Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 28 - Evidence - May 31, 2007
OTTAWA, Thursday, May 31, 2007
The Standing Senate Committee on Agriculture and Forestry met this day at 8:03 a.m. to examine and report upon rural poverty in Canada.
Senator Joyce Fairbairn (Chairman) in the chair.
[English]
The Chairman: Good morning to honourable senators, to our witnesses and to all those watching our Standing Senate Committee on Agriculture and Forestry.
Last May, this committee was authorized to examine and report on rural poverty in Canada. Last fall, we heard from a number of expert witnesses who gave us an overview of rural poverty in Canada. On the basis of that testimony, we wrote an interim report, which was released in December. It really struck a nerve.
Using the findings from our report as a springboard, we set out across the country to meet with rural Canadians in their communities and sometimes even in their homes. So far we have travelled to areas in every province, but we still have some ground to cover, beginning tomorrow in Kapuskasing in Northern Ontario, a community whose economy depends very much on the forestry sector.
To prepare for tomorrow's meetings we have with us this morning Avrim Lazar, President and Chief Executive Officer of the Forest Products Association of Canada; and Marta Morgan, Vice-President of Trade and Competitiveness. Welcome to you both.
Avrim Lazar, President and Chief Executive Officer, Forest Products Association of Canada: Thank you very much for inviting us. This is a topic where globalization meets the Canadian heart, where the quality of life in Canada in the context of globalization gets played out. As you have seen during your trips around Canada, it involves hope and despair, social justice and social failure, and the very basis of our economic survival.
The Canadian forest industry right now employs 300,000 people, mostly in rural areas. There are another 600,000 whose jobs depend upon the industry. A mill town is like an economic ecosystem. The main economic feedstock comes out of the mill, but there are all the people who drive the trucks, who are waitresses in the diner, who own the dry cleaning store, who manage the hotel. When our industry thrives, there are jobs not only in the industry but throughout the rural areas. When our industry suffers, it is not just the corporations that suffer, it is all our employees, our neighbours, the entire rural regions. Even farming depends very much in many areas on one member of the family having a job in the mill.
In the age of globalization in the world in which we are now operating, the Canadian industry exports most of what it makes. That means that we have to sell in American dollars, but all our inputs are in Canadian dollars. The Canadian dollar has gone up 43 per cent in the last three or four years. At the same time, global competitors such as Brazil, Russia, Indonesia and China have entered into our marketplace and put a huge squeeze on us. The result has been not just closing mills but closing towns right across the country. You have seen for yourself the heartache and despair this brings.
The response that we as Canadians, we in the industry and you as parliamentarians, have to this will be critical. There are only three ways of responding.
The first way is to shrug your shoulders and say that this is globalization and people just have to adjust. We have certainly heard that coming out of cities and from some commentators. We think that attitude is just plain wrong, ill- informed and bad.
The second attitude is to say that we will not let this happen. We will hang on to every mill and every job. This is our birthright. We will keep the mill in this town, whatever happens, and we will dig in our heels and just say no to globalization. That attitude is equally wrong and ill-informed. You cannot fight gravity. You have to find a way of going with it.
The third attitude is to say, okay, these are the facts of globalization. What do we in Canada have to do to adjust to and succeed in a highly competitive globalized economy? What are the things we can do today to change how we are doing business, to change how we are in the forest industry so that we can continue to prosper and keep jobs?
We think that is the right attitude. When we adopt it, when we go forward thinking that we can succeed if we are ready to change, our experience is that we can succeed.
In the industry, we commissioned a task force of top global CEOs and international analysts and asked the question: What must be done? They came back with some very interesting conclusions, the first of which is that Canada can compete. There is enough marketplace and we can do it.
The second part of that answer is that we can compete if we get our mills' costs competitive, if we make the necessary changes, if we let the industry structure change, and if we have a future orientation. Cost competitiveness is not magic: it is cost of energy, fibre, labour, productivity and transportation. Industry structure is not magic: it means that if the global marketplace requires that you be efficient at a certain level, we probably want one super mill where there used to be two inefficient mills. Future orientation is not mysterious: it means the highest possible environmental standards and a great deal of research and development and customer innovation.
I could go on for hours, as you can guess. I will pause for questions. We know we can do it and we know it will not happen unless the industry, our employees, communities and governments are ready to make the necessary changes.
The Chairman: We are pleased to have you here today because we sensed some of the angst and spirit that you are talking about. When we were in British Columbia, we chose to go to Prince George and Quesnel and saw what has been left behind by the pine beetles; you have such challenges.
Senator Oliver: Thank you for an excellent business global overview talking about the importance of cutting costs and being competitive. I want to narrow it down to something even more basic. Have we been overcutting? Do we have enough fibre left? Will we be able to be competitive in the future or have we raped our forests?
Second, we read in the paper that a number of rural Canadian towns that we are studying in this committee have been hit hard by mill closures. What is being done to rejuvenate those towns that have been hit by such closures as a result of our not being competitive? What is your industry doing to assist those towns, if anything?
Mr. Lazar: Those are two great questions. The current level of forest remaining in Canada is 91 per cent of the primordial forest cover. No other country in the world has as much of its original forest. The current rate of deforestation in Canada, if you accept the UN figures rather than our industry figures, is zero. Over the last 100 years, we have practiced forestry with no loss of forest lands. We have lost some to urbanization and we have gotten them back from agriculture. The single biggest index of loss and gain of forest in Canada today is agriculture subsidies. Increase the subsidies and more land stays in farming; decrease them and it goes back to forests.
The forestry industry has a complete regeneration policy in that we have a sustainable forest management policy and we have succeeded in practicing forestry for the last 100 years without any loss of forest cover.
Senator Oliver: That is incredible.
Mr. Lazar: Loss of forest cover is probably the easiest standard to meet. The next thing to ask is this: Are you respecting the integrity of forest ecosystems? In the past, we have not been perfect in that respect. Our practices were to cut and regenerate and not to worry too much about ecosystem integrity. We have long since improved in that area. Members of Forest Products Association of Canada have to have their forest practices independently certified to the highest global levels to stay as members. We have more certified operating forests in Canada than anywhere else in the world. No other country has treated their forests as well as Canada has treated hers anywhere in the world. Some countries are trying but we are the global leaders in terms of sustainable forestry.
Will access to fibre be a limitation? No. There are pockets of problems in British Columbia and Alberta where we are not harvesting the trees but the insects are doing it. That aspect brings us into a different conversation. Traditionally over the years, fires and insects have harvested six times the amount that industry harvests. It is way out of control.
In certain geographic regions, the allowable cut has gone ahead of regeneration, so that has been pulled back. Overall, we have done this right in Canada, partly because they are publicly owned lands.
Senator Oliver: That is so in some provinces.
Mr. Lazar: In most provinces, with the exception of some lands in the Atlantic regions, 90 per cent is publicly owned land. I am not saying we are perfect. We could improve in some areas, which we have been doing.
Senator Oliver: Does this include protection of old-growth forests?
Mr. Lazar: Yes, it definitely does include those forests. We have more protected forests in Canada than any other country in the world has. The question of old growth becomes complicated because most of our forestry is done in the boreal forests, where the forest is actually older than it was before industrialization. There used to be huge forest fires opening up wide swaths followed by natural regeneration when the sunlight was able to power in. Politics of forestry are such that smaller cuts are created now than those made by forest fires and because we do fire suppression, the forests have aged more. Some scientists say that part of the problem with the pine beetle is that we did such a good job of fire suppression, the forests were over-mature, making them an easy target. The primary cause of the pine beetle, of course, is global warming and not the age of the forest, although the age was a contributing factor.
The question of age is politically attractive but the real question is ecosystem integrity. A forest can be over-old because of human intervention or it can be cut down before its time because of human intervention. The real issue when logging is to try to respect the kinds of forest disturbances that would occur naturally. We have become very good at that in Canada. We are not perfect, but no one else in the world is better at it than we are.
It is difficult to describe what closing a mill town is like for us because our employees live there and their kids go to school with everyone else's kids. You convince someone to take a job up North and, all of a sudden, the house they paid $120,000 for is worth far less than that. It is every bit as bad as you imagine and perhaps even worse. Regeneration of the economy is difficult to do. We have seen 30 years of regional development programs from the federal government and from provincial governments, most of which have met with very little success.
