Natural Resources Committee on Nov. 1st, 2017

[Rick Ekstein, Founder, Chief Executive Officer of Weston Forest, Association of Lumber Remanufacturers of Ontario]

Excellent.

Mr. Chairman, I'd like open my remarks by thanking you and your committee members for inviting us here today. We appreciate it very much.

My name is Rick Ekstein. I'm one of the founders of ALRO, the Association of Lumber Remanufacturers of Ontario. With me is Steven Rustja, the current president.

We have two other directors in the audience, Morgan Wellens and Marty Simhoni, who helped me start this a long time ago—when he had hair.

I'm in trouble now.

[Voices]

Oh, oh!

[Rick Ekstein]

Just quickly, we're going to try to do five things today: we're going to tell you who we are, tell you what we do, tell you why we really, really need you to care about us, tell you what we need you to do for us today to keep us in business, and then, of course, answer any questions you may have about us or our sector.

First, who are we? We were formed as a direct result of the softwood lumber dispute between Canada and the United States. As many of you may be aware, this dispute has been festering since the late 1800s. The most modern versions of this started again in 1982, which was called Lumber I. The dispute we're in right now is called Lumber V. I'm getting way too old to be doing this kind of stuff, and I really do not want to do Lumber VI.

During Lumber III, in 1991, our federal government was trying to make a quota deal to ensure access for Canadian softwood lumber into the U.S. marketplace for Canada's sawmill sector. What our government didn't consider, and didn't really know at the time, was that in addition to having a very vibrant sawmill sector, we also had a vibrant and thriving secondary or value-added sector. I was very pleased to hear the witness before talk a little bit about that and how important we are.

To make the point to the government at that time, and to educate them, we founded ALRO, the Association of Lumber Remanufacturers of Ontario. We are independently owned, which means we're not owned by any of the sawmills; we're not subsidiaries of anybody. Most of us are small to mid-sized family businesses, and as I said, we have no common ownership with the sawmills. Today we represent about 4,400 jobs in Ontario alone; and 20 years ago it was probably double that amount but through lumber disputes I through IV, that number has been slashed in half.

Next, what do we do? We do not go into the forest, cut down round trees from crown land, and saw them into square lumber. That is what the sawmills do. What remanufacturers do is purchase lumber at arm's length from these sawmills, usually their lowest-quality products, we bring them into our plants, and we process them into value-added products. When sawmills cut up a log, they try to manufacture the highest-quality lumber possible for the construction market. Because each tree is uniquely different, some yield excellent volumes of high-grade lumber and some yield very poor lumber. Every stick of that “poor” lumber, for want of a better term, has to be remanufactured into something. There's no use for it as is.

Very quickly—perhaps I could ask my partners there to bring out a few samples—with poor lumber like this you can see there's what we call “wane” on the edges. You could not sell this in a Home Depot or to a job site. We bring it through our saws and we cut it into a bunch of different sizes. We didn't want to bring a 20-foot-long piece in here, but we can cut it this way or cut it that way. You can see that some of the pieces in the middle here are beautiful high-value products. That way we add value to these products. Some of those products are being circulated as I speak.

Fourth, why should you care? You should care for a very simple reason: we create lots of jobs, as you can imagine, making all these little pieces of wood. Mills are, as somebody described them to me earlier today, spaghetti mills to a large degree. They're very automated, they're very quick, and they can ramp up production virtually without adding people today because they've invested so much in technology, which is great. We, on the other hand, touch every single piece, and the more pieces we produce, the more people we have to hire. There's a direct relationship between our volume going up and our payroll going up. We create stable jobs, in our case in southern Ontario very near the border, and, as I said, we offer very well-paying, stable jobs.

