Natural Resources Committee on Dec. 4th, 2017

[The Chair, Liberal, James Maloney]

I'm going to have to stop you there, unfortunately.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you.

[The Chair, Liberal, James Maloney]

You're out of time.

Unfortunately, I'm going to have to stop this part of the meeting, because we've run out of time. The sad part of our process is that we just never find enough time to spend with our witnesses.

I want to thank you on behalf of the committee, not just for coming today but for coming twice. Your evidence will be very helpful to our study. We're very grateful to you all.

We will suspend for two minutes, and then come back with the next set of witnesses.

[The Chair, Liberal, James Maloney]

Let's resume.

Good afternoon, gentlemen.

We're in our second hour. From the Coast Forest Products Association, we have Mr. Rick Jeffery, president and CEO.

Thank you, sir. I know that this is a second attendance for you. We're grateful that you were able to fit us in a second time.

We also have Mr. Eric Karsh, principal, structural engineering, from Equilibrium Consulting Inc.

Gentlemen, the process for today is that each of you will be given up to 10 minutes to make a presentation. Following that, you will be asked questions by members around this table. You can deliver your remarks in French and/or English. You can anticipate that you'll be asked questions in French. I believe you have devices for translation, should you need them.

On that note, I will open the floor. Perhaps you can start us off, Mr. Jeffery, since you were kind enough to come back a second time.

[Rick Jeffery, President and Chief Executive Officer, Coast Forest Products Association]

Thank you, Mr. Chairman. It's my pleasure to be here for the second time. I hope your vote went okay the other day.

I'm going to start off by basically talking about the supply chain, the forest supply chain. It's relevant in respect of talking about secondary supply chain products. Essentially, in the forest products industry, the supply chain starts with our forest management. Of course, Canada leads the world in sustainable forest management, and that has to do with the fact that we have strong support from both the provincial governments and the federal government on the research side, and we have strong regulatory and legislative frameworks in which to operate. We also have a customer base that demands that our products be sustainable.

You really can't talk about secondary supply chain products without talking about the primary industry first. It is the primary industry that breaks down products that are then fed down the supply chain to the secondary folks. In that respect, as you do your deliberations, you should be alive to the fact that we are engaged in a dispute with our American friends around softwood lumber.

On the coast of British Columbia especially, that is an important issue for us both at the primary and the secondary levels because we produce very high-value products off the coast. In fact, 80% of what goes into the United States is cedar products and they are very high-value products. The whitewood products that go in there tend to be shop-grade products that get further manufactured by customers and the supply chain south of the border. As your government deliberates on softwood lumber and tries to negotiate an agreement, you should be aware of ensuring that the high-value sector on the coast of British Columbia gets adequate access to the U.S. market, especially if we're in some type of quota arrangement.

The way it works here, generally primary producers make the products, which then get sold here to secondary producers who manufacture all manner of things. My friend here does some amazing engineering feats with those products, but he'll be able to talk about that himself.

In terms of economic and employment benefits, the primary industry off the coast of British Columbia is a $6-billion-a-year proposition. It employs 40,000 people. Interesting for your deliberations, as many of those products move down the supply chain to secondary producers, that business in British Columbia on the coast is about a $1.6-billion proposition and employs an additional 3,000 people. Primary and secondary industries are interlinked, and without the primary breakdown, you don't get a lot of secondary products, especially on the solid wood side.

That goes to your economic and employment impacts question.

I'd like to talk a bit about the barriers and opportunities. For sure we are on the cusp of a whole range of exciting opportunities in the forest industry. We have next-generation products such as cross-laminated timber and other engineered wood products that don't necessarily fit in a box. We have all manner of next-generation products on the pulp and paper side, from biofuels to nanocrystalline cellulose to cellulose fibres, lignin, these kinds of things. The world is using wood in ways we never imagined, and in Canada, we need to be ensuring that we are doing what we can in terms of research and development and regulatory processes to facilitate the advancement of the use of wood in these exciting next-generation applications, which by definition might be what you're calling secondary supply chain products.

