Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 3 - Evidence - Meeting of May 12, 2009
OTTAWA, Tuesday, May 12, 2009
The Standing Senate Committee on Agriculture and Forestry met this day at 5:06 p.m. to study on the current state and future of Canada's forest sector.
Senator Percy Mockler (Chair) in the chair.
[Translation]
The Chair: Honourable senators, I welcome you all to this meeting of the Standing Senate Committee on Agriculture and Forestry. I am Senator Percy Mockler from New Brunswick and I am chair of this Committee.
[English]
I would like to start by introducing the members of the committee here today. I will ask them to introduce themselves personally.
Senator Mercer: I am Senator Terry Mercer from Nova Scotia.
Senator Fairbairn: I am Senator Joyce Fairbairn from Lethbridge, Alberta.
Senator Cordy: I am Senator Jane Cordy from Nova Scotia.
Senator Eaton: I am Senator Nicole Eaton from Ontario.
[Translation]
Senator Rivard: Mr. Chair, my name is Michel Rivard; I am a senator from the Laurentides District in Quebec.
[English]
The Chair: Today is the committee's sixth meeting for the study of the current state and future of Canada's forest sector. With us today, we have representatives of two groups. From the Atlantic Association of Community Business Development Corporations, we have Basil Ryan, Chief Operating Officer. From the Alberta Association of Municipal Districts and Counties, we have Tom Burton, Director, District 4; and Gerald Rhodes, Executive Director.
On behalf of the committee, thank you for appearing and sharing your views and comments. I invite you to make your presentations, which will be followed by a question and answer session by senators. Mr. Ryan, please proceed.
Basil Ryan, Chief Operating Officer, Atlantic Association of Community Business Development Corporations: Thank you for the opportunity to appear before you today. I want to begin my presentation with background on the organizations I represent here today and then move on to the impact on rural communities because of the forestry crisis.
Our association is made up of 41 independent corporations spanning the four Atlantic provinces. These 41 community business development corporations, or CBDCs, are also members of a larger national network of 269 corporations operating under the Community Futures Program. The CBDCs of Atlantic Canada are actively engaged in community economic development in rural communities with a particular focus on small business development.
The CBDCs offer an array of products and services to the small business community. These include business counselling, technical support and financial services.
The CBDCs work with all levels of government. They all share a specific relationship with ACOA, in that ACOA provides operational support to each of the corporations. Some of our member corporations have been serving their communities for greater than 25 years.
I would like to share some statistics with you to help put the magnitude of the work we do into perspective.
We offer two main financial products: the community futures investment fund and the seed capital fund. There are also special adjustment funds that are administered in various jurisdictions, but, for the purposes of this discussion, I will talk about the community futures investment funds only.
The CBDCs of Atlantic Canada currently have over 5,000 small business clients. The CBDCs received a cumulative total of $95 million from government for investment purposes from 1979 until 1999. In 2000, we developed our own central investment fund or central bank. Each corporation put money into this new fund and this money was augmented by funds coming from ACOA. The central fund is now approximately $30 million in size. ACOA has contributed over $15 million; the balance is made up of loans from member corporations that have funds surplus to their immediate needs. The last money received from government was in 2004.
The $95 million that I talked about earlier that was entrusted to these community-based organizations has been fully loaned out. In fact, the corporations have turned it over more than six times for a total investment of over $660 million. This past fiscal year alone, the CBDCs have lent over $50 million to entrepreneurs in Atlantic Canada. Currently, the 41 corporations have over $200 million in loans to small business clients in rural Atlantic Canada.
We really believe we are making a difference in the small business community that we serve and also in the greater community. In many respects, we have helped keep small business alive in rural Atlantic Canada. As traditional credit tightens and risk tolerances are lowered, the small business community suffers. We are still open for business.
With respect to the current forestry crisis, we offer the following. The rural communities of Atlantic Canada are feeling the effects of a near total collapse of the forestry sector much as they did the fishery crisis of the 1980s and 1990s,. The effects are not confined to one of the Atlantic provinces; they are felt in each of the Atlantic provinces. Many of the consequences of the crisis are well documented, as I am sure you are well aware. Literally thousands of people who have relied on the forestry sector for years have seen their lives uprooted and changed for the foreseeable future. The many mill closures have affected forestry workers directly, and also the many small businesses that support the forest industry. This is what I would like to focus on for the balance of my time allotment.
We have witnessed some recurring themes and pressures with respect to mill closures and their effects on small business owners and our corporations that support them. Typically, when an industry struggles and there are massive layoffs, individuals will consider self-employment as a new career option. Many of these folks will approach our corporations for assistance. Sometimes the help sought is business counselling or technical support, how to start a business, what regulations need to be considered, and so on. There are also laid off workers looking for small business loans to start a business or to buy an existing business that may be up for sale. This type of request for access to capital produces one type of pressure for our corporations.
A second pressure is with respect to existing businesses. Again, when we have mill closures, we see more businesses approaching us for help. Some may be existing clients looking for additional flexibility and there is another group that we define as bank refugees. As traditional credit tightens and risk tolerances are lowered, small businesses turn to us for help.
