Natural Resources Committee on Nov. 23rd, 2020

[The Chair, Liberal, James Maloney]

I call this meeting to order.

The first thing I would like to do is welcome our new clerk. We have two clerks today, Grant McLaughlin, and Hilary Powell, who you see on the screen. She will be our clerk on a permanent basis going forward. I'd like to thank and welcome you both. We look forward to working with you.

This is the fifth meeting of the Standing Committee on Natural Resources. We're continuing our study on the economic recovery in the forestry sector. We're doing meetings virtually, although there are a number of you in the room.

Those of you in the room, because I can't see you, please bear with me when I'm asking people to speak. Wait until I call your name before starting to speak. I would appreciate that. That would make things go a little more smoothly on my end. I have a speaking list that our clerk has provided for all parties, whose names I believe have been submitted by all of you. Thank you for that.

To our witnesses, welcome, and thank you for coming. You are welcome and encouraged to address us in either official language. Translation services are available. Because we're doing this remotely, I would ask you to speak slowly and wait until other people are finished speaking. You each have up to five minutes per group to make your opening remarks and once all of you have addressed the committee, we will then open the floor to rounds of questions from all members.

Members, we're not doing this an hour at a time. So we have lots of time to ask questions and everybody should be able to get their questions in today.

Thank you all very much for coming. Why don't we proceed in the order you appear on the witness list?

Mr. Kalesnikoff, from Kalesnikoff Lumber, perhaps you would like to start us off?

[Ken Kalesnikoff, Chief Executive Officer, Kalesnikoff Lumber Co. Ltd.]

I'd like to thank you for giving us the opportunity to speak today. I've got Ryan Marshall on the call as well. He is our finance manager.

I'll give you a bit of a history of Kalesnikoff Lumber. We started in 1939. The company was started by my grandfather and two brothers. In those days, you built roads by hand, logged with a horse and cut lumber with a single-cylinder headrig. My dad started in 1950 and was our second generation. I started in 1977. I'm the third generation, and my two children are now involved. My daughter is CFO and my son is COO.

I will speak first about our journey into value added and secondary manufacturing.

As a company, we've always been innovative and focused on extracting maximum value from every log. That is the only way we could survive against larger publicly traded multinational companies that focus on volume and dimensional products.

We started a value-added facility in back in 2000 called Kootenay Innovative Wood. We started by making guitar tops and piano sound-boards. Unfortunately, that market got captured by the Chinese.

We had been focused on lineal products like siding and panelling of late, but the SLA has really made it difficult to compete in the U.S. market with that product.

Getting a value-added venture up and running in Canada is not easy, and to be honest. It's not very well supported.

We started looking at a mass timber facility about six years ago and as a family, decided to make a $35 million investment in a new state-of-the-art, multi-species integrated facility. We will create 50 new jobs. The people running the equipment will probably get paid around $60,000 a year. They will make up about 20% of the new hires. The trades will make up 10% and will probably be paid in the $85,000 to $90,000 range.

The balance is staff, which includes junior designers making $60,000, project managers and senior designers making more than $100,000, and sales and senior staff making $125,000 a year.

This was a big decision for our family but we felt it was a necessary one for us to secure our business for the fifth generation.

We have received no outside funding of any kind from government, neither federal nor provincial. We do see the mass timber industry having a great future, but getting it established is challenging.

The larger developers are hesitating to get into mass timber as their focus up until now has been concrete and steel, and they're very familiar with them.

Developers also find that new business ventures like our own an added risk. Until we have a portfolio, we will be challenged to secure these larger developers.

Without a track record or portfolio of completed jobs, we are forced to underbid on jobs to secure work, which reduces profitability and strains our financial viability in the start-up phase.

The interest is tremendous, but follow-through is lacking.

We are spending a lot of time and money educating architects, engineers and developers. In the last 12 months, we've quoted over 500 jobs, from $5,000 to $15,000,000. Over 75% of those are just looky-loos, so to speak. We've landed about 15% of the 25% of the legitimate jobs that we've quoted.

We had a couple of jobs that we were hoping to do towards the end of this year, but they've gotten postponed into 2021. That's put a bit of a crunch on us, and it could be COVID-related.

Government needs to ensure that mass timber doesn't fall into the SLA, as I mentioned before. It has really hampered our value-added facility. The U.S. has a record of just expanding their net, and if the mass timber products end up in the SLA, that's going to be terrible.