We're very environmentally friendly. Rather than ship this waste thousands of miles to be remanufactured somewhere else, we remanufacture it in Ontario, thereby reducing Ontario's carbon footprint while still creating jobs. We have zero waste. Whatever we can't use for these better pieces we cut into smaller pieces for industrial applications, creating boxes, pallets, and other articles. Everything else we chop up into mulch or chips, which is used for horse bedding and ends up sooner or later as garden fertilizer. We make garden mulch and all sorts of different things. We have huge potential for growth. We have huge potential to create more jobs and to add technology to get even better yields from each piece of wood.

However, ladies and gentlemen, we have a problem. It's less with the U.S. government, and more with the Canadian government. During the past 20 years of the softwood lumber dispute, the regulation of who can ship into the States or not has been heavily influenced by the provincial and federal natural resources departments. The natural resources departments, the people provincially who own the trees, work very closely with the Canfors, the West Frasers, the Tembecs—the large publicly traded mills, the Irvings, etc.—who harvest the trees. These are their constituents, and they work very closely with them. They have huge influence with them that we don't.

As a result, as remanufacturers we've gone through periods when we can ship into the United States and we've gone through periods when we literally cannot ship into the United States. Just try to keep your customers happy when government regulation will all of a sudden cause you to not be able to ship. We've gone through periods when due to Canadian government policy the sawmills, our suppliers, were actually incented to sell their products to U.S. remanufacturers at lower prices rather than sell to us, effectively exporting jobs.

We've gone through periods, such as from April 28 to August 26 of this year, when taxes by various companies were anywhere from 10% to 30%, and Ontario remanufacturers were paying over 50% duties. The gentleman who spoke before me mentioned that we get hit doubly, and he was absolutely right. Our duties were over 50%. This effectively closed the border to independent remanufacturers, while the sawmills continued to ship as prices rose. It's been fun.

I was in a meeting last Friday with the Minister of Foreign Affairs, Minister Freeland. She called a meeting of 10 or 12 of Canada's largest sawmills, and I was the only pure remanufacturer in the room. According to the minister, she's trying very hard to put together a deal, possibly as soon as this week. That's why this meeting today is critical, and why we welcome the opportunity to speak to you.

Minister Freeland told us that there were two potential outcomes: a quota deal, or a prolonged legal dispute that could take up to five years to resolve. In the event of a legal dispute, under the same rules we were experiencing earlier this year, we would be stuck with duties of 50% or higher, depending on what numbers they come out with. The bottom line is that we would close our plants. Some of us would retire, and some of us would move our plants to the United States. Each option ends in one way for Canadian jobs, and that's badly.

The only way we could stay open, if there is again a duty environment, and if again the circumstances are such that we're paying 50%-plus duties, is if the Minister of Natural Resources, on your good advice, paid our duties and somehow helped us out to stay in business, period. Without that help, we shut our doors.

Minister Freeland has told us that in the event of a quota deal, it will be up to Minister Carr and his department—advised by all of you, I hope you know—to be in charge of allocating quota. That's why it's so important that we're here today to talk to you, the people who may be holding the future of our companies in your hands.

In the event of a quota deal, as we understand it by our best intelligence so far, it will be a deal where Canada can only ship a finite amount of lumber into the States. There will be no provisions, as there may have been in the past, where you could pay a duty to ship more. It will be a finite amount of wood. We need your help to make sure that we keep our plants open, grow them, grow our jobs, and invest in our people and machinery.

Here's what we need you to do. If you believe that adding value to our natural resources is important, we need you to help us advise Minister Carr of the following. In the event of a quota deal, we have a national pool of quota. Unlike sawmills who buy trees from a specific geographic area—you can only truck those trees so far—we purchase lumber from every province in Canada and we bring it into our plants in Ontario. We need the Minister of Natural Resources to allocate a percentage of the pool—I am not suggesting a number here, but I'll just pick 15% as an example—or two billion feet of wood that can be shipped into the U.S. by remanufacturers. Something like this, and again that's just a number for illustrative purposes only, would keep thousands and thousands of remanufacturing jobs in Canada, keep the waste in Canada, and also mean that Canada can use its quota most efficiently. Most importantly, it would allow us to know that we can't ship this month, you can ship next month, you might not be able to again in six months: you let us know that we have the ability to have a runway where we can ship, and we'll invest and show you value-added jobs coming out like you can't imagine.