I would like to provide a couple of specific examples of what happens. Three or three and a half years ago the mill at Stephenville closed. Some 300 or 400 people were put out of work. The local CBDC saw a significant increase in requests for money for both of those groups I referred to earlier. Fortunately, the Stephenville office had sufficient money and they were able to meet the demand.
In Bathurst, as mills closed, we also witnessed an upswing in demand. The CBDC was able to meet that demand but primarily through borrowing from our central fund.
In the Miramichi area, more mills closed and the demand there spiked as well. They have been able to meet the demand but they struggle in the sense that they, too, borrow from our central fund and their ability to meet demand is hampered by the fact that they are highly leveraged.
The recent closure of the Abitibi-Bowater mill in Grand Falls-Windsor has produced basically the same result. Demand has picked up there as well, but that office has been fortunate in having enough of their own cash resources to meet the demand.
Honourable senators, the businesses that we support range from mom-and-pop operations to high-tech firms trying to make their way. We like to think that we are both a developmental lender and a patient lender. We have small sawmills and other forest companies as clients. We also have the truckers, the small machine shops, the wood harvesters, the hairdressers, the local restaurants and the corner stores as clients. We believe these businesses are vital and crucial to the rural economy. As the forestry crisis deepens, more of these businesses will struggle and the spiral continues. As each crisis hits us, communities are struggling more all the time.
The document produced by this committee under the chairmanship of Senator Fairbairn was, in my view, a solid depiction of the issues facing communities. All facets of rural community life are affected because of this crisis. The economy weakens, the fabric of the community stretches, and there are always consequences.
In our view, there is a role for government to play. The Government of Canada has responded in many ways to help us through this crisis. There are targeted programs to the forestry sector and other initiatives aimed at trying to fix the national recession. Government must continue with adjustment measures for those affected. Included in those affected are the small businesses within the rural economy of Atlantic Canada.
Access to capital is vital to small business needs. Initiatives such as more money for the Export Development Corporation and the Business Development Bank of Canada are a good start, but there must be an increased emphasis on support for small business specifically in the rural parts of our economy.
From our perspective, there should be continuous support for small business in rural Atlantic Canada by ensuring there is access to capital. There should also be support for older workers and others affected by the crisis. Career counselling, skills upgrading, help with self-employment and transitional support are needed as we move to diversify our economy. There must also be support and enhancement for a small business organization like ours to help us through this crisis and beyond.
Small business development represents an opportunity to be innovative, creative, imaginative and groundbreaking. We will need all of these strengths to sustain and grow our communities once again.
The April survey on the labour force by Statistics Canada, if you look on the website, opens with a comment:
Employment grew by 36,000 in April, the result of an increase in self-employment.
We believe it will take more news like this to bring us out of the crisis. We also think that government can augment the work being carried out by the small businesses in Atlantic Canada by providing a helping hand.
In closing, I would like you to think about the success our CBDCs have had to date and try to imagine, if you will, the impact of a top-up of investment capital to the CBDCs who would in turn ensure this money is available to entrepreneurs in rural Atlantic Canada.
On behalf of our 41 members and the small business owners we serve, we ask that government keep small business development as a viable option foremost in their minds as we work through this crisis.
The Chair: Thank you very much, Mr. Ryan. I will ask Mr. Burton to make his presentation.
Tom Burton, Director, District 4, Alberta Association of Municipal Districts and Counties: My name is Tom Burton, Director, District 4 for the Alberta Association of Municipal Districts and Counties, or AAMDC. Thank you for the opportunity to address you on this important topic.
Today, I will talk about a few things. First, I want to explain the role of our association and give you an overview of who we are. Next, I will discuss the current crisis in Alberta's forestry sector but, more specifically, how it is affecting communities. After that, I will be available as part of the panel for the question and answer period with the members of this committee.
The AAMDC represents the 69 municipal districts and counties in Alberta. These are rural municipalities and the hamlets within them, but not the villages, towns or cities within their borders. Essentially, we represent the sparsely populated, large tracts of land that make up most of the province's geography but not most of its population.
Our vision is to be a progressive association of elected rural councils representing the interests of rural Albertans, committed to excellence and meeting the diverse and changing needs of its membership. Our mission is to assist our member municipalities in achieving strong and effective local government. To meet our vision and mission, one role of AAMDC is to ensure that rural Alberta's voice is heard. This is why I am here today. I will quickly touch on how the forestry crisis is affecting communities in rural Alberta and, I hope, provide more insight through stories and examples in our panel discussion afterwards.
The forestry crisis in Alberta is the product of a variety of factors. The sector continues to experience what can be described as significant challenges. For example, the global recession that began in 2008 has brought market demands and prices for forest products to historic lows. Just look at all the newspapers that are closing or restricting their printing. Likewise, due in part to this recession, housing starts in the U.S. have fallen by 66 per cent and in Canada they have fallen by 25 per cent. This means reduced demand and low pricing for lumber and panel boards associated with the construction of new homes.