Over the last five years parliamentarians have come to me time and again asking how they can save a mill or what they can do about the mill closure. That is the wrong question. The question should be how can we create economic conditions so that the mill will not close. We wish for the sake of these towns and the employees living there that parliamentarians would develop an obsession with business conditions, so that instead of tearing at our clothes and scratching our heads about what we can do to build an economy in a town that does not have one, we would be able to save the economy that town has now. There is so much more political energy in rural development after the disaster and so little political energy in creating economic conditions to keep the mill operating. We pay 50 per cent above average wages for these high-tech jobs; they are good jobs. Yet more passion is directed at make-work projects to build a new hockey rink or a new airport after the mill is closed than is directed at keeping those jobs before the mill closes.
Not to turn the question around, but the answer is this: Let us not let them close. Let us do our economic homework and create appropriate hosting conditions in Canada because these are irreplaceable jobs. What do you do after the mill closes? You get service industry jobs. They pay far less and, for the most part, are not as much fun.
Senator Oliver: Canada's new government is looking at ways to come up with tax cuts to help make the industry more competitive.
Senator Callbeck: You talked about creating the conditions so that we would not have to think about what happens when they close. You mentioned the task force that came out with several recommendations, mainly cutting costs and being more competitive. In 2005, the federal government announced a strategy to keep the forest industry strong and sustainable. I would like to hear you comment on that strategy as to whether it really addresses the recommendations of the task force, whether it has been implemented or partly implemented, and if so, what are the results. Has it achieved what we want it to accomplish?
Mr. Lazar: I am not aware of any comprehensive strategy. There have been measures, and all the measures have been useful. The last budget had a tax measure, the accelerated capital cost allowance, that would make it easier for us to get new equipment to modernize the mills. Unfortunately, it is only for two years, and capital renewal does not happen in that timetable. We are hoping that there will be enthusiasm from the government side and pressure from the opposition side to extend it to five years to have the next impact.
Large parts of what has to be done to cut costs are also on the industry side. For example, our labour costs are among the highest in the world. We do not want to cut wages, but we have to improve productivity. It is for our managers and the unions to sit down and find solutions, so that we can get a productivity that reflects our wage packets.
Some are on the provincial side. The provinces use trees as an instrument of social engineering. Each tree in some provinces, especially Ontario and Quebec, is allocated to a particular town. That made a lot of sense when there was no global competition. The way it works today means that those towns are fated to lose their mills. We have to use the fibre in the best possible way.
On the transportation side, it is mostly on the federal government's shoulders. Right now, more than 80 per cent of our mills are captive to a single railway, and we have had no success with past governments or the new government, as you are calling yourselves, in breaking the monopolistic power of the railways. We have great railways in Canada; they are monopolies and they overcharge. We did a study that demonstrated that even if they were allowed a 20 per cent return on capital, which is ambitious in a competitive situation, they are still overcharging the Canadian forest industry by $300 million. We could use that to renew our mills.
A whole series of things has to be done. With respect to taxes on investment, it is not taxes we object to — we do not like them but we understand them. However, taxes on investment have to be less. The monopoly of the railways has to be broken so that we can get competitive rail rates. On the energy side, speeding up to renewable energy and self- sufficiency, we are now 60 per cent self sufficient, using green renewable energy. Speeding that transition would help. On the personnel side, it is up to us and the unions, and, on the fibre side, it is mostly in the domain of the provinces.
Senator Callbeck: In November 2005, the federal government announced a five-year $1.5-billion strategy to help Canada's forest industry remain strong and sustainable in the face of increasing challenges.
Mr. Lazar: That money is being used for useful things that are indeed dealing with the pests. However, each time the dollar goes up one cent, we lose $500 million out of the industry. That is every penny. It has gone up about 37 cents or 38 cents in the last few years. You cannot buy your way out of this. The government programs are useful; we are not complaining about them. They are well meaning, intelligent and they help, but it is policy reform that makes the difference. It is the structure of taxes, the structure of regulation of railways and how fibre is used. It is the overall business climate.
There is no programmatic solution to these things; it has to be a policy solution. The only way to keep the jobs in the rural areas is to have a business climate that attracts investment. If there is no investment, the jobs disappear, and the investment comes if there is a profit to made, and no profit is to be made if investment is taxed heavily, transportation costs too much and fibre is used as a political tool instead of an industrial input. I am being difficult.
Senator Callbeck: What I hear is that we have piecemeal initiatives, but there is no real overall strategy. Am I right in that?
Mr. Lazar: You are right. That is why we pulled together this task force and wrote a strategy, together with government. We had some deputy ministers advise us on this. Minister Lund certainly welcomed it. We discussed it with government ministers and opposition critics.
In Canada, we do not seem to believe in industrial strategy to make money. Our tradition has been to have industrial strategies to offset poor social conditions. It is easier to get an industrial strategy for Cape Breton than it is to get one for the forest industry. If we actually had an industrial strategy based upon the idea of markets and making money, we would do a lot more to end rural poverty than when you try to pretend that markets do not exist.
The whole idea was to have a sectoral strategy not done by the government but creating a business climate that would allow the industry to do it.
Senator Gustafson: You said a large part of your business is exported. Is it 75 per cent?
Mr. Lazar: It is more, actually.
Senator Gustafson: How much of that goes to the U.S.?
Mr. Lazar: The majority goes to the U.S.
Senator Gustafson: We are very much dependent on them. Are you price setters or price takers?
Mr. Lazar: We have some influence, but for the most part we are price-takers because the marketplace is global. Even in Canada, if we raise the price a little bit, they call the Chinese supplier to discipline us.
Senator Gustafson: We have been arguing in the Agriculture Committee that unless the Government of Canada realizes the global situation that we are facing, not much can be done. We just keep taking what we get, and the industry keeps going in for the problems.
Are your companies making money even though you may be closing plants? Take, for instance, the plant in Northern Alberta. That is a tremendous, high-tech output plant. We did a study on the boreal forests, and it replaces many plants. Are the companies making money even though the industry is fighting some serious problems because of closures and so on?
Mr. Lazar: Those are two good questions. The answer is no. We are not making money. We wish we could. I know not everyone thinks making money is the objective, but if companies do not make money, companies do not invest and then you get more closures.
With respect to whether we have to take this from the global economy, the answer is no. The world needs natural resources. There is a huge explosion of wealth in China and India. All those people will be buying bookcases, framing their houses, wrapping presents and reading newspapers. Global demand is increasing by 3 per cent per year. There is more than enough demand out there.
No country in the world is situated better than Canada to meet this demand. It is true that Brazil is cheaper than us, but they do not have the infrastructure and they have social problems; also, they have been deforesting the Amazon and eventually the world will get tired of that. China has cheap labour, but they do not have water or fibre. Russia has a lot of boreal forest, but they have not built any roads and have a corrupt business arena.
We could be the world's supplier. They need our stuff, but we will not provide it unless we make changes, which will involve shutting down some mills, building super mills, creating a different tax system and a different rail system. They are not massive changes. They are things that could be done within the mandate of one Parliament. They are all doable. If we decide to do them, we will not have to shrug our shoulders and say that is globalization. We will be able to say that globalization creates competition but it also creates markets, and Canada is well situated to serve the growing global markets because we have natural resources and the world needs them.
Senator Gustafson: Is transportation a big factor?
Mr. Lazar: Yes, it is a huge factor.
Senator Gustafson: We live on the Soo Line, and trainload after trainload of lumber passes by our door heading for New York, Chicago, the eastern American market.
About 50 per cent of the cost of a bushel of grain is transportation. It is unreal the way transportation costs have increased.
Mr. Lazar: It is a huge factor. The reason for that increase is that railways have a well-run monopoly that exploits its customers and provides big profits to its shareholders. That is the law. The railways are supposed to maximize return for their shareholders. It is not the railways' fault. It is government's fault because government does not create pro-competitive conditions to discipline the railways.
Senator Gustafson: Are they price setters as opposed to price takers?
Mr. Lazar: When fuel costs go up, they charge surcharges. They pass them through, but they put 20 per cent above the increase of the cost of the fuel. Who is paying for that? The rural communities are paying for that. It entails 30 per cent of our cost structure. That is why we are closing mills. It adds up. It consists of many little things.
Senator Mahovlich: My hometown is Schumacher. When I was in Grade 7, we looked forward to going to Iroquois Falls to visit the mill. It was really something. It was clean. We would bring paper and all kinds of things home from that mill. Is that mill closed today?
Mr. Lazar: We are not sure. I think I remember that about a year and a half ago they had a time out. I do not know whether it was permanent.