The last thing I'll talk about is how government could help. Government needs to support the advancement of the mass timber industry by creating an environment of promotion, support and education with respect to building with wood and mass timber.

Using more mass timber will help set the stage for economic recovery and the government's climate change initiatives.

Moving forward, how much of the government's own building infrastructure in low- to mid-rise buildings, given the latest climate change initiative, is going to produce and utilize mass timber and move away from using concrete and steel?

Along with NRCan and the IFIT programs for the whole forest industry, there needs to be a category of grant funding specifically allocated for the value-added secondary industry.

The major industry has access to large resources to build impressive proposals that smaller players in the value-added industry just don't have.

We've made a bunch of submissions to NRCan and IFIT and have been unsuccessful to this point. We don't have staff that specifically spend time just on writing proposals.

That's where I'll end it for now.

Thank you very much.

[The Chair, Liberal, James Maloney]

Perfect, thank you very much, sir.

Mr. Verreault, why don't you go next.

[Frédéric Verreault, Executive Director, Corporate Development, Chantiers Chibougamau]

Thank you, Mr. Chair.

Ladies and gentlemen, members of the committee, thank you for welcoming me here today and giving me the opportunity to engage in this conversation about the potential of the forestry sector in Canada and, of course, in Quebec to further support a low-carbon Canadian economy.

I was intrigued by the original question and the committee's mandate today.

Before I do anything else, I will quickly introduce the Chantiers Chibougamau organization to you. Much like Mr. Kalesnikoff's business, we are a family forestry company founded in 1961. So, in just a few weeks, we will be celebrating our 60th anniversary.

Back then in Chibougamau, which is in northern Quebec, the company's mission was to manufacture large pieces of wood for the mines, which drove economic activity and helped develop the surrounding area. This was all new for Quebec at the time.

We have grown from five employees in 1961 to over 1,100 employees today, with 600 at the Chibougamau manufacturing complex, 200 at our Landrienne sawmill in Abitibi-Témiscamingue, more than 250 already at our Kraft pulp mill in Lebel-sur-Quévillon, which we are reopening at the moment, and more than 60 at our technical services and engineering office. That office is the construction partner in all of our solid wood projects right across North America, and even in an increasingly profitable foray into the European market.

So 1,100 people make a living from our efforts to tap the full potential of trees. Our organization alone is currently completing a 10-year investment phase of nearly half a billion dollars. We are injecting close to $500 million in investments of all kinds to increase our production capacity, diversify and reopen a co-product plant to make Kraft pulp for a low-carbon global economy. So, I appear before you this morning with all these perspective in mind.

The committee asked what can be done to secure economic recovery in the forestry sector. Let me put it another way. Is there a real need for recovery in the forestry sector, or does it have the potential to do more and be reoriented?

In terms of recovery, in very concrete terms for the Quebec industry to which we belong, our exports of wood construction products increased by 60% from August to September of this year. In spite of the unprecedented context of COVID-19 that we are experiencing, the forestry sector alone accounted for more than $4 billion in exports. That's not our contribution to GDP; it refers to exports from the Quebec forestry sector. That means our sector is one of the five most profitable and relevant sectors supporting the Quebec economy and, inevitably, the Canadian economy as a whole.

In light of this, and of the many initiatives to which I've had the opportunity and privilege of contributing over the past 15 years or so, we are constantly thinking about what more we can do from a political perspective, while being mindful of the regions and their forestry economies?

These issues, which are possibly policy-related, can now be taken to a whole new level of policy development. Forgive me for drawing on contemporary politics, but I'm going to paraphrase John F. Kennedy. Ask not what the House, the government and the country can do for the forestry sector. Using market-driven logic, let's turn the question around: ask what the forestry sector can do for the House, the government and the country.

When you turn the question around, you see that the forestry sector can do much more for this country than it does today. Canada aims to achieve carbon neutrality by 2050. It's no longer simply a subjective question of preferring one material over another. It's understood that we need to build with wood if we want to achieve a shared objective like that.

We always want more jobs, sustainable jobs, well-paying jobs and jobs that rely on knowledge and technology, on Industry 4.0, on artificial intelligence. The forestry sector has the potential to drive job creation of that kind.

We want construction sites that pollute less, leave a smaller carbon footprint and are quicker to set up. Above all, we want economical and competitive construction, and that is why wood is the natural choice.