Another challenge facing the forestry industry is increased costs for energy and utilities, transportation — both road and rail, and labour. These costs are often higher in Alberta than in many competing jurisdictions because Alberta had a great economic boom recently. While beneficial to most of the province, these effects have been detrimental, especially to an industry already struggling.
Currency fluctuation also contributes to the crisis, as forestry is an export demand industry. Each annualized one cent difference in the Canadian-U.S. dollar exchange rate means a $40 million swing in revenues for Alberta forest product companies.
Finally, as Western Canada is well aware, the mountain pine beetle is wreaking havoc on our forests. The resulting government mandates for harvesting the beetle infected areas and for beetle control measures, as well as the threat against forests, are increasing costs for forest companies.
Making news this week is the issue of the $6 billion American subsidy. A glance at some of the numbers clearly illustrates the results. The market value of Alberta's forest products fell by 44 per cent between 2004 and 2008, representing a loss of $1.9 billion to companies operating in Alberta. Unfortunately, more than 3,800 direct jobs have been lost in the Alberta forest industry.
This map supplied by the Alberta Forest Products Association shows a reduction of production levels in response to the severe market downturn. The numbers within the dots correspond to the type of operation, such as a sawmill or a news print mill, while the colour represents the operational status. Each dot represents one operation. As you can see, 18 per cent of Alberta's mills are closed, while 38 per cent are operating at a reduced capacity. This is definitely a crisis for the industry. You should have this map in your packages.
However, my role is more to discuss the crisis faced by the communities as a spin-off from the forest industry struggle. As rural municipal representatives, we are very concerned about the health and sustainability of our communities. The first concern for communities is that this struggle means decreased tax revenue which, in turn, inhibits the ability of provincial and local governments to maintain service levels.
Personal taxes, corporate taxes and property taxes all contribute to a community, but they have fallen steadily. According to the Government of Alberta, total tax revenue from the forestry sector, including direct, indirect and induced tax revenue, has fallen 10 per cent from 2007 and 22 per cent from 2005. This is significant for communities that rely heavily on the forestry sector.
In addition to facing decreased revenue, communities face the social and economic impact of employment loss in the forest sector. Employment loss can affect the emotional well-being of residents. In addition, the obvious impact is a loss of income, at least temporarily. This means less spending power to support other businesses and activities in a community, such as restaurants, movie theatres, sports teams and schools. Especially in the case of a forestry dependent community, a loss of employment can force relocation to another community.
The Government of Alberta notes that total employment in the forestry sector has decreased 13 per cent from 2007 to 2008 and 23 per cent from 2005 to 2008. This includes direct and indirect employment in both the primary and secondary forestry sectors.
Finally, the forestry sector provides a valuable tool in sustainable planning for Alberta's communities. It contributes $11 billion annually to a provincial economy and, in the process, helps diversify our economy outside the oil and gas industry. This fights boom and bust cycles.
The forestry industry relies on renewable resources to sustain the economy and the environment in the future. It harvests at levels below the natural growth rate and helps manage forests that store carbon, protect air and water and provide habitat.
Once beyond the financial and social burdens this crisis is placing on communities, it is not difficult to see how Alberta communities will remain sustainable long into the future, partially due to a healthy forest industry. This is just one piece of a large sustainability puzzle that municipalities are dealing with, but it is an important one. The AAMDC feels it is important to protect something that helps our communities survive in such a diverse way.
That is all the insight I have for you today, but I hope it will bring a partial, useful understanding of the impact of the forestry industry in Alberta. I would like to sincerely express the AAMDC's appreciation for being invited here. I would be happy to answer any questions you may have as we move forward with this discussion this evening.
The Chair: Thank you very much, Mr. Burton. Well done. We will have questions, and the first person to question is the deputy chair, from Alberta.
Senator Fairbairn: My first comment is to welcome you here. Some of us have met before as a result of the cross- country travels we did over almost two years to try and not just sit here in Ottawa but to get out and actually be able to understand by going to see. Listening to you here today certainly underlines the reality of why we will hit the road and see some of the things you have been telling us.
First, before getting into the home turf, I want to thank Mr. Ryan. Some of the areas that this committee visited when we started to investigate rural concerns were in the far east of Canada, and your comments about how this was happening within the towns in the far east of Canada is well understood. You mentioned Abitibi, for instance, and this is a small world in the agriculture industry. I was having breakfast earlier this week, cheering on the egg producers up on Parliament Hill. I happened to sit beside a fellow from Abitibi. He was telling me, and I said I would certainly raise it here at the appropriate movement, which is right now, that he felt that Abitibi it was pretty close to shutting down. The people were out of work and the company itself was closing, which is well known. That was his view, unless something could be done, as you have all said, by levels of government to lift you up. Therefore I thank you for that.
Moving over to Alberta, it is a shock what is happening. On a regular day usually there is something happening in Alberta, but what is happening now with the pine beetle is so important. I probably talk about this too often, but today it is okay, listening to you. It is also important to understand how well your organization is trying to give support to smaller communities that are in the areas of agriculture, forestry and that kind of thing.