Senator Mahovlich: I heard they were intending to move the Aboriginal people from James Bay to Iroquois Falls because everyone left and there were empty houses there. There was a problem in James Bay. That is a sad thing. That was a nice, clean and well-operated mill. The school thought it was educational for us to take a look at that mill. I am sorry to hear about that.
When I shop in Toronto, I go to Ikea. I guess it is a Norwegian company. Their products are made in Sweden. All I have to do is tighten up a few screws and I have a nice shelf. Everything is done over there. It is pre-made and shipped.
Do we manufacture some of our shipments to the United States, such as shelving? Do we create a manufacturer's outlet to ship our lumber? Do we manufacture ready-made furniture? You could make a home ready-made. Have you looked into that at all?
Mr. Lazar: Yes, we have. With respect to Ikea, fewer than 20 per cent of their products are made in Sweden. Most of it is made in China and Eastern Europe. Their advertisements have a guy with a fetching Swedish accent and they sell meatballs in the cafeteria, but they actually do their manufacturing where the rest of the world does — where there is cheap labour. Believe me, there is no cheap labour in Sweden.
If you look globally at the furniture business or the tertiary value-added, that sort of building, it is serving the local market, which we have in Canada with quite a few excellent manufacturers of doors, windows and furniture.
The big global exporters have all gone to places where there is cheap labour. We are not aspiring to be a centre of cheap labour in Canada. We want to pay high wages for adding value to natural resources. We mainly do secondary and tertiary processing, such as with high-quality papers. We do manufacture wood for construction, but it is not a large part of our export strategy. Any time you can add value, of course you are getting quite a bit more job value for your natural resources. However, in the long run, the rural jobs in Canada will not be involved with making violins or bookcases. They will involve extracting and processing natural resources.
For years I have heard people saying it is simple, just move up the value chain. I wish we could do that, but the truth is, as you go up the value chain, you are really going up the cheap labour chain.
Some of our companies that have created manufacturing plants for furniture and the like have had to create separate companies because the wages they were paying their workers were way beyond what you could stay in business with. For example, hewing wood is much better paid than creating Ikea furniture. I know it is not trendy to say that, but the bottom line is that there is much more money to be made with better paying jobs lower down the value chain. There are not as many jobs, but there are almost a million in Canada. It is not half bad.
IKEA makes a lot of money, and hats off to them.
Senator Mahovlich: I think Minister Lunn has quite a problem on his hands in the lumber business. I know they are starting to make furniture out West because a lot of those beetles have discoloured the wood, but it seems to make good furniture. Therefore, some have gone into the furniture business. Whether it works or not is a different issue.
Mr. Lazar: There are very few jobs. With respect to the beetle wood, we used to think that you could get there within a couple of years, but it is even hard to make 2 by 4s from it. When you try to saw that wood, it starts to twist. Therefore, it is good for pulping and burning, but there will not be much fine cabinetry coming out of the blue-stained wood. It was a nice fantasy we had for a while. The bottom line is that jobs are in the basic business.
I am not saying the value-added business is not great. It is wonderful. However, to have sustainable jobs we have to reserve value-added or the higher end mostly for local markets. Out of the vast majority of those, almost one million jobs are for export markets a little lower down in the value chain.
I think we should be proud of that. With the world hungry for natural resources, being the most brilliant extractor and processor of those natural resources, we will be a tremendously valuable market niche.
Only half of China is working so far. We wonder what the world will look like when the other half gets going. What will happen to rural Canada when the other half of China is working? The answer is that they will be desperate for resources to transform. Whichever country is the most efficient and technologically advanced extractor and processor of those resources will do well. We will not do well by basing our strategy on the hope that we will compete with them by turning resources into shelves and bookcases.
Senator Peterson: We seem to have a real dilemma here. The energy workers told us we have the best workers in the global network. We have the best mills, the best fibre and the best of everything, yet we are sitting here saying it is not working. We can go round and round the mill.
Foreign exchange is a tough issue. I think industry relied on that, wrongly, for a number of years and did not look at anything else and it was kind of a built-in benefit. Unfortunately, when the price goes up, you do suffer. I suppose it comes down to how do we help. It comes down to the regulatory framework and trying to develop some type of strategy which you, I presume, have outlined in here.
Mr. Lazar: We have to stop complaining about the world and start competing in it. I agree with you regarding currency. It slowed down the rate of adaptation. Frankly, government got lazy because of currency too.
Investment in the forest industry in Canada is taxed higher than any other forest industry in the world. When the dollar was at 75 cents, we would complain about it, but we were still making money, so take the money out of the industry and give it to the people. When the dollar goes up to 87 cents or 92 cents, all of a sudden it becomes crippling.
The move of the dollar is a real kick at the industry, a slap across the face to get going, and we have. We have improved our productivity in the Canadian forest industry more than the rest of Canadian manufacturing and more than U.S. industry.
It is also a slap in the face of government, saying that the business climate and the sorts of policies we are able to afford at a 70-cent or 80-cent dollar cannot be sustained at a 90-cent dollar. Both industry and government have to accelerate the rate of change and adaptation.
Some towns are suffering because of a lack of industrial infrastructure. It is not magic or globalization. It is simple: If the cost of doing business is such that it is worth investing in, there are jobs and there is less poverty. If the cost of doing business is such that you do not want to invest in it, there are no jobs and there is poverty. If I did not think we could draw investment into Canada, I would not be here. We can invest, and it does not require an industrial revolution; it just requires intelligent, competitive tax, rail, and regulatory systems. We can do it.
Senator Oliver: I would love for you to tell me what a government can do to bring competition to something like the Canadian National Railway.
Mr. Lazar: I would love to tell you. In the long run, what we hope to see is running rights so that other carriers could use the same rail lines and CN or CP would be compensated for the full cost of maintaining the lines. We think that is more of a long-term political objective.
In the immediate term, we need final-offer arbitration, so that when the railway treats us unfairly, we can go to a neutral arbitrator and say that this does not make sense. It is the same as baseball arbitration. We put in our best view, they put in their best view and the arbitrator chooses. It forces the parties to be reasonable because, in the end, the standard is reasonableness.
There is final-offer arbitration now, but it is complicated; it costs almost $1 million to employ and it does not apply to ancillary charges like fuel surcharges. We have asked the government to expand final-offer arbitration so that it is accessible and groups can use it, small and large companies can both use it.
With the expansion of final-offer arbitration where the only test is reasonableness, we could can leave the monopolies and the current infrastructure; we do not have to get into anything complicated. If the railways want to do something unreasonable, we would take them to the arbitrator. If we are asking for unreasonable things, they will win.
The railways seem to find the reasonableness standard objectionable. If you are making huge profits for your shareholders through a monopoly, reasonableness may not be desirable for you. They are fighting it all the way. However, it is a simple solution. It does not take away the railways' monopoly. They can invest all they want and still make a fortune. However, when they get way out of line, like adding profit to fuel surcharges, we will go to the arbitrator and the arbitrator will make a decision.
Senator Oliver: My next question goes back to rural areas. In the olden days, people who worked in the forest industry in Atlantic Canada worked with a power saw. Those days are over and now we have highly mechanized machinery that can cut the tree and do virtually everything to it, and it works 24 hours a day. The individual who used to work with a power saw is now unemployed.
What is your industry doing to retrain that worker so he does not fall into poverty and to help that person become involved once again in this great forestry industry?
Mr. Lazar: We need all the employees we can get. Even with the closures, our problem is attracting skilled employees.
Senator Oliver: Are you saying that a power saw operator cannot be trained to be a skilled employee?
Mr. Lazar: No. We want them. Obviously, basic literacy is a huge matter, and we consider it the government's job to give every citizen access to basic literacy. Beyond that, we do the training. Especially out West, we are competing with the gas and oil industry for employees. There are jobs. The only people who really get shut out are those without basic literacy.
We are the largest industrial employer of Aboriginals. We have 1,600 Aboriginal businesses that depend upon our industry — 1,600 businesses owned and operated by Aboriginals as contractors, harvesters, cartage, that do business with us. Those are the kinds of relationships we like best: business to business. The First Nations are a huge benefit to our industry, as employees and as business partners.
If you can keep the industry robust, the jobs will be there. Training is easy compared to keeping the mill open. The challenge is not whether you can train someone to drive one of these fancy trucks; the challenge is whether you can keep the fancy trucks in business. That is about business conditions.
The Chairman: I personally would like to thank you for raising an issue that grips at least those of us in the Senate rather consistently, and that is the question of the challenges of low literacy levels in this country. I know that only in recent times have there been real efforts on the part of business to try to give people that chance, because manual labour is not what it used to be; now it involves technology. We are very concerned about this. It is interesting to hear from you.