We also recommend that the minister calculate this pool as a percentage rather than as a fixed number. Again, the intelligence we have is that we're going to be given a quota of the U.S. market. The number that happens to be thrown around is 28%. In other words, as the U.S. housing market grows, we'll be able to ship more because it will be 28% of a growing market. We need to know that we also are part of a growing market.

The third thing is that this pool be for certified independent lumber remanufacturers only. The definition of certified independent remanufacturers was clearly defined in the last agreement. The Americans have no problem with it. We propose no changes to it because we don't want to stir them up.

The overriding reason for these three asks is to keep jobs in Canada. If you take one thing away from this meeting, and one thing only, I hope it's that all low-grade lumber like this, that comes out of a sawmill, has to be turned into something. Do you want to export crude oil for refining, or would you rather add the value and have the value-added jobs in Canada? Do you want to export the logs that we were talking about, or do you want to export value-added products? Do you want to ship tomatoes or ketchup? In our case, would you rather export this or high-grade value-added lumber?

My colleagues and I have brought a notebook, a binder, for all of you with all sorts of documentation, because I couldn't get through it all in 10 minutes.

[The Chair, Liberal, James Maloney]

We can distribute that later. I'm going to have to stop you there.

[Rick Ekstein]

Okay.

We also have another piece of remanufactured product to hand out to you. If you want, we can wait until the end.

[The Chair, Liberal, James Maloney]

Fine. You can distribute that while we're hearing the next presentation, if that works for you.

[Rick Ekstein]

Do you want to ask questions now?

[The Chair, Liberal, James Maloney]

We'll hear from our other witnesses, then we'll have questions for the two groups together.

[Rick Ekstein]

Would you like our colleagues to hand these out now?

[The Chair, Liberal, James Maloney]

Sure. If they can do it while we're listening to the other evidence, without disturbing them, that would be great.

[Rick Ekstein]

Thank you very much for your time, ladies and gentlemen.

[The Chair, Liberal, James Maloney]

Thank you.

Gentlemen, over to you.

[Jerome Pelletier, Vice-President, Sawmills, J.D. Irving, Limited]

Thank you.

My name is Jerome Pelletier. I'm vice-president of the sawmills division with J.D. Irving, Limited. With me today is Mark Mosher, who is the vice-president of our pulp and paper division.

We have a presentation today. We'd like to cover three main items. We'd like to explain who we are, J.D. Irving, and we'd like to talk about the integrated forest product value chain. Finally, we'd like to propose some strategies to expand the forest products sector in Canada.

J.D. Irving was founded in 1882 in New Brunswick. Our head office is located in Saint John, New Brunswick. We currently employ 15,000 people. We are very diverse. We have operations in agriculture, construction, and equipment. We have large operations in consumer products producing facial tissue, hygiene paper, and diaper manufacturing in eastern Canada.

We are also very active in the food sector, producing frozen vegetables and french fries. Of course we have operations in forestry and forestry products. In retail and distribution, we operate 50 hardware box stores in the Maritimes, similar to Home Depot, under the Kent banner. We also have shipbuilding operations, transportation, and logistics. We're the fifth-largest trucking company in Canada, and we have our own rail line and offshore supply vessels as well.

Focusing on forestry now, we're in the top five of the largest landowners in North America, with 3.2 million acres of freehold land. We own about 2 million acres in Canada, and 1.2 million acres in the state of Maine. We've planted 960 million trees since 1957—that's a national record—that we own here at J.D. Irving. We have SFI and SFC certification, and we also have internationally recognized research and patents around our tree improvement program.