Most of it you can do, but when you are getting into the impact of the pine beetle, the question is what can we do. Maybe you can get a little more in on this. We as a committee started our trip in Western Canada, up in Prince George, and it was quite a shock, landing on the tarmac, to look down and see what had happened.
Could you explain to us exactly how far the pine beetle has gotten in Alberta; it is certainly in the North, around the northern area and Edmonton. Now apparently the little devils are making their way down into the area I am from, down in the Crow's Nest Pass. Maybe you can give us an idea how far that is going right now because I am not fully up to date on it.
Could you give us a picture of what is happening and what efforts are you able to make to keep the communities alive and hopeful?
Mr. Burton: Thank you for that. I imagine when you landed the forest looked the colour of your coat, pretty red from all the beetles that had killed the forest.
Senator Fairbairn: Some of us recall that but it was also pink, and we might have been expecting red but we were not expecting pink.
While we were there, a little town phoned in and said they heard we were there, could we please come and see them, and we went there. They had been pretty much told they were going to have to shut down and all of that because there was nothing left. Well, they did not take that and so they got some of the wood that was down and they actually started a business. They were doing dining-room tables, bedroom sets and all sorts of things, this little town, and we were very excited about it all. Then later we found out that it finally collapsed because they could not get enough people buying.
Does that feel like what is happening in Alberta now?
Mr. Burton: That is one of the issues, yes. I reside in a little hamlet called Debolt, which is the northwest part of the province in the Peace River District. The mountain pine beetle has progressed east to an area like Swan Hills already and south to the Crow's Nest Pass. They have actually gone through there.
The problem in trying to stop them is that some of the funding already put in place has been drawn back. The municipality where I am a councillor has joined with five MDs to try to fight the pine beetle in that area. We lobbied the provincial government for funding to do that. This year some of the funding was cut back so there are only certain areas that are being controlled.
Last winter we had a cold snap but it was not long enough. They figure there was maybe an 80 per cent mortality rate. You need a 97.5 per cent mortality rate just to keep the beetles from advancing. You can imagine what kind of problem that is out there.
As you say, with these companies that are trying to market some of this wood, this so-called blue denim wood, there is nothing wrong with the wood itself, it is just that it has a blue stain through it. If you could develop a good market for it, you could make beautiful wall paneling or something like that, but everyone has in the back of their mind that this wood is no good. Forests are dying off but you could still harvest this wood within two, three or four years after it has been killed by the pine beetle and still be marketable. However, you have to develop a market of some sort for that wood. That is definitely one of the problems.
Another problem with the pine beetle is the allotted cut that the forest companies are being allowed to do. They have to go in and do the cut where the pine beetle has hit first and some of that is higher than their normal allotted cut, so they do not want to do that because they do not have a market for this wood. You will have the wood sitting in a stockpile some place. They are putting up the cost to try and harvest this wood, but I am hoping that either the federal or provincial governments will get together and subsidize these forest companies in trying to salvage this wood and do something with it.
Senator Fairbairn: On this issue, we have heard several times that a certain level of cold temperature is the one thing that can stop the beetles.
It can get cold in Alberta. It certainly did in every corner of the province this year, but was it cold enough?
Mr. Burton: No, it was not enough. You need to have about minus 40 Celsius for a one- to two-week period. These beetles create their own antifreeze. It is unbelievable how they can withstand the temperatures. It has to be very cold for a rather long period of time to stop them.
Senator Fairbairn: Thank you. We hope you can find a way to use the lumber somehow to keep going.
Senator Eaton: I have a follow-up question on pine beetles. Do we allow forest fires any more? Would a forest fire help to stop the pine beetle?
Mr. Burton: Yes, forest fires are one of Mother Nature's natural ways of dealing with them. Over the years, we have developed techniques to stop forest fires quickly. I am also a volunteer fireman where I reside and we try to protect everything.
However, if this issue had been addressed when it was in B.C. before it hit Alberta, we probably would not have the problem we are having now.
Senator Eaton: Is there ever a debate about whether Mother Nature should have her way sometimes through forest fires?
Mr. Burton: I do not know if it is a debatable question. Sustainable Resource Development in the Province of Alberta does what they call ``prescribed burns.'' They will go out and burn certain areas. That is one way they are trying to control the beetle. I do not like fires, so I do not know what I want to say.
Gerald Rhodes, Executive Director, Alberta Association of Municipal Districts and Counties: I will help Mr. Burton on this.
There is much more at play with forest fires. You have to think of the habitat, the moose and the grizzly bear. Many of the areas Mr. Burton is talking about are where we are doing grizzly bear studies in Alberta. When you burn out insects, there is much more living on the ground affected by the forest fire than simply the beetles. It is not a selective fire that only burns the bad ones.
An excellent point that Mr. Burton raised was that pine beetles kill the tree. If you can harvest that tree, the wood is good. There is approximately a three-year window to harvest it before it rots.