I think the first corporate entity to do this was Syncrude, many years ago, when it became evident that it was going to be profitable to bring out a new product from Syncrude and all of the oil sands were there but they were being removed by manual labour out of those hills. All of a sudden, technology comes along and it is great. Syncrude looked at its labour force and realized that a great chunk of it could not read and write at that level, so they set up a literacy program in the workplace in order to keep their workers, rather than having to go offshore to the North Sea or whatever, and it worked. It was a stand-alone program, but I know that others in that area have picked it up.
I wonder whether this is something the forestry industry could do. Sadly enough, we do not, as a nation, offer the kind of support that people need to be able to move ahead on this. I know the corporate sector itself is interested. In a broad sense, are you helping to give those people a fair chance?
Mr. Lazar: First, I want to acknowledge how indebted we and the rest of Canada are to you for the leadership you have shown on this. You have been the single most effective voice over many years, and none of us take that for granted. We know how important it is, so I give you a salute.
I do not know exactly what has been done in the companies. I am not personally familiar with it. We will find out and get back to you on that. I know that we have had employees who have reached the point where they could become a millwright but they cannot get into the program because they do not have the basic literacy skills. However, I am not familiar with what programs we have in place for it.
I want to underline that literacy is the entry criteria to today's economy in rural as well as in urban Canada. As a national enterprise, I cannot think of any reason it should not be the top priority of Canada as a nation to give people the key to that door.
The Chairman: I probably should not be his spokesperson, but if ever you wanted to have a conversation with someone who was at the front of this, Eric Newell from Syncrude is your man, and he would probably have some good advice.
It is a huge issue and we all know it. It is pulling our country back if we have 40 per cent of adults who are not able each day of the year to do the required reading, writing and communicating that modern society demands.
Senator Callbeck: Is the percentage of women in the forestry sector going up or down?
Mr. Lazar: It could only go up, from what I can see. At the executive level, there is no woman CEO of a forest company in North America. At the vice-president level, there are some prominent, high-leadership individuals who are making huge contributions, but only at that level. Nothing is being done in a systematic way, as far as I know. A few companies have been taken over by private equity, which may turn out to be a good thing for the workers in the long run. However, I am not aware of any particular plans or efforts to increase the participation of women at the senior levels, except for the brilliant contributions of individuals. Do you know of anything, Ms. Morgan?
Marta Morgan, Vice-President, Trade and Competitiveness, Forest Products Association of Canada: I do not know of anything specific. However, related to this point, and also to the issue of literacy, when we look to the future, like many other Canadian industries we look at the demographics of the labour force and of our labour force, in particular. We know that we will need significant renewal of our labour force. We know that the qualifications required are increasing — the educational requirements are going up. Also, as a rural industry we see that the best source of labour for us is people in rural areas who appreciate that lifestyle, who want to stay in rural areas and want to be where their families are.
I believe we will see more opportunities in the future for non-traditional workers in the industry. Also, if we can work together on issues around literacy and education in rural areas, that will be increasingly important to us in being able to recruit and attract a skilled labour force. There are many common interests here for the communities and the industry.
Senator Peterson: Where does the forestry industry rank in Canada in terms of gross domestic product?
Mr. Lazar: We are about 3 per cent of overall of GDP.
Senator Peterson: Where does it put you relative to aerospace, automotive, agriculture, et cetera?
Mr. Lazar: We are ahead of all of them, at the top of the list industrially. I do not where we fit relative to agriculture, but we are much more than automotive or aerospace — we are huge.
Senator Gustafson: I have a question about standards. General Motors tells us that before they can produce a car, they have a bill of $2,700 on every car just for pensions. Are Canadian standards getting too high to compete in the global economy, or what is the challenge? I have relatives in B.C. who worked in the lumber industry all their lives and they are on very good pensions. To compete in the global economy, will Canada have to take less?
Mr. Lazar: I do not think the answer is to take less; the answer is to do more. Our environmental standards are as good as anywhere in the world and we should not compromise. Instead, we should do more to take credit for them. We should tell the world how sound we are.
On pensions and labour, our wage packages are the highest in the world and our productivity is middle-ranked. That is a management and union challenge we have to solve together and it can be done. The Nordic countries are probably ahead of us in figuring out how to work together with labour and management to maximize productivity without having to sacrifice.
The bottom line is that you cannot dig in your heels and say ``I will have my current working conditions and wages and I do not care, I will not change.'' You will lose your job. It has happened time and time again. Everyone has to be willing to change to keep what we have. If you do what you have today, you do not get what you get today.
Senator Gustafson: If you want to be politically correct, you do not even raise these subjects because they can backfire on you.
Mr. Lazar: In the end, we have to know the difference between where we live and where we work. We live in Canada, a socially good, nice place to live, but we work in the global marketplace. We do not work in Canada because we sell all our stuff in the global marketplace. We have to adjust our work behaviour to be competitive there. If we do not, where we live will not be as good a place as it used to be. That kind of willingness to adjust requires that we understand that we live in the nice neighbourhood called Canada and work in this vicious, competitive place called the global marketplace. We cannot pretend that they do not both exist.
Senator Mahovlich: Have we recovered from the softwood lumber situation?
Mr. Lazar: No.
Senator Mahovlich: We have not? I thought we made a deal. I thought $4 billion was returned to the lumber companies.
Mr. Lazar: We made a deal, but we still have not got free trade. There is always the temptation to say we could have done better or worse or that this government did it. Our problem is not internal, our problem is with the U.S.; we are dependent upon a marketplace that is not the least bit shy about taking care of its own producers in ways that do not respect trade law.
Are we still suffering from softwood lumber? Yes. We have quotas and export taxes, we get harassment, it interferes with our capacity to set policy. What is the solution to that? That is a much longer conversation, but the bottom line is that it is their marketplace and we have to find ways of living with the U.S.
The Chairman: Thank you. This has been a very good session this morning. Although we are an agriculture committee, we also are a forestry committee, so it is good to hear your story. We certainly wish you all the very best with the goals that you are seeking.
Mr. Lazar: Thank you very much. We left you three brochures, the task force report, our annual report, and in our annual report is our sustainability record.
The Chairman: We have it all, thank you.
Our next set of witnesses to help prepare for tomorrow's meetings are two representatives from FedNor, the federal government's regional development organization for northern and rural Ontario. Louise Paquette is Director General and Scott Merrifield is Director of Policy, Planning and Coordination. Welcome to you both.
Louise C. Paquette, Director General, Federal Economic Development Initiative in Northern Ontario: Thank you very much, honourable senators, for inviting FedNor to tell our story. We are one of the smaller agencies in this fine country, but it is great that we have been included.
As has been mentioned I am joined by my colleague, Scott Merrifield. He has been associated with the Community Futures Program, which I believe you have heard about, since its inception in 1986.
Having read your interim report and having kicked around in community economic development for the past 20 years, including a fair bit of volunteer work, I want to say this ``prise de conscience'' is indeed very encouraging. It did strike a nerve, as I read it. We offer our full support to the committee and are delighted that you will be joining us in Northern Ontario in Kapuskasing. Had we known that, we could have joined you there.
The Chairman: There is still time.
Ms. Paquette: I have been the director general of FedNor for the past 10 years and as a result have visited communities from Kapuskasing to Kenora, from Moosonee to Manitoulin Island and all points in between. Yes, I have even visited Second Avenue in Schumacher, Senator Mahovlich.
FedNor, with its 140 people working in eight different offices, administers three programs in Ontario: the Northern Ontario Development Program, which is a program we deliver exclusively in Northern Ontario; the Community Futures Program, which is delivered right across all of rural Ontario; and the Eastern Ontario Development Program, a program strictly for rural Southeastern Ontario. Each program has its respective funding envelopes.
I would like to begin by focusing on Northern Ontario. Statistically, Ontario is cited as one of the least rural provinces, at least according to the rural and remote town definition, but consider that 87 per cent of Ontario's land mass, that vast and rugged land roughly equivalent to the size New Brunswick or Saskatchewan, is Northern Ontario. The largest city, Sudbury, has 150,000 people, but it is a four-hour drive to the biggest centre, Toronto. Thunder Bay is the second largest city in the northwest and it is about an eight-hour drive to the closest city, Winnipeg. Northern Ontario is characterized by big distance and low population density and in our terms is pretty rural.
