Thank you, Mr. Chair.
Good morning. My remarks today will be in English, but I'll first speak a bit in French just to say thank you.
I thank you all for your invitation. My opening remarks will be in English, but I will be pleased to answer your questions in the language of your choice. I promise to make the same number of grammatical mistakes in both languages.
I would like to start by thanking the federal and provincial governments for all their help and leadership in their recent announcements. This will help. It's a piece of the puzzle, but it's a good piece.
Let me first underscore the situation we're facing today, as my colleague here said.
A few years back, the return of capital in the lumber industry was, let's say, less than 5% overall, which was barely making it, and that was with a 15% tariff. Now we're facing tariffs of between 35% and 45%. Most of the mills are actually operating at a loss today, just hoping to keep market share and getting into a competition of who's going to be the last one standing.
That's the situation. Today, I'm going to make a case for transformation, but before I do that, let me introduce my organization.
We are FPInnovations, a not-for-profit independent research and technology centre operating across Canada. We have offices in Vancouver, Montreal and Quebec. Our mission is quite simple. We're there to help the forestry sector be more competitive, more diversified and more innovative. We do not develop technology to turn a profit. We do not pursue science for the sake of publishing. We are not an industry lobby. Our job is to bring clarity to a world that is crowded with misinformation, hype about science and, I would say, crazy dreams about what it can do. We are there to be honest brokers of science. We bring science and data to the table for all to see and analyze. We try to innovate in the mills, not in labs and not in papers.
Regarding where we are in the industry, Canada has a highly integrated forestry industry. This means if one falls, the other falls. It's complex. Tariffs are disrupting that equilibrium right now, and it's not just a passing crisis. If we resolved the tariffs tomorrow, we would still have challenges that need to be addressed. Tariffs just enhance the challenges we're facing.
Transport costs, long distances to move fibre and constantly changing rules about access to fibre have been eroding competitiveness year after year over the last 10-plus years, especially compared to the Europeans and South Americans, who are operating on plantations. It's agroforestry, if you like. It's highly efficient. We're not there.
On top of that, the complex system of construction in Canada increases the cost to a level where making an investment here may be a lot more expensive than elsewhere from a pure construction cost and return perspective.
Fundamentally, we have to remember that we have the largest forest resource in the world, or close to it. We only harvest 0.2% of it. We don't have a problem of overharvesting in Canada—to the contrary. We have a problem of getting our act together for the industry.
What should we do?
First, we have to remove our rose-coloured technological glasses. There is no magic solution, only hard work going forward. We need solutions that are grounded in reality, and that's the scientist talking to you, by the way. We all have dreams. We all have skeletons in our closets and bad decisions we made in the past. We need to move past all that and look at the economic and science data and make an educated choice. We must modernize our industry and diversify quickly.
Canada should invest in the small number of mills that will survive and be globally competitive. Yes, I said “small number”. Not all of them will make it. Sawmills need to be modernized and be key players in addressing the housing crisis, of course. This can be achieved through vertical integration into higher-value markets, like my colleague talked about. Engineered wood, mass timber and energy generation also need to be thought about. Co-locating those activities around a sawmill to make it resilient and grounded is capital. Transport costs are often our biggest challenge.
Another point is we need to adopt a regional approach. There is no one-size-fits-all solution. All solutions are regional. Each region has its own fibre basket, transport realities, energy demands and community contexts and constraints. These communities are often rooted in forestry for generations. They are essential partners, and they are the first partners, because they will fight for their industry.
We must look at the problem from a regional development perspective and a sustainability perspective and support high-potential areas. Not all areas are created equal. The faster we come to that realization and help the ones that can survive, the better off we will be as a country.
Where do we need help? Support innovation, not invention, not development of new knowledge, but innovation. These are things that work in a mill for real now. We don't need shiny objects for press releases. It's innovation at the mills.
This is a team game. This is not a blame game. It's a shared problem across jurisdictions. On the federal side, the tariff file is highly important, of course. The fibre access file is mainly a provincial file, but it's not independent. Industry must play its role in modernizing and diversifying quickly. Institutions like mine need to focus and forget about the long-term future or the fun things and focus on what helps now.
Transformation is our only option going forward.
Thank you.