The same thing happens with forest fires. Forest management areas, FMAs, are all blocked out in Alberta. Different forest companies have rights to different FMAs. There is an oversupply currently for those with pine beetles in their FMA, but they have to cut the trees and stock lumber for which they do not have a market. If there is a forest fire, that is priority number one for them to log. They have to cut every standing tree as well so they can harvest whatever useful fibre is available in those trees. It is worthwhile to note that a forest fire does not necessarily burn the trees to the ground like when a house burns. It burns the tops and leaves, but the main fibres are generally left standing.
You would simply complicate the oversupply issue we currently have for those companies that happen to be in the infested area.
Senator Eaton: Do they remove the burned wood so they can reforest it?
Mr. Rhodes: It is both for reforestation and the potential loss of a valuable resource. Trees could be 100 years old, especially pine and spruce. You want to make the best use of it possible.
Alberta's forestry service policy is managed by Sustainable Resource Development. The policy is that you harvest those trees first, which is the same as they are doing with pine beetle infestations.
Senator Eaton: I thought it was an interesting question because, as Mr. Burton said, had Alberta or B.C. had a controlled fire, perhaps it might have stopped the pine beetle from going further.
Mr. Burton: I do not want to get our friends from B.C. mad at me.
Senator Eaton: It is a question they have been discussing. When you have a forest fire, do we run and put it out or let a controlled fire burn? There are reasons Mother Nature does these things.
We have heard your excellent reports. You are faced with this crisis, housing markets are down and there is a world recession. Is this a time where you are looking at new markets, new products or deciding pulp and paper is on the wane so what happens next? Is there diversification happening in Atlantic Canada and the West?
Mr. Ryan: There is some diversification happening within Atlantic Canada. The AV Nackawic plant in New Brunswick made the transition to producing raw material for fabric from fibre.
The work we do with the CBDCs is $150,000 loans or less. The impact you can have is marginal, but we have some small companies trying different methodologies. For example, some companies in Atlantic Canada are adopting European technology to produce a better wood pellet product. There are also companies doing woodchip refining. Many sawmills have closed and that has caused some havoc for the agricultural industry in terms of having sawdust for animal bedding. Therefore, other companies are emerging to come up with new technology to replace what has disappeared from the lumber mills.
There is some diversification, but we would like to see it happen more quickly.
Senator Eaton: This committee has heard that many products are in the research stage. Could something like your organization take it — as we say in the hospital world — from bench to bedside?
Mr. Ryan: Yes, the Government of Canada, through ACOA, provided us with a small pot of money for a technology development fund in 2004. It was precisely for people working on projects in their basements, trying to bring them from conception to commercialization. We are seeing some of that happen in the forest sector as well as other industries where concepts are blossoming in something that is commercialized.
Senator Eaton: What percentage of your start ups are successful? Would it be 20 per cent, 50 per cent or 60 per cent?
Mr. Ryan: We are about five years into the initiative. We were provided with $6 million and we have had losses of $400,000 to date. We are doing very well, but it is still early in the life cycle. Some companies take 10 years to 12 years before they become profitable. However, it seems to be working.
Senator Mercer: I have been on this committee for six years and some days it is more cheerful than others, but this whole study is depressing the hell out of me.
I am from Atlantic Canada so I understand Mr. Ryan's story better than I understand Mr. Burton's story. However, when you have 27 per cent of your operations in Alberta closed either permanently or indefinitely, it is a significant effect. You have 3,800 lost jobs.
We have the examples of Stephenville, Bathurst, the Miramichi and Grand Falls-Windsor in Atlantic Canada. We did not touch on cutbacks at the AbitibiBowater mill in Liverpool, Nova Scotia plus cutbacks at the mills still functioning. Then there is the tremendous negative effect of the black liquor subsidy. This is a depressing subject.
However, I think out of this depression will come good news. Mr. Ryan, you indicated that your losses so far are only about $300,000.
Mr. Ryan: It was $400,000 from a special targeted fund set up a number of years ago.
Senator Mercer: What percentage of the $50 million in loans that you have out you would say is directly related to the forestry sector?
Mr. Ryan: To clarify, the $50 million was just what we did last year, but we have done over $660 million over the last 25 years. I will focus on the last five years. From April 1, 2003 until March 31, 2008, our corporation collectively did about $225 million in loans. Of those $225 million in loans during that period of time, $8 million was directly within the forest sector.
Our data-gathering needs to be improved a bit because we captured direct forestry-type jobs in that $8 million but we have $13 million in the transportation sector. We have another $55 million in what we define as other industries, which could in fact be something that is supporting the forest industry.
I would think that in the 15 to 20 per cent range of our loans are related to forestry.
Senator Mercer: You said $400,000 in losses. What is the failure rate on your loans? You have hundreds of loans out. It is tough for anyone, even tougher in small communities in Atlantic Canada, and particularly small communities that are or were one-industry towns. What is the success rate?
Mr. Ryan: Losses are a difficult thing to define. We have ongoing debates on what constitutes loan loss rates and so on. We are typically a lot higher than the commercial banks. One part of our mandate is that the client needs to be essentially turned down by a chartered bank before they can see us, so we deal with much higher risk loans.