In terms of economic impact, J.D. Irving creates around 9,400 jobs overall in Canada in the forestry sector. That's direct and indirect, and they contribute $620 million in direct and indirect Canadian wages annually. Over the last five years, we've invested $664 million in different capital projects, pulp and paper, and sawmills, and annually we purchase $700 million from different Canadian industries.

These are all the different products that we manufacture. We will go into a little more detail in a second in terms of how it's all integrated together.

In our lumber operation, we have 10 sawmills in operation with 1,600 employees. Our sawmill division is divided into four different subdivisions, specialized in transforming or manufacturing specific species. We have an eastern white pine division. We have a hardwood lumber division. We have a cedar division as well as our spruce division. Overall we're producing just over one billion board feet, and in 2016, by increasing bioenergy, we were able to reduce greenhouse gas emissions by 17%. Currently 17% of our energy is renewable energy.

In terms of value added, we've been more and more active in decor programs. We have the live edge hardwood slabs that we have developed. We also developed a pine barnboard decor program. We're active in kitchen cabinet components, and we are also manufacturing cedar fencing here in New Brunswick.

Now I'll turn it over to Mark.

[Mark Mosher, Vice-President, Pulp and Paper Division, J.D. Irving, Limited]

Thanks.

I look after the pulp and paper division. We have four large operations in New Brunswick producing just over 1.2 million tonnes of total product, all the way from primary residual use of our chips from our kraft pulp mill through to specialty paper. We have the most modern specialty paper mill in Canada today. We're just over 25% of the U.S. market of number of grades of paper. We make corrugated medium that we follow through to our sister company, which manufactures corrugated boxes and specialty boxes for pieces, tissue, and all different grades, all the way through to one of our highest value-added products, primary consumer tissue, at-home tissue grades. We produce about 220,000 tonnes, equally split between Canada and the U.S., about 50% both manufactured and sold in Canada and the U.S.

On the environmental side, through a number of programs over the last number of years, through Efficiency New Brunswick as well as some of the climate change programs that were offered through the federal government, predominantly the green transformation program, as well as some of the other programs, we've invested just shy of $120 million in our operations, and we've cut our greenhouse gases by over 50%. As a matter of fact, we've met what we believe would be the climate change targets for at least 2030 in our operations today. We've done that through energy efficiency, fuel switching, internal energy reductions, and so forth.

We actually had it announced that our pulp mill has been one of the largest investments in a pulp and paper operation in North America since 1993. It was a $550-million investment that we put our pulp mill through. We're about halfway through that modernization today, predominantly a productivity efficiency but also an energy efficiency. Today our mill is fuelled by about 90% biomass, internally supplied. Actually, we can go to 100% self-supply and completely disconnect from any external supplies of energy, if required.

When we talk about value added, J.D. Irving today is the most integrated forest products company in North America. A number of years ago, most of the forest products companies started to divest and focus on individual and very specific sectors. At J.D. Irving we go all the way from the seedling. We have our seedling nursery. We grow our seedlings, all our own harvesting operations, out to our woodlands. Our transportation companies take it to our primary manufacturing, which Jerome talked about; there's primary saw milling and primary use transportation, through to our secondary level of manufacturing, which is our pulp and paper and packaging operations, then all the way through our tissue operations, which continues to use the residuals as you go down the line.

Through that operation is where we generate all the...or we start with a seedling in the forest. We utilize about 9,500, almost 10,000, employees. For every one dollar in wood value on a standing tree, by the time we get it through to our tissue manufacturing, we've added about 35 times the value of that wood through the entire process, most of that within the province of New Brunswick. In terms of adding value, we certainly have believed that what Canada needs to do is continue to invest and get back into more of the secondary and tertiary value-added products. Tissue, box manufacturing, and most of that has migrated to the U.S. Our belief is that to really create value from the standing forest, you need to keep all those jobs in Canada and go through the entire value chain.

