Natural Resources Committee on May 7th, 2015

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

Can you describe for us how the industry has changed over the last seven to eight years?

[Ben Voss]

As I mentioned earlier—at least in Saskatchewan, and we do see it across the country—you typically saw a really big company owning the forest industry. Weyerhaeuser was the dominant investor in Saskatchewan and they owned the sawmills and the pulp mill. It was this idea that they both had to work together. One would support the other in good times and bad, and they'd make these two products, paper and lumber. Then Weyerhaeuser left. They sold everything and walked away and everything closed. We were one of the only independently owned mills. We survived. We were able to maintain some competitive advantages and remained open, which was a big achievement.

The pulp mill that's still running in Meadow Lake went through receivership; it's now foreign-owned. There were all these massive transformational changes and major bankruptcies. They all settled things out, but the industry's a lot less big-thinking than it used to be. There isn't that cohesiveness and that coordinated effort of the past. It's fragile, from the perspective that the relationships aren't that productive amongst the parties. We're kind of different, because we're first nations-owned, but most of those foreign companies don't really understand that. They don't really understand the relationship between first nations and the forest sector, which is obviously a pretty big thing these days. We have a lot of educating to do, typically to help them understand why it's important and why it's a good thing. And I would say the coordinated investment in the industry is really lacking. Those are the big things. Maybe they were there before, but through the crisis they really haven't improved that way.

Regarding the technological innovations, which we've heard lots about today, there's a struggle to get those investments together, so nobody's been plowing a lot of money into massive new mills, at least in Saskatchewan, to build something innovative. It has pretty well been a matter of, how do we keep the traditional industry going? How do we be sustainable? We just had to make a decision to go out on our own and try to be independent and build some new things and make it work.

[The Chair, Conservative, Leon Benoit]

Okay, thank you, Mr. Voss.

Thank you, Ms. Block.

We go now to Monsieur Caron, Ms. Perkins, and then Monsieur Morin.

Go ahead, please, monsieur Caron.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Mr. Chair. I'd also like to thank the witnesses for their presentations.

I'm going to focus on Mr. Veilleux and Mr. Pelletier, from Fortress Paper.

Before becoming an MP, I was an economist for the Communications, Energy and Paperworkers Union of Canada, which represented workers at the Thurso plant during a difficult period, marked by considerable talk of diversifying the industry. When the plant was purchased and converted, it was wonderful news for the municipality and workers.

You said that the industry and your company were having a rough time given the complaint from China. I have a few questions about that. I know you asked the Canadian government to get involved, and it did. That intervention took the form of a special tribunal. Where does the process stand now?

[Yvon Pelletier]

It's following its course. I believe the governments are in the midst of setting up the tribunal or committee that will review the complaint. As you know, it can be quite a lengthy process.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

We've been through it numerous times, especially in the softwood lumber industry.

Are you worried that this kind of complaint, whether from China or another country, will have a chilling effect on the industry's diversification, especially when it comes to cellulose or rayon pulp? Conversion and new markets are possible in other areas as well.

[Yvon Pelletier]

With respect to dissolving pulp used in rayon production, specifically, three major project investments have been the subject of talks in recent years. Two were completely cancelled, one being ours. There's no doubt that China's implementation of an import duty on Canadian dissolving pulp brought major investment opportunities in Canada to a halt. As for whether that could have repercussions on other products, I would say it depends on China's influence on the market in question. Obviously, China has the potential for protectionist behaviour and isn't necessarily competitive in certain areas.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much.

I can also see that, when it comes to our markets, we have no control over the actions of other countries.

What measures would you recommend in order to minimize the risks from these kinds of issues, whether in terms of your products or other diversified products?

[Yvon Pelletier]

From my many years of experience, with China, among others, I would say that the most important thing is the relationship between the various parties. If we are to keep market opportunities open, we must maintain a very good relationship with the Chinese government and, certainly, improve that relationship.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Canada is less competitive in certain areas today than it used to be, for example, in newsprint and pulp, in general. Obviously, our capacity has decreased given that we've lost the ability to compete and that production has shifted to other parts of the world.