We are doing work now on the whole issue around loan losses. We target at just about 11 per cent loan losses over the life of the loans. It is difficult to say. This year perhaps we had a 3 per cent loss overall on the loans, but you have to look at it over the life of those loans over a period of time so it is more in the 10 or 11 per cent range in losses on loans.
Senator Mercer: I would suggest that, because of the business you are in, 10 or 11 per cent is not a bad number. It would give you an 89 to 90 per cent success rate. Success I know is also defined differently, and that may in some cases just be survival as opposed to booming business.
I want to talk about Alberta in a second, but when you heard about the closure of the Grand Falls-Windsor AbitibiBowater mill, did your organization shift gears and say that you now have to focus on this to ensure there is enough capital available in that area? Obviously, your history in Stephenville, Bathurst and Miramichi would have told you that demand would ramp up quickly in Grand Falls-Windsor.
Mr. Ryan: The consciousness is raised when you have mill closures in particular. Each corporation is independently owned and operated. They have volunteer boards of directors in each community. The local board in Grand Falls- Windsor was very much aware of what was going on with the mill. As a matter of fact, some of the mill workers are members of the board of directors of that corporation. They would target some of their resources towards helping out those workers that are laid off within that industry and also the small businesses that support it. It is on an individual basis.
As an association, we have been approaching government saying there is a need for capital, and we are still working through that process with them now to see that there is capital available.
Senator Mercer: Mr. Burton, as an aside, Senator Fairbairn and I have been trying to paint northern Alberta red for years but we did not plan to do it with the pine beetle. It certainly is not our idea of success up there. We will have a tougher go than you have in getting rid of the pine beetle.
The tax base is what I want to talk about. You said the tax revenue for the forestry sector has fallen 22 per cent, from 2005 to 2008. That is devastating to a small municipality. Probably if the municipalities are anything like those with which I am familiar, they were dependent almost solely on the tax from that mill or the mill was the principal employer in the town and so the spinoff goes to a number of people who lose their home, et cetera, and snowballs.
Then we find ourselves in this economic situation. We could debate for weeks whose fault is it, but we are in a recession. The government comes along with a stimulus package, which is a good idea, but the package is based on the ability of the municipalities to participate. Should there be some special recognition or dispensation for municipalities that find themselves in situations like the towns that you are talking about, that have lost 22 per cent of their tax base? I am sure if I switched over to Mr. Ryan we could talk about Grand Falls-Windsor, Liverpool in Nova Scotia, Bathurst and Stephenville and so on.
Is there any thought about how you will participate in the stimulus package money?
Mr. Burton: I agree with you. Much of the stimulus money is 33 per cent federal, 33 provincial and 33 municipal. If the municipality does not have that money, how will they do the stimulus? As you said, there are some municipalities in the North that were basically dependent on the mills that were operating in their municipalities. These mills shut down. Suddenly they are starting to look back to see what oil and gas will do. Now we have seen a decline in that big time.
They have to start depending on agriculture, and you have seen what happened there. Another area is tourism, trying to get people to come to visit so they can keep their restaurants, hotels and motels, and at least have some people coming through. If the people are leaving because the mills are shutting down, however, you do not have the people there to operate these businesses. Some restaurants that used to be open 18 hours a day have gone down to 10 hours a day because they cannot afford to run the second shift, and down to five days of the week rather than seven days. They cannot get staff because people are moving away. The mills are shutting down so the people are moving away.
Another spinoff from this that I did not mention in the opening remarks was the crime rates. The crime rate is starting to go up, because people do not have the money. They are looking at how to eat, what to do to get food on the table. Some are resorting to crime. It is a very sad situation.
Mr. Rhodes: For the communities that are dependent on the sawmills, the pulp mills and the MDF plants and all those in Alberta, this is comparable to what happened in the Prairies 15 years ago when we lost the grain industry, when the elevators pulled out. When the grain elevators pulled out, hundreds of communities lost 40 per cent of their tax base because the grain elevators were the only non-residential tax base that they had. The eight or nine grain elevators kept that village going and could pay the taxes to keep the streets and everything in place.
In Alberta, we have had massive dissolution of those communities over the last 15 or 20 years. They have unincorporated and the rural areas around them have to take on the financial responsibility and now are trying to repair them because they lost their tax base. It is a very similar situation for those communities in our north and western edges, on the eastern slopes of the Rockies where our forested areas are, to what happened when the grain industry yanked up stakes and left town.
We think we will get through this eventually because we know in the long term people need wood. It is sustainable long-term; it is renewable. We know it is there. It is how to get ourselves from here to that point where we have security again.
Alberta did a massive diversification in its forest industries in the mid-1980s and more than doubled its forest industry. We have among the newest mills in all of Canada. Quite frankly, unfortunately, many of those new mills were also the first to shut down because they were also the some of the more expensive ones. They have the recent technology. We shut down some mills that were not even 10 years old. They are brand new, state of the art.