Northern Ontario also has a relatively high Aboriginal population. In fact, 104 of the 141 First Nations in Ontario are in Northern Ontario. Many are located in remote communities accessible only by air and winter roads in the winter. We call these areas not only rural but remote rural.
In Northern Ontario, rural is dominated not by agriculture but by resource industries — mining and forestry. I will not go into detail on the forest sector, given your previous presentation. Suffice to say that in Northern Ontario, businesses and communities have been devastated by the deep, structural downturn in this sector. Over 7,000 jobs have been lost over the past five years; seven pulp and paper mills have been closed; and 46 mills have been either closed completely or significantly downsized. The good news is that the mills in Kapuskasing and Iroquois Falls are still operating. The bad news is that the one in Smooth Rock Falls is closed.
In addition, our per capita income average is significantly lower not only than that in Ontario but than that in the country as a whole.
While the committee's focus is on rural poverty, I might suggest that the bigger or more fundamental question is what we want rural Canada to look like in the future, or whether we even want or value rural Canada. Unless we adopt policies that clearly promote a healthy rural and urban Canada and programs that facilitate, not dictate, community solutions, we will become a country of urban communities.
One of the prime barriers to development faced by northern communities is the remoteness and isolation from places like Ottawa and the more populated south. It would have been cheaper for me to fly to Kapuskasing than to Ottawa. In many communities, FedNor is the most visible federal department presence in the communities and the go- to organization when they need help.
How do we know we are making a difference in the lives of northerners? This is a question I ask myself. What have I done lately to help the people of Northern Ontario? In addition to measuring our success through independent program evaluations, complete with facts and figures and anecdotal evidence, as is evidenced in the handout, some of our success stories and lessons learned perhaps say it best.
First, Northern Ontario is rocks and trees and so much more. Believe it or not, it is agriculture. FedNor has sponsored a pavilion at the Royal Agricultural Winter Fair in Toronto every year for the last six years and over 100 producers attend, from cranberry growers to maple syrup producers. You can buy everything from elk to blueberries. Last year there was a 100 per cent increase in sales for individual business. That is how we are making a difference.
Northern Ontario is also tourism and the environment. Above all, our solutions are regional. No community can be an island, whether it be in tourism, education or connecting those remote communities.
Second, microcredit is working. We have the PARO Centre for Women's Enterprise, which helps fund women entrepreneurs. It now has 30 lending circles throughout Northwestern Ontario.
Another program to help the marginalized is the Stepping Stone Program, which helps people set up their own businesses, many of them home-based. There is not a lot of money, $45,000, but it helped 22 different people, and it is a relatively new program.
We are helping stem youth out-migration. This year, we marked 1,000 youth interns. These are young people who graduated from university or college who get their first job in Northern Ontario. We provide funding to help that not- for-profit or business. We have evaluated the results and we have a very high retention rate from 70 per cent to 86 per cent of young people staying in Northern Ontario. The point is not to hold them captive but to give them the option of staying at home.
FedNor continues to support firsts, whether that is a first medical school, a first festival or a first loan. We need to believe in the communities that believe in themselves.
Planning is critical and avoids what we call ``me too-ism.''
Finally, flexibility and credibility are key. While we need to stay true to program objectives, we must also be responsive to community needs.
This brings me to the Community Futures Program. I am convinced that it is one of the best investments in rural Canadians. In Ontario, we support a network of 61 community futures development corporations, CFDCs, which loans of up to $150,000 for businesses where banks and financial institutions have turned them away. These CFDCs also work with their communities to develop strategic plans and help small businesses by providing them with counselling, referrals and technical advice.
This program's most treasured asset is its volunteers. We have over 600 volunteers in Ontario who sit on individual boards of directors. Quite honestly, without the volunteers, this program would not have a hope in hell of surviving. In Ontario, we value and nurture our relationship with them. On Sunday I will be hosting an annual reception we have to thank the volunteers at the Ontario Community Futures annual conference. In addition, FedNor will be hosting the awards night, where we will recognize the collective success of the program and the individual achievements of CFDCs.
The third program, the Eastern Ontario Development Program, is contributions-based, delivered by FedNor but through the 15 community futures development corporations in rural Southeastern Ontario. The program is designed in keeping with the FedNor priority areas, and it has made an incredible difference in the lives of people in rural Ontario. I have had the opportunity of meeting many of these successful businesses and community players to see what a difference $10 million can make in their communities.
Finally, next week, I will be receiving an award as the Woman of the Decade from Northern Ontario business. I tell you this because, although this reward reflects in part my community involvement, it also reflects the contributions of the dedicated women and men who work at FedNor and, more importantly, the appreciation of the communities who value not only what we do, but how we do it. Working with community leaders in rural Ontario, FedNor is, in a sense, helping communities help themselves. We are confident that FedNor support is reaching a wide cross-section of communities and that our support and the spinoff benefits are truly making a difference, reaching the most vulnerable residents in rural and Northern Ontario communities.
We are doing this by supporting businesses, particularly through our CFDCs, investing in people who want to work and live in rural Ontario, enhancing our infrastructure, encouraging highly qualified people to consider Northern Ontario by enhancing our innovation capacity, and finally, by helping communities transition to the knowledge-based economy.
The Chairman: Thank you very much. Congratulations for being recognized for the extraordinary work that you do.
Ms. Paquette: Thank you.
Senator Gustafson: I am sure that everyone in this committee is very appreciative of the work you do. At the same time, as we look at the rural situation and what has happened over the last 20 years, the situation is not good out there. Yesterday, we heard in committee from three doctors of very advanced position, and one doctor said he would not live in urban Canada because there are so many health advantages to living in rural Canada. He was quite encouraging. At the same time, our communities — and I live in one of them — are going downhill.
It seems it is more of a political decision by Canada than anything else. Sometimes it angers me, because I realize that the votes are in Toronto, Montreal, Vancouver and Edmonton, and it is not going to change. We talked for years about sustaining the family farm. It has gotten so you cannot say that anymore because people will laugh at you; it will not happen.
How do you fight this situation? We just had the lumber industry in here telling us exactly the same thing. Whether it is the oil industry, the lumber, the agricultural industry or the mining industry, it all comes out of rural Canada. Nothing goes back in. It becomes very frustrating. Take for example the oil industry at $65 a barrel today and the money that goes into the oil industry. It is time some of that stayed in rural Canada. You have to look at taxation and government. It is very broad.
I do not see the turnaround, and we had an example of that from the Forest Products Association of Canada this morning. We may as well face facts.
The Chairman: We are facing them.
Ms. Paquette: I have been involved in community economic development for a long time. While one could take a pessimistic look at it, that would not be my nature. I am in it because I love it. I have seen the difference that we can make in communities. It pains me to visit Kenora because at one point it seemed to have its act together but the bottom fell out because the mill closed. On the other hand, communities are very resilient. You need to listen to them and see what you can do. You are going up to Kapuskasing. Ask them about their lumberjack festival. That is an idea they came up with five years ago. When it first crossed my desk, I thought they have got to be kidding. It was one of the best-written business plans I saw. Today it is a huge success. We do not give them funding anymore. The first one we did. You have to believe in these communities and in what they are trying to achieve.
We can deliver our program, but at the end of the day our Northern Ontario budget is roughly $47 million. We will not solve all the problems of rural Northern Ontario with that. However, can we make a difference with the dollars we have? I believe we can. It is a bigger policy issue and that is the fundamental question. Urban Canada and the big cities must value rural Canada. We are resource-based and make no apologies for it. We try to build our indigenous strength, but as we transition into a knowledge-based economy, we need to build research centres. You need to take things out of the big cities that no longer need to be there. They could be in rural communities. It is a small population. There are roughly 850,000 people in Northern Ontario, which has 87 per cent of Ontario's land mass. Until the country as a whole values rural Canada, nothing will change. That is a bigger policy issue. We can have all these little programs and as long as we are doing our jobs right, it can make a difference. However, in the bigger picture, what do we want it to look like in five or 10 years? That is what we struggle with. I can make sure that what we do on a daily basis is right and I can demonstrate value for money, but where is the big picture? Where are we going? Tell me and I can help us get there.
The Chairman: While we are having this set of hearings on rural Canada, another Senate committee, led by Senator Eggleton, is beginning a similar study on urban poverty in Canada. Hopefully at the end of the road, with both committees there will be some good opportunities to make the connection you mentioned.
Senator Gustafson is absolutely right. If we have no interest in rural Canada and if urban Canada does not know where many items in the food market originate, then both ends are in trouble. We need to make that connection.