We are always looking for ways to up our contribution to GDP, and better contribute to the trade balance. We also strive to ensure that Canada exports products that help the whole world meet the global challenge of climate change. Wood exports well; wood is the best material to meet that need.

So we are ready and the market is ready. Today, we are getting calls from developers in Colorado, California and New York State.

[The Chair, Liberal, James Maloney]

Thank you.

[Frédéric Verreault]

Everyone's ready. We're ready.

We look forward to engaging in this conversation with you today, to take it even further.

[The Chair, Liberal, James Maloney]

Thank you very much, sir.

We move on to Peak Renewables.

I'm not sure who's going to go first.

Is it Mr. Fehr or Mr. Baarda?

Mr. Fehr, it's you.

[Brian Fehr, Founder and Chairman, Peak Renewables]

Did that work?

[The Chair, Liberal, James Maloney]

That's better.

[Brian Fehr]

Can you understand me?

[The Chair, Liberal, James Maloney]

Perfectly.

[Brian Fehr]

The first thing is that I didn't understand a word the last guy said, except for the reference to John F. Kennedy.

I don't know if I'm supposed to understand Québécois or how that interpretation stuff works, but I missed it all, just to say.

Thank you, Mr. Chair, and thank you to the committee.

[The Chair, Liberal, James Maloney]

You should have a function on your computer that allows you to have whoever is speaking interpreted for you.

[Brian Fehr]

I missed it.

Thank you, Mr. Chair, and committee members for inviting me to speak today and making time on your agenda for this very important issue.

As noted, my name is Brian Fehr. I am speaking to you today in my capacity as chairman of Peak Renewables.

I would like to introduce you to the CEO of Peak Renewables, Mr. Brian Baarda, who is also on the line with us today and will assist me in answering your questions.

My opening remarks will be short and to the point.

First, I applaud the fact that this committee is examining the critically important idea of innovation in Canada's forest sector. The forest sectors have been an immense contributor to the prosperity of Canada for many decades. That is especially true in rural Canada, where good-paying jobs in harvesting, milling, pulp and paper, etc., have been the mainstays of rural communities for generations. But it is also true that those days are past. The industry is under immense stress from those who would prefer that all trees be left standing; from competitors in other countries who try to impose trade restrictions, rather than just compete; and from environmental and other changes that are affecting the profitability of traditional forest practices and fibre use. The days of easy access to cheap fibre destined for high-paying stable markets are done. This can be a problem or it can be an opportunity.

We created Peak Renewables and other companies in the value-added wood space, for example, cross-laminated timber for construction of green buildings, because I believe in opportunity. Peak Renewables will take distressed forest liabilities and turn them into assets that not only switch on the economic engine of rural communities by creating local jobs and investment, but also utilize the fibre in new and innovative ways. For example, our new mill that's under construction in Fort Nelson, British Columbia, will take an old OSB plywood site that has been idle for 12 years and turn it into a modern, renewable, biomass pellet mill. The pellets from that site will facilitate the renewal of the infrastructure for the entire area, which creates other economic growth opportunities for the region.

We are doing this in full partnership with the local Fort Nelson First Nation. They are partners in every sense of the word. The pellets will be part of an important and growing clean, renewable energy export business for Canada that is helping other countries meet their climate goals. Peak Renewables is also planning to develop other renewable energy products made from wood biomass like RNG, liquid biofuels, hydrogen, etc., all of which will be essential to helping governments meet their climate goals and targets for things like clean fuel standards.

Canada has done a credible job of creating the right plans. For example, the Pan-Canadian framework on clean growth and climate change recognizing—

[The Chair, Liberal, James Maloney]

Mr. Fehr, can I interrupt you for one second? I apologize for that.

Would you mind speaking a little bit slower so that our interpreters can keep up.

[Brian Fehr]

I didn't know you had translators. Sorry. I'll speak more slowly.

Canada has done a credible job of creating the right plans. For example, the pan-Canadian framework on clean growth and climate change recognizes the importance of forest management and innovation for things like using forests as a carbon sink or using much more wood in construction, as well as the important role for wood in generating bioenergy and bioproducts. But plans are not actions. We need to close the gap between plans and research and commercialization.

The government's expert panel on sustainable finance has identified the need to link access to capital with government policy-making around climate. Peak Renewables supports that work and urges government to think of small businesses and start-ups like us as they do the important work of incentivizing investments in companies that are striving to be part of the solution.