I think we see a green light because we think forestry is a long-term prospect. It will always be needed. The diversification here, and I think Mr. Burton was intending to mention that, is to not be U.S. market driven. In Alberta, our diversification is the overseas market, such as China, South Korea and Japan.
Mr. Burton: In the last year, Alberta has had a decrease of 22 per cent in export products to the U.S., but an increase of 18 per cent to Japan, 36 per cent to South Korea and 63 per cent to China. With respect to China, I think that is where some of that blue denim wood is going. They are using it for furniture. You do not really see the colour of the wood because it is covered. They are trying to develop markets over there.
If you can diversify that market, it would make our mills come back because the infrastructure is still there. They have not been taken down. If you can develop the market, with the downturn in oil and gas right now, you have people who would probably retrain to work in the mills. Then they would have a job, if we can develop some kind of a market or a stimulus package for the forest industry.
Senator Mercer: I said earlier this is sometimes a depressing study in this committee, but it is also the most hopeful committee. We have never had a witness that has not had a good story and told us how optimistic they are in the face of adversity, whether it be farmers who lost their herds to BSE or what have you.
Two weeks ago, I was in British Columbia on important matters, but I took some time to go on a tour of the Olympic oval, the speed skating oval, where the entire roof has been built with reclaimed wood that was damaged by the pine beetle. It is absolutely beautiful. It is spectacular. It is a showcase. There is hope. I would like to thank all of you for your presentations.
Mr. Burton: Mr. Rhodes said that Chrysler and GM are trying to make wooden cars, so maybe we can do that.
Senator Mercer: I would buy stock in trees before I would buy stock in GM.
The Chair: Thank you for the colours. Now we will move on to Senator Duffy.
Senator Duffy: Thank you all for appearing today. As Senator Mercer has said, we have heard some remarkable stories from remarkable Canadians, and we count you among that group.
I have one quick point on rural municipalities. It is my understanding that in exceptional cases, the federal government, in this new economic stimulus plan, is prepared to go 50/50. If you have municipalities that have a problem, but if you speak to the appropriate authorities and say you are in this box, I am told that there is flexibility on that, because people here recognize some of the difficulty that you and your fellow communities are in.
Mr. Ryan, I am from Prince Edward Island and it is always intriguing for me to hear about innovation and remarkable success stories in terms of your success rate. People have been talking to us about pellets. Can you give us some idea of how that market has grown and how big it is in Atlantic Canada? Do you have any idea how that market, which seems to be exploding, compares to the rest of Canada, and do you see it growing there?
Mr. Ryan: First, I am not an expert on the wood pellet industry, but I can tell you what I know in terms of that. We are seeing a lot more demand for wood pellets or alternative energy. We saw it spike when the oil prices went up significantly. There is more emphasis on what we can do with alternative energy, and wood pellets is one of those things. We are seeing more demand. You will note last year, in New Brunswick, there were shortages of wood pellets. There was not enough available to meet the demand. Production is now starting to ramp up and people are starting to understand that there is a demand for this. Maybe we can shift some of our emphasis to wood pellets. Three years ago, we did not have anyone in the wood pellet manufacturing business. Now we have a number of small producers on our books. We think the demand will only increase in that market place.
Senator Duffy: One of the other things we heard about was a conference in Truro in the last few weeks about farmers who have fallow fields growing grass. Are you aware of that, Mr. Burton?
Mr. Burton: Growing grass?
Senator Duffy: Some kind of grass that is used as fuel as opposed to pellets as fuel.
Mr. Burton: I do not know why you are asking me about that type of grass, but . . . .
Senator Duffy: The point I am trying to make is that on the innovation side, we have pellets, and now we have other people who do not have woodlots but are farmers who have fields for which they do not have a use. If they grow this certain kind of grass, people can use that as an alternative fuel. I am wondering if people had approached you for funding for any of that or for any of that research.
Mr. Ryan: We have not seen it yet. That is not to say it will not come. The more we advertise and the more people understand what we do and that we are in the risk taking business, I am sure those things will pop up in our doorways.
Senator Duffy: Mr. Burton, what about pellets in Western Canada?
Mr. Burton: In the southern portion of municipality I represent, there is a place called Grande Cache. There is a mill there. One thing they have done with their by-product is develope a pellet product for their wood stoves. They are doing the market on that.
As well, many of these companies are trying to either create their own heat or electricity or run their mills with the by-product, whether it is the bark or part of the tree that is not good for lumber. Besides just the pellets, they are trying to do that as well. They are trying to develop a market out there as well, yes.
Senator Duffy: What you need, in effect, as Mr. Rhodes said, is transitional help to get you to the recovery?
Mr. Burton: I agree with you on that, yes.
Senator Duffy: Mr. Rhodes, do you have anything to add?
Mr. Rhodes: In Alberta, we have natural gas, and natural gas is cheap. The province went through a major rural natural gas program in the 1970s and 1980s. I do not see pellets taking away natural gas. I think there will be a cost benefit issue. I certainly understand other pars of Canada using them if shipping is cheap.