As far as products like cellulose, and dissolving and rayon pulp are concerned, do you think there is still potential for expansion for your company, your competition, even? Is there still enough room in the market for Canada to play a role?

Lastly, I want to ask you a corollary question. At the global level, where does the competition stand?

[Yvon Pelletier]

As far as plants go, I think that, in the short term, within the next five years, the tax on exports to China will really minimize the potential for conversion. In five to ten years, the market will continue to expand. India and Indonesia, for example, are increasingly growing their markets. That means that other markets will open up, as will new opportunities.

As for the industry's ability to compete, we are in the second quartile. Between 40% and 50% of our production costs are at the international level. That's public information. Our plants can be competitive within that window.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

In a nutshell, then, despite the current legal dispute, there is still room for expansion. And without that dispute, Canada could become an enviable player in the global market more quickly.

[Yvon Pelletier]

Absolutely.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Caron.

Ms. Perkins, go ahead, please.

You have up to five minutes.

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

Thank you, Mr. Chairman.

I want to thank all of you for your presentations today.

It's been very enlightening. Where do we start with all of this because you've all got such great input?

I'll start with this concept of the entrepreneurial opportunities.

I think it was Dr. Gray who spoke about the funding that's required to do the entrepreneurial end of getting some of these products going. In the bamboo industry, I know you may be familiar with what they've done with respect to clothing, bedding, towels, and all sorts of other things that they're doing with bamboo now. It's in very high demand. You're talking about another method of using wood that could ultimately become high demand.

We've got things going on in government investment, a lot of things going in universities, such as robotics in innovation and sciences. I think $10 million in the form of a research grant just went to a combination of Simon Fraser University, the University of Ontario Institute of Technology, and Ryerson, for a program. It really was about entrepreneurial opportunities utilizing folks in the science and technology fields to try to bring new innovative products online.

Are you familiar with any of that?

[Dr. Derek Gray]

Not with that specific program, but within the CREATE program there is a network of universities across Canada. There is the FIBRE network, which is a network of all the other networks concerned with wood products and with the environment related to the forests. It's a very active set of networks. It's meeting on Monday. Part of that meeting is to encourage graduate students to learn about entrepreneurial activities, for example. They have a sort of systems approach, and throw the students in to try to learn the techniques that are necessary. So the answer is yes, the money is coming in from the—

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

We should look at that a little bit further and see whether there are these opportunities in the programs that are existing right now—

[Dr. Derek Gray]

If you want to see what's happening in that, google “FIBRE”, which is directed by Dr. van de Ven out of Montreal. Lots of people here are involved with it; it's right across the country.

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

Okay, I'm glad to hear that. I'll hear a little bit more, obviously, in a minute.

Mr. Voss, you talked about a quota problem, about there being an abundance of leeway in B.C. and that it's tight in Saskatchewan. What's the opportunity for the government to deal with any of that? How does your quota system work and who governs it?

[Ben Voss]

The softwood lumber agreement, which is managed by the department of international trade, has an organization that negotiates with the U.S. on the terms of the agreement, and Canada is divided into many different regions. Saskatchewan is part of the eastern Canadian region; Alberta, and B.C. are another region. There are different options that have been negotiated for how quota is used and the duties that are paid on exports to the United States.

Saskatchewan was given a very small amount of quota at the time it was negotiated. There wasn't much lumber production. There wasn't really a prediction that B.C.'s lumber production was going to decline significantly; but the mountain pine beetle has been worse than expected, so they have an extra quota that was established years ago. They're not using it all. Saskatchewan has now increased its output because we have no mountain pine beetle, so there's—

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

There's no ability within the Canadian envelope of this agreement to trade off the location in which the wood is sourced.

[Ben Voss]

There is a way to do it.

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

That won't compromise your agreement with the States?

[Ben Voss]

Well, that's the trick. There are different views. Our view would be that they could do it quite easily and it wouldn't jeopardize the negotiations because there wouldn't be an overall change in the quota across the country, but the negotiators are very sensitive about the possibility that any change at all, even subtle changes, might result in the U.S. side—

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you kindly, Ms. Perkins. That's all the time we have for this round of questions.

It is now over to Mr. Morin for five minutes.