In closing, I would like to thank this committee again for inviting us here today. The forest sector will be an important part of Canada's post-COVID economic recovery, an important driver of innovation, an important partner in helping governments meet their clean energy and emissions target and a living example of how to do all of that in partnership with our indigenous peoples and rural communities.

Thanks again for your time. Brian and I will answer any questions you might have.

[The Chair, Liberal, James Maloney]

Thank you very much for that. It's very much appreciated.

Before we move on to Mr. Cossette, Mr. Kalesnikoff, could I possibly ask you to change your virtual background? Apparently it's causing some trouble with the broadcast, I'm told. You're sort of lost in the forest, if I could put it that way. I suspect that is the problem.

[Ken Kalesnikoff]

Okay, thanks.

[The Chair, Liberal, James Maloney]

All right. I appreciate that.

Mr. Cossette, go ahead, please. You have the floor now for five minutes.

[Maxime Cossette, Vice-President, Fiber, Biomaterials and Sustainability, Kruger Inc.]

Thank you, Mr. Chair.

Thank you for the opportunity to speak about Kruger today. I'm corporate VP for sustainability, biomaterials and fibre at Kruger. I'm glad to be in front of all of you today.

As probably many of you know, Kruger is a fourth-generation, family-owned company. The third generation is still at the helm with Joseph Kruger II. His kids are in now as well, with Gene and Sarah being active on the board. Clearly, we believe we can be part of the whole decarbonization of the economy.

The problem we're facing today is that we're accelerating the development of bioproducts, but at the same time some of our main sources of revenue are declining at a rapid pace, much more rapidly than we anticipated, because of COVID-19.

While newsprint and coated paper were declining at a rate of 15%, roughly on a yearly basis, we've seen drops of over 40% since COVID hit us back in March. We're facing short-term challenges while we also need to work on longer-term challenges with the bioeconomy and bioproducts.

We've been very glad of the support we've had from different programs in the past, namely IFIT, and we believe this can be a very good vehicle for bigger projects moving forward. The size of the envelope right now makes it difficult to bring transformative projects into declining mills, and for which sales are not there anymore, to support the growth and transformation of the mill.

One of the main problems we have also seen in the past is a shift from plastic to paper in various different applications, one of the key ones being grocery bags and shopping bags where they want to phase out plastic. The fibre is there, the capacity to transform paper into recycled low-carbon footprint for those bags is there, but there is a big bottleneck in the converting capacity because back in the early 1990s, most of the paper bag manufacturers shut down their operations.

Today, we would also like to see this committee and the government try to support the converters further down the supply chain, which would then be positioned to take the product that companies like Kruger can put onto the market and transform it into low-carbon solutions.

Obviously, certain locations are more at risk. As probably most of you know, Corner Brook Pulp and Paper is the last operating mill in Newfoundland and Labrador. The situation right now, being a newsprint producer with COVID having hit, is that it's very difficult to continue at that pace. We need to get support from both the provincial and federal governments so we can keep those 500 plus high-paying jobs alive and keep a future for that mill.

We also believe that you have a very good mechanism. It's probably not the time—because we believe time is of the essence—to to try to develop and engineer new programs. We believe programs such as IFIT are the right vehicles again, but they need to have more funds and also be able to support higher capex projects for the future.

Finally, we believe that the forestry industry can be one of the main players to achieve that target of a carbon neutral country by 2050.

Thank you for your time today.

I will be glad to answer any questions you may have.

[The Chair, Liberal, James Maloney]

Thank you very much, sir.

We're going to open the floor to questions now.

[Brian Fehr]

Thank you.

[The Chair, Liberal, James Maloney]

Okay. Perfect.

On that note, Mr. Zimmer, you have the floor for six minutes.

[Bob Zimmer, Conservative, Prince George—Peace River—Northern Rockies, BC]

Thank you, Mr. Chair.

Thanks to our witnesses.

I'm going to move a motion that I was trying to move a week ago, so I will do that first and then I'll get on to questions.

The notice of motion is that the Honourable Mary Ng, Minister of Small Business, Export Promotion and International Trade, be invited to appear before the committee as a part of its ongoing study on economic recovery in the forestry sector prior to December 11, 2020, to provide critical information relating to the recent WTO ruling, as the government official who appeared on October 30, 2020, was not able to respond to the question and suggested that Global Affairs Canada appear and answer that question at a future meeting.

[The Chair, Liberal, James Maloney]

Thanks, Mr. Zimmer.

Mr. May, you have your hand up.