Natural Resources Committee on Nov. 1st, 2017

[TJ Harvey, Liberal, Tobique—Mactaquac, NB]

I've always been fascinated by district heating and the fact that we've made a move away from district heating in North America at a time when European countries continue to invest in central heating and continue to move in that direction. What role do you think the federal and provincial governments could play in helping to facilitate that conversation and helping to see us recognize that opportunity? You're absolutely right, it is an immense opportunity, especially in regions that have a large pulp and paper facility that already has the excess steam.

[Mark Mosher]

A number of years ago we started down a path with the City of Saint John. A pulp mill the size of our pulp mill has enough waste heat to power virtually every building in the city core, both residential and commercial. Every Scandinavian community that has a pulp mill has very well-developed district heating concepts. The problem is that they are extremely capital intensive to get up and running and that generally requires some kind of independent intermediary between their pulp manufacturer and the distributor. Generally that's how they run.

Whenever we sat down with a local city to look at the opportunity, capital became the issue. It's one of those things that once the capital is in the ground, they have very long-term paybacks. If the federal government really wanted to get that, they're going to have to start to put a strategy in place and there's going to have to be some infrastructure money to help municipalities go in that direction.

[TJ Harvey, Liberal, Tobique—Mactaquac, NB]

Thank you.

My last question is around the diversity of the secondary manufactured products that you produce, everything from diapers to corrugated paper to cedar fencing to stud wood to kitchen cabinets. You have a very diverse portfolio. If you're recognizing that North America is your largest opportunity, where within the suite of products that you produce do you feel is the largest growth opportunity?

[Mark Mosher]

I can talk about certainly, in the pulp and paper sector, obviously, graphic paper is one that is not growing, but the whole demand for pulp is growing at 3% to 5% per year. Global packaging—I call it the “Amazon effect”—is growing at 4% to 5% per year. It is very good. Packaging for the majority of the growth has been through recycling, but any time there's recycling you need good virgin fibre and the northern forest tends to be the most suitable fibre for those grades. So packaging is growing and continues to grow at very healthy rates; and tissue products are growing. The consumption rates of all the developing economies from the Middle East to Asia are less than one-tenth of what North America typically is, and disposable incomes have risen in those areas. That's a huge untapped opportunity there.

I truly believe that packaging, pulp, and tissue, three of the primary rates we're in, have very, very healthy futures.

[The Chair, Liberal, James Maloney]

Thank you.

Ms. Stubbs, we'll move over to you.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you, Mr. Chair.

Thank you to all the witnesses for spending your time with us today.

Rick, given that part of the study we're undertaking is to examine the employment and economic impacts of the secondary supply chain products, and given the very alarming outcomes that you alluded to for your member companies and their employees in the context of the softwood lumber agreement negotiations, I want to clarify. You did mention meeting with the Minister of Foreign Affairs. I wonder if you can give us any context for that meeting. Do you know if you were brought together as representatives of the industry because there was a deal on the table or because she expected one coming up and was looking for your feedback? Is there any information you could share with us about that?

[Rick Ekstein]

Yes. I don't think it's private, because we've heard it from several people outside of that room. There was a deal offered by Wilbur Ross of the United States to Minister Freeland, and she was calling the 10 or 12 of us in that room together to ask for our advice on whether Canada should take that deal. According to her, there was a deal or an offer on the table.

[Shannon Stubbs, Conservative, Lakeland, AB]

Given the department's acknowledgement earlier of the double duty taxation on your part of the sector and what would be, as you indicated, the consequences for jobs in your sector, I wonder if you can expand on the impacts on jobs and on your economic opportunities because of the double duties. Can you outline for us what would happen to your member companies and to your employees in that scenario?

[Rick Ekstein]

Unfortunately, it's a very short answer. At double duties we shut down. There is no alternative to that. Quite frequently people say, “But not all your business is in the States. You still have your Canadian business.” We bring our lumber in and cut it up; we slice it and dice it into many different factors and different parts. Some of it stays in Canada; some of it goes into the States. If we lose the States part, we lose the ability to sell the Canadian part as well. It's not like we'll just lose part of our business; we'll lose the vast, vast majority of our business.

It's a little emotional for me, but I can't impress enough on you how serious it will be if we get hit with double duties to our companies. Some of our companies are a little more diverse and do a few different things. Some of them are literally mom and dad with 20 or 30 employees out back. That's their sole business, cutting up this stuff into products for the United States. They'll have to shut down—end of discussion.

[Shannon Stubbs, Conservative, Lakeland, AB]

I find that very concerning, so I anticipate that it will become a high priority for all the members on our committee. You'll note that I asked the department whether they had done an economic analysis on the potential scale of job losses in the remanufacturing sector, and they reported that they would get back to us on that. I'm sure that we will hold them to that.

Just to help us understand remanufacturing in the context of the secondary supply chain for forest products, can you give us more examples about job creation in your sector and the proportion of jobs compared to other streams of forestry in Canada? I invite you to expand on that.

[Rick Ekstein]

It's a good question. As I said, the mills are highly automated. They've spent a lot of money. Irving has acknowledged that they are one of the top ones in terms of what they've been able to do, and what they've been able to do is great. It has produced a lot of lumber with very few people. If you go to some of the most modern sawmills out there today, you might see seven people working there. It's all computerized. At ours, every piece gets touched by somebody's hand, so there is a direct correlation between our volumes and our people.