Senator Mahovlich: Ms. Paquette, did you graduate from Schumacher high school? You remind me of some of the ladies I went to school with up there.
Ms. Paquette: No, it was in the good old nickel district in Sudbury.
Senator Mahovlich: Some people look at this as a dark situation. I can remember three or four years ago when California was in a terrible position. Yesterday I met with Arnold Schwarzenegger and he was speaking of the change in California. They were not self-sufficient. Today he has turned that state right around. He is coming to Canada and getting more trade from Canada.
I used to travel up north quite often. I would look out there and say you could put 10 million Chinese here. They would be self-sufficient. They would not bother anybody and they would survive. My mother had a garden in our backyard in the woods and we had great vegetables. We could grow things up there and we were self-sufficient with my mother and her groceries. There is a lot of potential in Northern Ontario. They talk about reform in the Senate. We have to have senators in Sudbury, Timmins and all of these areas. We need more senators. If you are going to reform the Senate it ought to look to Northern Ontario and have more representation, because there is so much potential in Northern Ontario. We are not looking at it properly.
When you talk about funding first year graduates, it is very interesting to me to encourage people to go up North and start there. Are they staying there?
Ms. Paquette: When I was looking for my first job I came out of university and thought okay world, here I am. I could not get a first job. I tried to get a job in Ottawa, and the government would not hire me. I moved to Toronto and was gainfully employed for 10 years. That experience always stuck with me — the difficulty I had coming from a big family. I did not have many connections, so I needed that first job. When businesses or not-for-profits hire someone, they steal from each other. We created a program to break that cycle. We offered a roughly $25,000 incentive to businesses and non-profit organizations. If they hired for one year a new graduate out of university or college, we would give them $25,000. If they either hired that person after the first year or helped them to move on to another career or another job, we would consider them again for funding. It was only one year, one time. You could only be a youth intern once.
Someone once said to me that will not make a difference. We have had 1,000 interns now. The last survey reported over 73 per cent staying in Northern Ontario. I am hoping the rest of them will get jobs in Ottawa and Toronto and address the policy issues of rural Canada. Some of them go back to school, which is fine. It is providing them the option of coming and living in Northern Ontario. Once they have that first year, if they are worth their salt they get connected, they find jobs and they network.
Senator Mahovlich: It is a great place to raise a family.
Ms. Paquette: They meet their significant others and they stay. It works.
Senator Gustafson: How do we get the young people to go there? I have two grandchildren. They are both in New York doing fabulously well. They love New York and would not live anywhere else. How do you get them to move to Saskatchewan or to Northern Ontario? Young people will not move from the cities to live there.
Ms. Paquette: Sometimes they have to leave for awhile and then come home. I lived in Toronto for years and then I came home. I have lost one daughter to Edmonton and another daughter to Africa, where she is a missionary. I hope they will come home one day. They have to have jobs to go to. Having a job is one of the three determinants of health.
Senator Gustafson: In Saskatchewan there are all kinds of jobs if we could get young people to move to farms. If you took the 70-year old people off the land, the lights would go out. That is the reality, and we have to face the reality of these issues. Our young people are heading for the bright lights of the big cities. For whatever reason, that seems to be the reality. Perhaps I am wrong.
Scott Merrifield, Director, Policy, Planning and Coordination, Federal Economic Development Initiative in Northern Ontario: It is natural for young people to want to move, to see new sights and to expand their horizons. Part of the solution is to give value to what we have in lifestyle, quality of life, environment and all the amenities offered in rural areas. The condition for that is economic opportunities. That will not necessarily mean that people from rural areas and small towns will not move to the cities, but it might mean that some of the young people from the cities will want to try out a rural lifestyle. We have seen some examples of that with people who have come North for their education and have stayed because of the opportunities offered in part through our youth internship program and in part through other initiatives.
Senator Callbeck: I come from a rural area in a rural province so I am a great supporter of regional agencies such as yours. I will ask about your programs, one being the microcredit. In 2003 I was involved with the Prime Minister's Task Force on Women Entrepreneurs. We went across the country and we heard time and again about the need for microcredit. I would like to know how your microcredit operates. What kinds of loans do you offer and for what value? How long has the program been in existence? How many businesses have started?
Ms. Paquette: I had the pleasure of making a presentation at the Prime Minister's forum in Huntsville on women entrepreneurs. I shared the stories of 10 women and what they have been able to do as a result of a small investment that made a huge difference. At that time we had just started our microcredit, so the jury was out as to whether it worked. However, today I can say that microcredit works.
PARO is one organization in the northwest. Ms. Rosalind Lockyer has been the executive director for 12 years. In its infancy, PARO began as lending circles when Ms. Lockyer brought a small group of women together to help other women. It has since grown. She came to FedNor to ask for funding to see if she could extend what she was trying to accomplish, and because this was relatively new, we decided to try it to see how it would work. There were incremental activities, and today she has 30 lending circles. I was in Thunder Bay a year ago when they had their tenth anniversary. I met again some of the women to learn what they had been doing. Most of them are home-based, first time entrepreneurs. The nice thing is that they can go from that organization to the CFDCs to see if they want to expand. Some want to earn a living and are quite comfortable and happy at that stage. It seems to be working very well. They have self-employment training and have become a full women's entrepreneurship area. The mentoring, peer lending and networking seem to be working.
The other example is the pilot program the Stepping Stone Program, where we are seeing good results. Currently, there are 25 loans in the amount of about $45,000. These are much smaller and are geared more to underemployed or marginalized women. For example, someone might need to buy the sewing machine before she can make the wares that will allow her to become more self-reliant.
Those are our two examples. FedNor's role is to fund the organizations so that they can launch the programs.
Senator Callbeck: The centre runs the programs. Do recipients work out the programs with you?
Ms. Paquette: Yes, we work with them.
Senator Callbeck: What is your limit on a microcredit loan?
Ms. Paquette: It is low.
Mr. Merrifield: It is in the range of $500 to $2,000, although I do not know the exact figure. It was different with each organization, but the average loan size is very small at about $1,000 or less, which is often all they need.
Ms. Paquette: Stepping Stone started off at $1,000 maximum per loan.
Mr. Merrifield: In these lending circles, the peers of the women who are starting businesses decide to loan to other members of the circle. A great community accountability is built up from that. It is the same concept that was pioneered by the Grameen Bank in India.
Ms. Paquette: We met with a delegation from Bangladesh and asked them about their loan loss rate to women and there was none.
Senator Callbeck: That is amazing. The other program I want to ask about involves credit unions. You spoke about businesses that go to banks but cannot secure the funding so you are able to help them. How do you work with credit unions?
Ms. Paquette: There are two things. The Community Futures organizations that we work with are face-to-face to business so they provide the loans. We ensure that they have investment funds so that they can make those loans, to the maximum of $150,000. We set up a loan loss reserve with the credit unions to encourage them to go higher on the risk scale. If they do that, they will put more money out and we will help to cover their losses. This has worked well with the credit unions. We have tried it with other financial institutions but the problem is the exodus of these financial institutions from rural communities. That is why the Community Futures Program, with coverage right across Ontario and all rural communities, works. We have people out there who can put a finger on the pulse of what is happening in the regions. If there are businesses that we want to help, we prefer to use that vehicle because of that relationship. We have tried with many financial institutions but the credit unions have been our best experience. It is difficult with the banks.
Mr. Merrifield: Under the loan loss reimbursement system, if a loan is not repaid and there is a loss, then they get to charge a portion of their loss to our contributions. We cover a portion of what they lose on their bad loans. Through that, we get basically $5 of capital invested by the credit union for every dollar we put up. The experience to date on the program with the credit unions in Northern Ontario is 87 loans with a value of $10.1 million, and it has been in existence for six years.
The community futures development corporations in Ontario have gone together and formed pools where they can collaborate and have a number of CFDCs participate in an investment. That way, they can do larger investments. Individually, they are limited to $150,000, but by creating these pools they can do larger deals of up to $500,000. We are trying to cover the waterfront in terms of access to capital.
Another initiative we have is called the Northern Ontario Enterprise Gateway. That is another pilot program where we are encouraging private investment by bringing together angel investors in communities to form networks, and then bringing them deals to look at. We now have networks like that in North Bay, Sault Ste. Marie and Thunder Bay. The program is very new so we cannot point to many concrete deals yet, but it is promising.
Ms. Paquette: For the whole area of smaller venture capital — $500,000 to $1 million — where do you go? Being isolated and remote, sometimes that is a bit of a challenge. We are trying to find ways of building interest and making people more aware of the potential.