That is the opportunity. However, I'm going to tell you quite frankly what the barrier is. In this country, it is hard to make a business case for investment in the natural resources sector. We face uncertainty in costs. We face uncertainty in access to fibre.

Many of those barriers or issues that preclude being able to make a business case for investment revolve around things that governments do. There are regulatory things. There is species at risk. There is reconciliation with first nations. There is tax and economics, and then there is that, always, forestry always tends to be a political football.

Those issues are what I think your committee needs to turn its mind to, because it's very difficult for CEOs to go into boardrooms today and say they want to invest $100 million in a sawmill or some next-generation product, which carries all kinds of risks to begin with, and then not be able to turn to their boards of directors and investors and say where they're going to get the fibre to build these things and what the cost of that fibre is going to be.

Having said that, and not being a guy who has a black cloud over his head, there are a number of things the federal government is doing that we should celebrate and ensure continues.

You have the EMO program, or the expanding market opportunities program. That program leverages federal government, provincial government, and forest industry money to promote our products offshore. Not only does it promote our products offshore, it promotes Canadian technology, building systems, and expertise in offshore markets. That's a very good program that should continue to get funding.

You have the investments in the forest industry transformation fund, or IFIT. That fund is spurring innovation into new and secondary products in the pulp and paper sector.

You have your superclusters initiative. Here in Vancouver, one of the superclusters includes the forest industry, and that's where we're going to drive transformative change as we see the digital economy and the big data economy hit the forest sector. There are amazing opportunities for us to reduce our costs, increase utilization, and use big data and analytics to help us improve our businesses.

There is also the green construction through wood program that's part of the softwood lumber assistance package, and that helps us promote the use of wood as a low-carbon GHG energy-efficient material, which is one of the platforms for the evolution of building with wood in this country, in North America. As we speak we are doing the same thing with our friends in Japan and China.

As my day job, I'm the CEO of the Coast Forest Products Association, but in that role I'm also the president of the Canada Wood Group, which does the offshore market access and market promotion program for the industry in offshore markets like Japan, China, Korea, India, and places like that. We are in discussions with the governments of China and Japan about how to bring our technologies and products into those marketplaces so that they can begin to build with wood, much as we have built with wood here. That speaks to not only primary products but also secondary products like CLT and other engineered wood products and, just as importantly, the value-added technologies and building systems we have here in Canada.

I'm going to end it there by saying that we are on the cusp of some amazing things. We have a very mature, established supply chain here in British Columbia that centres around the primary industry, and the spinoffs from that are significant for the secondary wood products industry. Our opportunities moving forward certainly are around new products or innovative applications that exist.

Thank you very much for your time.

[The Chair, Liberal, James Maloney]

Thank you very much, Mr. Jeffery.

Mr. Karsh, it's over to you.

[Eric Karsh, Principal, Structural Engineering, Equilibrium Consulting Inc.]

Thank you, Mr. Chairman. Also, it's a pleasure for me to be here.

My role is on the value-added or specifying side of the chain. I've been a practising engineer for 30 years and have been designing with wood since I moved to British Columbia 23 years ago. The amount of innovation and progress that has been made on the technical side of timber engineering and manufacturing in the last 23 years has been astounding.

It is true that Canada has always, or for a very long time, been seen as a leader in the production of the fibre, of softwood lumber. On the engineering side, however, when I began designing with wood 23 years ago, we were playing catch-up with the Europeans, primarily. I'm happy to say that thanks to the support of the Canadian Wood Council and organizations like FPInnovations, which have been doing a tremendous job on the research side, we are now seen as being leaders in design as well. We're exporting our knowledge and expertise all over the world at this time.

These advances have included new products, many of which have been developed here in Canada, engineered wood products such as Parallam as an example, but also manufacturing with CNC fabrication, or computer-controlled robots. Most recently, as Rick mentioned, mass timber products such as CLT have really had a huge impact on the way we design buildings in wood today.

As you may know, we have been slowly, due to this innovation in the last two decades, been using wood in commercial construction more and more, and you can see structures in wood nowadays in hospitals, airports, and museums. Just about any kind of building you can think of, we can now build in wood. I think we have demonstrated that wood can be used successfully in all those building types, including more recently, in high-rises.