[Jerome Pelletier]

In terms of business opportunities to grow the forest products sector, the first one we'd like to present here today is the cross-laminated timber product, which was developed mainly in Europe over the last 15 years. For those who may not be familiar with that product, you can see a picture on the bottom right-hand side of the slide. Cross-laminated timber allows you to take smaller pieces of lumber, like two-by-fours or two-by-sixes, and laminate them or glue them together under pressure and create panels that are structurally very strong. It allows you to build a building like you can see here on the slide. It's an 18-storey building. That's an example of a building built in Vancouver last year.

It allows us to use more wood in tall buildings and reduce the use of concrete and steel. It would allow us also, from an environmental point of view, to increase the carbon sequestration. If you look at this example in particular, it required eight times less carbon to build this building here in Vancouver versus using steel or concrete.

The other thing is that, if we could replicate that project in Canada, it would also reduce our dependence on the U.S. market for conventional dimension lumber. We see that product as an interesting place to invest time and research in order to increase the lumber consumption in the home market in Canada.

[The Chair, Liberal, James Maloney]

Gentlemen, I'm going to have to ask you to wrap up in about 30 seconds.

[Mark Mosher]

The last thing is district heating in Europe. Just about every pulp mill supplies predominantly all of the heating energy for municipalities that are around them. That has not taken hold in Canada. That would require a lot of federal intervention, because it's a very costly infrastructure program. That's an opportunity that we believe would really add value to the primary manufacturers and then certainly add value down through the stream, the value chain.

[Jerome Pelletier]

Quickly, I'll turn to the last two opportunities we see here. One is the growth in the wood pellets market. The demand for industrial and residential wood pellets has been growing 2% to 5% a year for the last five years. We see that as an opportunity. Also using more automation in hardwood components for kitchen cabinets would be a sector that could grow significantly here in Canada.

[The Chair, Liberal, James Maloney]

Thank you very much.

Mr. Harvey, you're up first.

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

Thank you, Mr. Chair.

I want to thank both Jerome and Mark for being with us here today. I appreciate your time, and we're glad to have you here with us.

Starting off, you spoke quite a bit during your remarks about the diversity of the secondary manufactured products that you have within your suite, which really speaks to the formation of your company, the vertical integration that J.D. Irving has.

Recognizing that right now the current state of affairs leaves New Brunswick in a position where the majority of our wood exports go to the United States, where do you see the future opportunities for secondary manufactured products coming from New Brunswick, whether that's continuation to the States or offshore markets or within our own domestic market here?

[Jerome Pelletier]

In terms of growth outside of the United States, because we're operating in eastern Canada, we're limited on where we can go. When we look at B.C. and Alberta, we've seen a lot of growth in the China and Japan market over the last five years. We've explored that market. We look at it every year, but unfortunately, because of our geographic location, it's a little bit more difficult.

Europe is still an option, but the Scandinavian countries, over the years, were able to grow their forest products sector, so Europe is very competitive. For that reason, naturally we still believe that the United States is still our best market because of our proximity.

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

Do you feel that cross-laminated timber products, like you've shown us here, are something that we're going to see as a growth opportunity within the U.S. housing market?

[Jerome Pelletier]

I do, yes. I believe it has started. There are already examples in different areas, especially more on the west coast. If you go to Oregon or Washington state, you'll see some examples similar to what I've shown here for Vancouver. I think that's a trend that will increase over the next five to 10 years. I hope to see the same trend in Canada as well.

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

You spoke about the overall reduction of GHG emissions that JDI undertook over the last number of years. How do you feel this contributes to your competitive advantage as a secondary producer, being able to value-add but also being able to go to retailers and other industry stakeholders and saying this is what we're doing, but we're doing it in a way that recognizes the opportunity from an overall reduction in greenhouse gas emissions?

[Jerome Pelletier]

That's a question that is being asked more and more by our customers. We have a long-term partnership with Home Depot USA. We've been sharing our sustainability report with them every year. They like to see that information, because they like to be a partner with companies that are environmentally responsible.

That's part of our strategy. I think if we want to keep growing long-term partnerships with key companies, we have to do that.