Senator Callbeck: Do you know of anyone else who has taken initiative on angel investment in rural areas? Is this your own idea?
Ms. Paquette: This is our own idea, but we actually found out about it through a woman I got to know in Toronto. She started a network there and she has helped us develop this concept for Northern Ontario.
Senator Peterson: I was interested to hear the comments on working with volunteers in your area. I come from Saskatchewan. Rural Saskatchewan would not exist without volunteers. Sometimes I wonder if the country would survive without them. They work under a regulatory framework that would choke an ox, and they fight these uphill battles constantly. I give all the credit to them.
We talk about how we get the attention of urban Canada. I think when the air conditioner is shut off and the grocery shelves are empty, we might get their attention. Senator Gustafson has told us on many occasions how the majority of the wealth comes out of rural Canada and nothing goes back in.
I notice that your department is housed within Industry Canada. Perhaps you could explain how it functions, and also elaborate on your comment on whether we should have a minister of rural Canada and a major ministry, not some little tagalong secretariat.
Ms. Paquette: As you know, the agencies are across the country: Atlantic Canada Opportunities Agency, ACOA, covers the Atlantic provinces; Canada Economic Development, DEC, covers all of Quebec, Western Economic Diversification Canada, WD, covers Western Canada; and FedNor covers Northern Ontario. FedNor is housed within Industry Canada as a separate business unit. We report through the regional operations, through the assistant deputy minister who reports to the deputy minister of Industry Canada, which has its own minister. As well, there are Minister Bernier and Minister Clement. Minister Bernier would be our minister, but he delegates his responsibilities and authority to Minister Clement.
Mr. Merrifield: Functionally, we do pretty much the same thing as the regional agencies; but structurally, we do not have our own legislation like the other agencies do. They would have the status of separate departments, whereas we are within Industry Canada. However, we are functionally similar and do the same kind of work; our approaches are similar, but still respecting the differences of the regions.
Senator Peterson: Do you have access to money?
Ms. Paquette: We have our own budget. FedNor administers those three envelopes: Northern Ontario Development Program, which is $47 million; the Community Futures Program, which is $22 million; and the Eastern Ontario Development Program, which is $10 million. The total is $79 million and we are responsible for administering those funds.
Regarding your second question, a minister for rural Canada, I think it will be interesting to see what happens after your deliberations and the deliberations the other committee is having on urban Canada. Our country has huge urban communities and then we have all the rural communities. We are so geographically huge, how do you slice it? We have sliced it this way and now we need to look more at some of the rural and urban challenges. I think the solutions will be in the policies.
A minister or a senior portfolio for all of rural Canada would be useful, so there would be a place where we could collectively share stories. While we are similar to the other agencies, clearly WD does projects in Edmonton — we do not have an Edmonton — DEC does projects in Montreal and ACOA does projects in Moncton. That is the difference; they work in both urban and rural, but we live and breathe rural in Northern Ontario. The biggest city, Sudbury, has 150,000 people. That is not really rural but, on the other hand, it is four hours from Toronto, so it is sort of rural. It gets into that whole definition we all struggle with.
I think that overall we had better look at where our country is going. Now we need to decide where we want it to go. If a minister of rural Canada helps us, then maybe that is something we need to consider.
Mr. Merrifield: In many cases, the solutions are place-based, multi-sectoral and integrated approaches, where it is not only agriculture or forestry or mining or community economic development; rather, it is all of those things. Having a place-based, community-based approach to rural development is really the key. Other countries have also found that if their rural policy is too closely linked to agricultural policy, it is seeing only part of the puzzle.
Senator Peterson: Functionally, it would work better because we are doing these one-offs all the time. We deal with agriculture and then we deal with forestry, et cetera; if we could get everyone together, we could be far more effective.
Ms. Paquette: That allows for a better plan, which is less reactionary to crises.
The Chairman: What is the rationale for having you in Industry Canada, which is different from some of the other regional entities?
Ms. Paquette: We do not have the legislation. It is a machinery of government.
The Chairman: It is such a huge place up there that you would think you would be your own entity.
Ms. Paquette: I believe it is a machinery of government issue.
The Chairman: It is one we do not understand.
Senator Oliver: You spent some time talking about microcredit and you talked about loans of $100, $200 $500 and so on and having it repaid. Then you started talking about angels. Angels normally want to get a good return on investment and that starts at 25 per cent to 30 per cent return on what they loan. The two seem to me to be in conflict. I would like your comment on that.
I would like to take three words that you used in your initial presentation — ``solutions are regional.'' In other words, Northern Ontario is so vast that there is no one solution that will work on the western extremities of the North that may apply to the east as well. They are different. In my view, there must be some kind of template that applies to them all. I would like you to describe that template, particularly for areas stricken with poverty. What is your template for poverty in those regions that ties it together?
Mr. Merrifield: In terms of access to capital, we have consulted with bankers, business people and people in financial institutions to see where the gaps are in access to capital. We have a variety of responses that look at those needs in a different scale. The pure lending microcredit response is for very small businesses, usually one person self-employed and home-based. That is one segment where there is a gap. The other area was the angel investor, who is certainly at the higher end, and there you are probably looking at deals that would be in the neighbourhood of $500,000 to $1 million. As you indicated, they are looking for a good return, so the initial work we have done, based on the model we looked at in Toronto, was just to get them talking to one another, getting them to meet and develop some credibility. These are individual, private investors. We have set up a not-for-profit organization staffed with a manager who is an ex-banker with credibility who is able to bring proposals to them as well as to educate them a little on how to be more effective as a network. It is another niche in the access to capital spectrum, with the community futures development corporations occupying the space in between for loans in the $35,000 to $40,000 range on average but going up to $150,000 and, through the pools mentioned previously, up to $500,000. We try to have something to stimulate access to capital in various ranges, and the responses are different.
Ms. Paquette: The other questions about solutions are regional. The only way some projects will survive will be if communities work together. Tourism is a classic example. We will get one organization that wants to market their region. You cannot just market one little piece; you have to look at the whole region. We have the Great Spirit Circle Trail, which is an Aboriginal initiative out of Manitoulin Island, but it takes the whole area into consideration. Circuit Champlain is another wonderful tourism attraction but it is not just to visit this one area. It is a regional approach.
While my challenge might be how to promote tourism in my community, my solution usually is on a more regional basis. I need to talk to the people around us. In terms of a template, for instance, we will insist that business plans are key. You do career plans and government plans, so communities need to do strategic plans, and from the strategic plans they will then identify projects and initiatives, but they must develop those in consultation with their broader community. We will ask them whether they have talked to so-and-so who lives 100 kilometres away and has done something similar. They must demonstrate that they have done those consultations.
We work do much of that work with the colleges in Northern Ontario. We work closely with them because they are a key economic driver. If a college wants to develop a program that is value-added in addition to what they would do on an operating basis, because they are creatures of the province, it has to consult the other colleges. We want to ensure there is buy-in from all the colleges in terms of what they are trying to do because there is not enough money to promote the same thing. Confederation College in Thunder Bay has a great aviation program. It is an awesome college for young people who want to be pilots. We will not do the same thing at another college in Northern Ontario. It is a question of finding a niche and then talking about the whole. That is what I mean by a regional approach. It can be regional in terms of your neighbouring communities or in terms of the whole North, depending on the sector.
Senator Oliver: What percentage of the $47 million a year that you have goes to poverty elimination initiatives?
Ms. Paquette: That is not one of our program mandates or objectives. That would be what we can achieve as a ripple effect and a ripple benefit by doing things like ensuring there is microlending. If you are helping single moms dealing with poverty issues to provide for their families through microcredit you are helping to eliminate poverty, but it is an end result. It is not one of our mandates. We do not have specific funding for that.
Mr. Merrifield: Although we do not have poverty as a targeted initiative or program, we believe strongly that the solutions to poverty are stronger communities and stronger economic opportunities in general. We do insist on community strategic planning, and we also insist that that planning be inclusive and that all segments of the community have an opportunity to contribute to that planning and participate in it. Our mandate is economic, but because we take a community-based approach, a number of the initiatives, particularly the community futures development corporations and some of the strategic planning activities, look not only at the commercial, industrial dimensions of development but also at the social, cultural and environmental issues in a holistic way, so that people of all income levels are able to benefit. Many of our initiatives are in Aboriginal communities that have the highest rates of poverty.
We believe that the benefit is there without our program being specifically anti-poverty per se.