The use of mass timber, such as cross-laminated timber, has made it possible for engineers now to design high-rises in wood, and following the publication of our report, our feasibility study in 2012 called “The Case for Tall Wood”, the discussion around timber high-rises and the potential use of it for high-rises has grown very quickly, not just in Canada but all over the world.

We're at a point now where we are to move from demonstration to mass use, and there are a number of barriers that still stand in the way for this to happen. One is that the timber manufacturing and value-added sector is still relatively small, not only in Canada but all over the world.

There is a challenge on the education side. As an engineer, you cannot get an engineering degree without taking a steel engineering and concrete engineering course, but you can, in Canada, graduate without an introduction to timber engineering, and not only can you graduate without an introduction to timber engineering, but you may have a hard time finding a university in Canada that will teach that course. It is, I think, important for Canada, which is the largest producer and exporter of softwood lumber in the world, to pay attention to the need to educate professionals in the technology and the design of timber structures and other products.

The other barrier is that because the market in the value-added sector is quite small, there is a lack of competition and there is a lack of stability in the pricing, which is a challenge when you try to convince a developer or a contractor to use the product. We believe that we are just about at the point where we're crossing that line. Developers and contractors increasingly recognize the advantages of building with mass timber.

It's a lot faster than building with steel and concrete. It is sustainable and wood, of course, is a renewable material. With the development of mass timber we can now build timber structures that perform as well from a serviceability point of view as concrete and steel.

The advantages have been demonstrated. We now need to develop a supply chain that is reliable, both in terms of capability and expertise but also in terms of pricing or costing. In the United States right now there are companies that are building new CLT plants that are going to have very large output capacity, so I think there's going to be an increase in supply, which will probably help in stabilizing prices and also with bringing prices down. That will go a long way in increasing the use of mass timber in construction, but we shouldn't take for granted that it will actually bring us over the hump. Even if the supply side comes on online, we still have the issue of not having enough professionals to be able to keep up with the demand that we expect will take place.

One option we have been looking at, as designers.... I'm also involved in a not-for-profit design-build school called DBR. We've been teaching design-build courses. We invite designers of different kinds, architects, engineers, landscape designers, to come to the classroom, design a building or pavilion or some other small project, and then go in the shop and actually fabricate and install the structure. That's helpful in providing hands-on training to designers who may not get the opportunity in a university setting.

The requirement for knowledge is actually at the global level and it is significant, so we've been talking about trying to put together an online university course that will be not for profit again and will not be accredited but will at least make the information available.

When you design a building out of wood, the amount of information and the variety of information that is required to do your job is really quite surprising. We have to address structural issues, of course. We have to address issues of supply, manufacturing, fire protection, acoustics, and so on. It is a significant amount of work to catch up on the professional expertise side to meet the demand that we hope will actually come online very soon.

That is the essence of what I have to say. I look forward to your questions.

[The Chair, Liberal, James Maloney]

Thank you very much.

Mr. Tan.

[Geng Tan, Liberal, Don Valley North, ON]

Thank you, Chair.

Thank you, gentlemen, for being with us from far away.

Mr. Jeffery, you just mentioned the study on the secondary side should also be associated with the study on the primary side, and I have some material here that is probably directly copied from your association's website. It mentions that the Coast Forest Products Association promotes world-class forest management practices with a focus on market development.

I am curious to know more about this forest management practice. For example, can you foresee or predict the planting someday of entirely different species of trees in order to meet buyers' demands? For example, you want to replace aspen with pine because somebody asked you to do so. Is that possible?

[Rick Jeffery]

Let me say that one of the things I mentioned in my introductory comments was that Canada and British Columbia and all of the provinces have world-class forest management practices. One of the foundations of those forest management practices is on the reforestation side, where we have invested millions of dollars and research over decades. One of the things we are very good at is reforestation on sites with the appropriate species that are ecologically suited to the climatic, soil, weather, and physiological conditions of that site.