I don't know if there is a precise number. The number that you hear tossed around is on a volumetric basis. We have about seven jobs to every one the sawmill has. We can argue whether it's seven or six, but it's something like that. In other words, a truckload of lumber on an annual basis might take one person at the sawmill; it would take about seven people at a remanufacturing facility.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you for that information.

From your perspective, if the federal government is able to negotiate a new softwood lumber agreement, do you have a recommendation on behalf of your member companies, or any ideas about how that quota should be divided fairly through the industry? You mentioned that in your opening comments.

[Rick Ekstein]

Yes, I did mention that. I think it all comes down to.... If there is a finite pool, if that turns out to be the way the deal is—and, you know, we just don't know for sure—I think the government should be very cognizant of distributing it based on the greatest economic impact, the jobs that are created, etc.

There have been all kinds of historical ways of allocating quotas. In a case like this, I think they need to be thrown out and we need to look very carefully at who is creating all the jobs. If any company, whether it's ours or it's Irving, can justify that they are creating the most jobs, then they should have the largest chunk of that quota for allocation.

[Shannon Stubbs, Conservative, Lakeland, AB]

Can you walk the committee members through any other context you'd like to provide about the key competitiveness challenges in Canada for your sector, including international competitors and key markets for your market access?

Also, you mentioned the importance of policy and fiscal frameworks to your operations. If there are any regulatory or policy items that government could address, I would invite you to provide some specific examples.

[Rick Ekstein]

It's a very good question. Remanufacturers are probably the most entrepreneurial members of the forest products community. We're always buying somebody's waste and trying to turn it into something. That changes all the time. You give us a level playing field and we can be very innovative, very creative, and we can compete.

The problem over the last 20 years, due to the softwood lumber dispute, is that there is all sorts of interference from factors that are not normal. You get the problem of months when you can ship and months when you can't, or you get a government-crafted deal where a sawmill is encouraged to ship more to the States than to Canada. We've been through periods of that. That is what is very difficult. If you get out of our way and just tell us what the rules are for the next 10 years and take out any non-natural trade barriers, we'll be just fine. We're very creative and we'll create an awful lot of jobs.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. Cannings.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Thank you all for appearing before us here today. It's been very interesting.

Mr. Pelletier, I think it was you who brought up cross-laminated timber. It's close to my interests, because I have in my hometown of Penticton a company, Structurlam, that does a lot of CLT work and glulam beams. They were very involved in the Brock Commons building that you showed as an example. I'm just wondering what Irving's plans are in that regard and how we can expand that part of the industry in Canada. I assume you're using SPF-type timber in those cross-laminated timber panels. Are you doing that, or are you into glulam beams? If so, what do you use there?

[Jerome Pelletier]

At the present time, we're not producing any cross-laminated timber as part of the J.D. Irving operations. We see that as a way to increase Canadian lumber consumption and be less dependent on the U.S. market in the long term. We are studying different technologies to manufacture cross-laminated timber. I think the Europeans are world leaders in that market. We've been visiting plants to see what is the best technology to produce cross-laminated timber using Canadian eastern species.

We're not in production. We're looking at it very seriously. We think it's a great market opportunity for the softwood lumber producers in Canada.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Do you know what the activity is with other companies in eastern Canada in terms of that technology?

[Jerome Pelletier]

Yes, there are a few producers. I think one well-known producer is Nordic in northern Quebec. They have been producing laminated beams. I don't think they have been producing cross-laminated timber, but it's a similar product. That's probably the largest producer of that type of product in eastern Canada.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Okay.

Mr. Mosher, you made some comments about the health of the paper industry, at least in your operations. I'm wondering if you could expand on that for the pulp and paper industry in Canada as a whole. There seem to have been tough times in the last couple of decades. Could you comment on those who are doing well and those who aren't? It seems to me a very important part of that value chain; the pulp mill in my riding uses a lot of the materials that the sawmills create and don't have any other markets for.

[Mark Mosher]

Well, that is a problem. Paper mills today generally consume a huge portion of the residuals from different sawmills or chip plantations. The paper industry is in a significant decline. North American paper consumption peaked in 1999 or 2000 and it's been on a precipitous decline since. Today it's probably less than 45% or 50% of the demand we had in 2000. Some markets, like standard newsprint, are seeing less than a quarter of their previous consumption, and people have had to figure out other ways.

J.D. Irving is looking at conversions to other grades that are growing. I think the reality is that it's just a matter of time before significantly more of the paper companies in Canada are going to be faced with the same challenge of either repurposing or shutting down. There are a number of growth markets, however. Tissue is growing, so the assets can also be repurposed as that, or as packaging, which seems to be in a significant growth cycle right now. These are some of the opportunities we are looking at.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

There are opportunities for tissue; you mentioned Asia. Are there worries about competition from the tropical parts of Asia, where fibre grows very quickly and there seems to be more pulp and paper activity?

[Mark Mosher]

No doubt. I mean, certainly, what our company is focused on is that in any grade of tissue today, probably about 60% of the fibre supply is hardwood. That would be from those areas: Indonesia and areas of China. Brazil is probably the predominant supplier today. Nobody in Canada is ever going to be able to compete with that. A tree grows to 60 feet tall in six years there, versus 60 years here. We've basically said leave that, but most tissue today—to give it strength so that it doesn't blow apart if you use it—requires strong northern fibres. That is about 40% of that tissue consumption that's growing at 5% to 7% per year. I still believe that, with the right assets, there will be a significant demand for Scandinavian and northern Canadian fibre.