Ms. Paquette: By way of example, the $7 million we have invested in First Nations to ensure that they are connected will allow people better health care because now they can go to an office locally. There are huge transportation issues as these are fly-in communities, so now they are connected. This is a huge and unbelievable change in those communities. They have gone from not having rotary dial telephones to now being able to be diagnosed or at least examined. There has also been a huge impact in education where they can deliver their programs to their communities thanks to the connectivity we have put in place.
Senator Oliver: You are working on IT infrastructure, which is one of the ways of alleviating the problem.
Ms. Paquette: Yes, we have put huge money into IT communications.
Senator Mahovlich: If I was to answer Senator Oliver's question, I would say that 100 per cent of that $47 million is going towards poverty. I see here where you have opened up a medical school in a university, and you have contributed $6.5 million to it. After the very first year, there will 14 Aboriginal student graduates. That is a positive outlook. Are there any females in the program?
Ms. Paquette: Yes, they are a target as well. There are a number of targets that need to be met on admission.
Mr. Merrifield: It is the first new medical school in Canada in 30 years. We were proud to be a contributor to its genesis. It is a school that has placed a priority on rural health issues and on serving the communities in the North.
As part of their experience, students in the third and fourth years gain work experience in small rural communities and Aboriginal communities across the North. They are confident that many of the graduating doctors will stay in the North after they have graduated.
Ms. Paquette: Interestingly, when the school came to see us five or six years ago with this notion — it was time — not everyone agreed that we needed a new medical school in the country. It is the first one in 30 years, and we provided the funding to do the feasibility study. Of course, the school is the province's jurisdiction once that feasibility study happened, but we are very proud of having contributed something at its genesis and then of being able to invest the $6 million in equipment.
Again, it is a rural solution. It is located in Northern Ontario, but I submit that it will help all of rural Canada because you are training doctors in rural Canada who want to live in rural Canada.
Senator Mahovlich: You will have competition because as soon as the Americans find out there is a good doctor up there, they will try to bring them to the United States for sure.
The Chairman: Hopefully that will not happen. Honourable senators, are there any other thoughts?
Senator Peterson: In February, the Conference Board of Canada commented Canada has to start thinking of itself as an urban nation. What are your thoughts on that? Where is the push-pull and the tug? There are obviously different visions of this country.
Ms. Paquette: Having grown up in a rural environment but having lived 10 years in an urban environment, I have an appreciation of the challenges that urban Canada faces. Clearly, the urban areas are huge generators of economic wealth. However, I think some of the solutions to their issues lie in rural Canada.
I called an official and suggested that we would be at the table for discussions about immigration. The response was, ``Why would Northern Ontario want to be at an immigration table? You do not have that problem.''
Maybe we are the solution to some of your dilemmas. The fact is that we are struggling with that as a nation. There are two separate Senate committees looking at this, but it is a complex problem. There is no quick fix, either.
Urban communities will continue to thrive, and so should they, but should it be at the expense of rural Canada? What is their place?
Senator Peterson: More importantly, who are the champions for rural Canada? Is there anybody?
Ms. Paquette: I like to think that FedNor is a champion for rural Canada.
Senator Peterson: You are first on the list, then. However, we need more.
The Chairman: One of our concerns around this table is that when we have problems in agriculture, for instance, they do not affect only the people on the land. For those of us who live, as I do, surrounded by absolutely marvellous towns, the next step is assessing how it will affect the towns. Some of them have responded quite brilliantly while others are in deep difficulty. If we lose the towns, then what does that do for the urban population across this country? This is a huge, connective issue.
Having people like yourselves here being very open with what you are saying will certainly help us with our final report. I do hope that it will also help form a better connection between the urban and rural, because without rural Canada, that foundation is gone.
Senator Gustafson: I would like to ask about the seriousness of the situation. Ontario currently wants to bring in migrant workers from Mexico to do the jobs that have to be done. British Columbia pretty well lost the fruit industry because they could not get workers to pick apples, et cetera.
The whole idea of building a wall between the U.S. and Mexico is absolutely ridiculous because they need those workers. Americans and Canadians will not do those jobs anymore. The only thing we can do is face reality. Am I supposed to say let it happen? That is a drastic measure, but the reality is that it is happening. We wonder who will work in the hotels, feed us and do the menial jobs of keeping a society going. This relates to the whole global problem.
The Chairman: To add to this discussion, as we are working through this committee on rural poverty, Senator Eggleton is now beginning a similar kind of study on urban poverty. Hopefully at the end of the road we can come together with some suggestions that would enhance the opportunities in both areas. Rural people sometimes think that there is a whole great world out there for them in urban communities, yet often when they get to the urban communities they feel trapped. It is not the great white hope that they might have thought it would be. Perhaps having rural and urban studies going down the same track will result in a hopeful and sensible set of suggestions so that we can keep our people where they want to be.
Senator St. Germain: I apologize for my tardiness. I chair the Standing Senate Committee on Aboriginal Peoples. Some of my colleagues here are the best members one can find, like Senator Peterson and Senator Gustafson, who are members of the Aboriginal Committee as well.
We have the challenge of poverty in our Aboriginal communities. I would like to ask you a controversial question. To date, the fiduciary responsibility for our Aboriginal peoples rests with the federal government. From your experience and your work, do you think we should rethink this? There is a tremendous workforce there that seems to be languishing in the wilderness. I would like your opinion on whether it is time we rethink how government gets involved and whether there should be more involvement at the provincial level in working out resolutions that would help these people and help the labour market as well. Do you have a comment on that?
Ms. Paquette: I can only speak to our experiences in Northern Ontario. As I said earlier, we are home to 104 of the 141 First Nations in the province. We have funded and supported many projects in the Aboriginal community.
The provincial government, through some of its funding, has been at the table for economic development initiatives that help Northern Ontario. I am thinking for instance of Waubetek, which is one of the Aboriginal CFDCs. They do some excellent work in economic development. The province has supported that initiative.
We try very hard to approach this from an economic development point of view. Whose responsibility is it? I like to think it is our collective responsibility. If we are trying to solve some of the issues that the good senator pointed out and make it a place where people want to live and raise their children, then collectively the Aboriginal community has a responsibility to develop the projects and we have a responsibility to support them and be there for them, and we have been. The provincial government, through some of its specific funding envelopes, has also been to the table. Has it been there enough? Could we do more? We can always do more, but we can point to many examples of projects and initiatives that all three of us have been involved in.
Mr. Merrifield: I will mention a couple of examples. Ms. Paquette already mentioned Waubetek, an Aboriginal community futures development corporation serving First Nations on Manitoulin Island on the north shore of Lake Huron. It was responsible for the Great Spirit Circle Trail initiative, which markets Aboriginal cultural tourism experiences in Europe and brings both cruise ship travellers and highway travellers to its member First Nations to experience their culture and attractions.
Ms. Paquette also mentioned the connectivity initiatives we have. Communities such as North Spirit Lake now have sophisticated telehealth suites that allow doctors from thousands of kilometres away to participate in examination and diagnosis. That was the brainchild of the Keewaytinook Okimakanak, the Northern Chiefs Council, which serves six isolated First Nations communities with only fly-in access. Northern Ontario has quite a number of these, and again an Aboriginal CFDC serves them. We have five exclusively Aboriginal CFDCs, by the way.
That was a vision of those chiefs who actually visited the Ottawa Heart Institute and saw a patient from Nunavut being diagnosed. They brought that back and launched an initiative called K-Net, which has grown through their IT department. The services being delivered include online videoconferencing and Internet high school available in 13 communities, band government networks, training in software, and email and personal website hosting service in very isolated communities. FedNor helped them along the way, and also helped them to get designated by Industry Canada as an Aboriginal SMART community, and that led to investments of over $7 million.
We also have a community economic and social development program at Algoma University in Sault Ste. Marie, which graduated its first class in 2005. Much of its emphasis is on Aboriginal community economic development and a number of the graduates are Aboriginal as well.
There have been many initiatives. About 10 per cent of our population in Northern Ontario is Aboriginal. As you have indicated, it is a growing population. It is the one segment of the population that is growing, other than through immigration.
To contribute to the economic future of Aboriginals is really in all of our best interests because they are such a huge part of the human resource base. We look at it not as serving them because they are Aboriginal but because they are part of the fabric and assets of our region.
The Chairman: You have given us an interesting and hopeful presentation today. You are doing great work. We would all like to see you out there on your own doing what you know best. Perhaps that is in the future. We thank you for coming. We have learned a good deal from what you have said regarding what assistance is being given in our largest province.
The committee adjourned.