What you don't want to do is start planting things that don't belong there because, first and foremost, we're reforesting to provide replacement of the original forest cover with new forest cover that's ecologically appropriate, not only for timber production but also for biodiversity, species, and other things. There is some ability for us to look at planting for commercial uses, but that's very much tempered by the need to make sure we're planting the right trees in the right places, trees that are going to survive and grow well.

[Geng Tan, Liberal, Don Valley North, ON]

Thank you.

We learned from one previous witness that from 1997 to 2004 the amount of unprocessed B.C. timber exported increased from 200,000 cubic metres to over 5.5 million cubic metres annually. What's the current situation right now?

Is it the same or are you exporting even more timber? If that's the case, how can Canada ever hope to develop a sustainable value-added industry if we continue exporting such a vast quantity of our unprocessed timber?

[Rick Jeffery]

Like any business, we need to make sure that we have a diversity of products coming out of our forests. Our forests produce things such as slough for flowers and mushrooms for export. People use our forests for recreation and tourism. We produce solid wood products, pulp and paper products, and secondary products. We also produce logs. That's just part of the mix.

I spoke to you about regulatory constraints and the ability for a CEO to go in front of a board and make a case for investment. There are two factors that are extremely challenging in British Columbia, especially on the coast. One, do you have access to the fibre and can you guarantee you're going to get it? The second is the cost of that fibre.

We need to be working together as governments and industry, along with our other stakeholders, to address our cost issues and the investment issues, because if you want to reduce the amount of log exports, what you need to do is to increase the amount of investment in both the primary and secondary manufacturing businesses. If you can't attract the investment in the manufacturing side of the business, then you're going to see a continuation of log exports. It's a very complicated issue.

[Geng Tan, Liberal, Don Valley North, ON]

I have two more minutes, so let me ask Mr. Karsh one question.

You joined a team of seismic experts in Haiti in 2010 after the earthquake. In your opinion, how would a tall wood building in Canada survive an earthquake like the one that hit Haiti? Following that, if the answer is yes, do we need to change our assessment codes to allow the construction of these kinds of wood buildings in Canada?

[Eric Karsh]

There's a reason I was asked to teach timber engineering in Haiti. This is a course that was added later on in the program, when it was offered for the second or third time. The reason is that a lot of the engineers had asked to learn about timber because they noticed that the houses in which people were not killed were the houses that were made with light frames. This is not to say that a timber building will always perform better than a concrete building in earthquakes, because ultimately it's not about the material. It's about the design and making sure the structure has been designed to behave a certain way. Again, it is not material related.

If I can turn the question around, I can tell you that we are developing and have used methods to build mass timber structures of all sizes and heights now, which are very safe and effective.

[Rick Jeffery]

I'll just pile on to that.

We've made a very big business in Japan using light-frame construction. We introduced it 40 years ago. There was no market for that in Japan. However, one of its selling features is that properly designed wood buildings have very good seismic characteristics and do very well in earthquakes.

It is on that platform that we're also making inroads in China, which has many different areas that are seismically vulnerable.

[Eric Karsh]

Timber is a lot lighter than concrete. That's a big advantage, from a design point of view.

[Geng Tan, Liberal, Don Valley North, ON]

Thank you.

[The Chair, Liberal, James Maloney]

Ms. Stubbs.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you, Mr. Chair.

Mr. Jeffery, I just wonder if you could expand on some details related to the trade relationships that Canada has, and their impact on your members. I'll just go through a couple, in turn.

I wonder if the ongoing discussions around NAFTA are a concern for your members, and if the uncertainty around those negotiations has an impact on you?

[Rick Jeffery]

Sure. With respect to NAFTA, as you may know, softwood lumber resides outside of NAFTA. Right now we are embroiled in a legal dispute with the Department of Commerce on softwood lumber. There have been no discussions about bringing softwood inside of NAFTA at this point in time.

