for that, and we're very supportive of all of the economic development that has happened in that area as a result.

I wanted to follow up on some of the things that you said in your opening remarks. You talked about some of the challenges you have accessing federal programs. I know that NRCan has a long-standing relationship with your organization through the first nation forestry program and the aboriginal forestry initiative, so I want to give you an opportunity to share with us how that has helped contribute to the work that you do and the success of your business.

[Ben Voss]

We work with a wide range of federal and provincial programs, but mostly federal ones. FPInnovations is a huge partner and a recipient of a lot of federal funding.

The aboriginal forestry initiative has been an ongoing partner in many ways. For example, when we need to apply a brand new technology in the harvesting of timber, we need to train those individuals on how that technology works—it's pretty high-tech these days, not chainsaws and skidders as it used to be—so we benefit directly that way.

We work very closely in community consultation. There's a lot of work done on sustainable forest management. That has, as you mentioned earlier, a lot of implications for our discussions of our forestry plans with our communities, including non-aboriginal communities. There's a strong emphasis on that. We have a number of infrastructure-related matters that are captured under that, like studying how to be more effective at using the base infrastructure, such as the roads, and making sure we don't destroy it with overuse.

There are always a number of initiatives that we're able to capture with those programs. The dollar amounts aren't huge and they're not capital related, but they are helpful. As an aboriginal company, we do have some good relationships with those national programs that have been active. I think most of those groups have been relatively excited about MLTC, because we regularly get visitors. Probably at least once a month some other aboriginal group from across the country comes to tour our operations, to understand Mistik Management and how it's been possible for this first nation group to own the saw mills and all of the associated industries for more than 30 years.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

It was back in December 2007, recognizing the structural and conjunctural factors that the Canadian forest products industry was going through, which many would have called the worst crisis in its history, that this committee embarked on a study and tabled it in 2008.

The purpose of this study is to take a look at what's happened over the last seven years in the industry. I know you came on with MLTC right around the time this industry would have been at its lowest point.

[Ben Voss]

Yes.