However, one of the things that are very near and dear to the forest industry's heart is that the provisions of chapter 19 in NAFTA, or the dispute resolution process, be maintained. They are absolutely essential, because the Department of Commerce and International Trade Commission proceedings in the United States are U.S. law on U.S. soil, for the benefit of U.S. producers. Unless we have access to both WTO and NAFTA panels to help resolve disputes, you're playing on a pretty tilted playing field.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you.

Around the softwood lumber agreement, I just wonder if that's affected your members' ability to invest in technology or to hire or expand their businesses. Are there any details you wanted to explain about the impact of the lack of the softwood lumber agreement on your members?

[Rick Jeffery]

Yes, sure.

First and foremost, let me say that governments of all stripes that have dealt with this issue have taken it very seriously and done a very good job to represent Canada's interest in softwood lumber. It is not a partisan issue. It is an issue that is incredibly important to whoever is in government, because of the size and importance of the industry. The current government here in Canada has done what they can to try to negotiate a deal; however, if you don't have a willing partner on the other side of the border to negotiate a deal with, you can't get a deal. That remains our case today. The U.S. coalition is not interested in a deal, and until they are it is unlikely we will be able to fashion one. That's just the nature of how the law works down there.

The impact on my membership right now has been fairly benign to this point in time. The price of lumber has risen in the United States, and essentially what's happening today is that U.S. consumers are paying the brunt of protectionist actions by a handful of forest companies.

However, we've been down this road before. The last time we were in this was from 2001 to 2006. What we know is that markets will adjust over time, so it's our expectation that as we fight the legal case, the price of lumber will start to drop, and then it will start to bite and we'll start to see reduced shifts in mills and logging operations, and those kinds of things.

It is certainly very difficult for a CEO to be able to go to a board and ask for investment money when you have a 21% duty on your products. I mentioned earlier that on the coast here 80% of what we send to the United States is cedar. It's our biggest market for cedar. It's probably the only market that's willing to pay for the price of cedar. The average value of cedar going into the United States is $1,200 a thousand board feet. When you put a 21% duty on top of that, you're looking at paying over $400 in duties. The market will not sustain that kind of pricing for a long period of time.

We're already starting to see prices come off. As prices come off, we will see an impact on employment and economic activity, and certainly on the investment front.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you.

On that note, you specifically cited regulations, costs, taxes, and economics, and their impact on the investment climate within Canada. I don't mean this in a partisan way. I just mean it for us, as policy-makers who have the ability to make recommendations through this report. I want to invite you to share any specific recommendations or details, or your top priority, or maybe regulations that we could make recommendations on and that would be an improvement for your industry.

[Rick Jeffery]

Sure.

The Species at Risk Act has a very big impact on the certainty of supply and the cost of supply. That's a federal statute. It is not a terribly well-written federal statute. Socio-economic impacts do not get considered in the development of species-at-risk plans and recovery strategies. They don't get considered until the very end, when it could potentially go to cabinet and cabinet could say, “We are willing to do something other than the recovery strategy because of the socio-economic costs of it.” That's way too late in the game. Again, at a boardroom table, you cannot talk about making an investment if you can't tell people where the trees are going to come from. To hope that, on a species-at-risk issue, the federal cabinet will weigh the socio-economic impacts at the end is just absurd. That weighs heavily.

All across the country, there is a big issue around caribou now. I would encourage you to look at the Forest Products Association of Canada's website to see about caribou. That's not something that happens on the coast. We don't have caribou here, but we have northern goshawks, marbled murrelets, and things like that. That's one area.

The second area is that we need to get on with reconciliation with first nations. Applying the spirit and intent of UNDRIP and these kinds of things in dealing with first nations is a laudable goal, but the fact of the matter is that we have to get on with reconciliation so that benefits are flowing to first nations. Quite frankly, the federal government needs to step up to the plate here in British Columbia to help us with that reconciliation process. There are things we can do that are wins for first nations, for the industry, and for governments. We need to get on with doing those things, and the federal government is an important partner there.

Those would be the top two items.

The last one is that the government has a very well-thought-out investment strategy around the things I talked about—like the green construction through wood, the IFIT program, and those things—and we would encourage you to continue to invest in that kind of research and development to help our industry on the forest management, products, and technology side.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you.