As Mr. Burton mentioned, the manufacturing of pellets is a use for waste wood. You do not take your most valuable fibres for it. You use your by-products, so all parts of the tree are used. They still have to be doing dimensional lumber, panel board or pulp, those kinds of thing, and then they do to the pellets. I do not think the dollar value is there to justify a total conversion to pellets. I do not know what the scenario is out in New Brunswick or Nova Scotia, but certainly it would be worth more out there because natural gas is less prevalent than in our part of the world.
Senator Duffy: Or, again, it is waiting for that recovery.
Mr. Rhodes: Yes.
Senator Duffy: I liked your reference to what we have seen over the last 25 years or so in Saskatchewan. Members of this committee are aware that when a small town dies, it affects not only the people who are there, but all their relatives, all their kids and grand kids, also feel the pain. We feel your pain as well, and we want to try to do what we can to help.
Mr. Rhodes: Yes, we are not all Corner Gas.
Senator Cordy: Thank you again for appearing to help us with our report on the forestry industry. Mr. Ryan, I will start with you. I am familiar with CBDC, having grown up in Cape Breton and living in Nova Scotia. You have done some wonderful things. Interestingly enough, there was an excellent article, I am not sure if it was The Globe and Mail or The National Post yesterday, by Donald Savoie from New Brunswick, talking about regional development. He wrote that in a country our size, we cannot expect to have regional development and expect it to be one-size-fits-all and how very good the regional economic drivers have been. ACOA and CBDC are certainly among them.
You talked about not being able to look at one industry, particularly in small communities and rural areas, without realizing the ramifications on other businesses. It is the domino effect. Mr. Burton, in your explanation earlier you talked about businesses in communities, such as restaurants, that have no one to come to them and it goes on and on.
Mr. Ryan, you said many times that the government must help out and the government must be supportive. Can you tell me specifically what the federal government can do to be more supportive and to help regional development agencies such as yours in these economic times?
Mr. Ryan: I believe it is a couple of things. Continued support for the Community Futures Program. The program itself is up for renewal in 2010. All indications are that it will be renewed but you always need to ensure that people understand it is a very useful tool.
Senator Cordy: Is that the one for technology that started in 2004?
Mr. Ryan: No, it is the general program itself. The Community Futures Program across the country is up for renewal in 2010. The terms and conditions allow it to operate until 2010 but the money runs out March 31, 2010. The regional agencies, ACOA, Western Diversification, FedNor and CEDQ in Quebec are now working through the renewal process to ensure that funding and terms and conditions are still in place after 2010. It is important the program itself be continued.
There is always a need for access to capital. The Government of Canada has provided money to the Export Development Corporation and to the Business Development Bank. Typically those organizations deal with the larger loans, $250,000 and greater. We deal with an average loan of $35,000. It is the small loans. It is to help that restaurant out that we both referred to earlier; it is to help out the forest workers and the trucker when they get into a bind. We have both new clients and those that are already dealing with us and depend on our support for access to capital.
We are seeing, in that whole issue around access to capital, is that from 1979 until 1999 the Government of Canada provided grants and contributions to these independent corporations. It was essentially their money to use for lending to business in their community.
That process changed in 1999-2000, when the Government of Canada said we are not keen on providing money to individual corporations anymore because it is a tough game. Today the demand is up in Miramichi but it may subside in a couple of years. Therefore if we put $1 million in the Miramichi area and it does not get used, all of a sudden you build up surplus funds in that particular jurisdiction and another one may not have enough money.
We started our own central fund, or central bank, back in 2000 primarily to bring funds to the areas of need. We deal with it on a demand basis. We struggle right now in terms of Miramichi has been borrowing significant amounts of money from the central pool. They are now up to what we deem as being thresholds that are getting tight for them. For them to continue lending, we have to find another mechanism to get money into that corporation so they can lend it to the business people in the Miramichi area. It is access to capital. It is finding the right mechanism and the right mix, how to do that.
Again, money has been provided to the Export Development Corporation, the Business Development Bank, and the Canadian Youth Foundation. A lot of these organizations have received money. We do not see a lot of emphasis being put on the rural areas. We will keep pushing to see if we can get more money.
Senator Cordy: They are certainly the ones hurting with the forestry sector.
Mr. Ryan: Yes, absolutely.
Senator Cordy: What was this fund you received, the $6 million in 2004? Was it for technology development?
Mr. Ryan: Yes.
Senator Cordy: Was that a one-shot deal? Have you received any money since then? It seems as though it has been pretty successful.
Mr. Ryan: We have not received any more money since then. It was a one-time contribution to try to encourage our corporations to look at technology, not to be scared of technology but to take a chance on technology.
The Government of Canada put the money in place for those corporations to look at that entrepreneur working in his basement on some kind of widget or something and wants to commercialize it and needs help around patents and so on. That money is provided. We have done a good job. The money has been completely lent out. We are on our second and third round of that money. It has been repaid by clients and we are relending.
We think that represents some significant opportunities for us. We are seeing our corporation becoming more liberal in terms of lending on the technology side, but technology tends to cluster. It is not something that happens in every jurisdiction. We see a fair bit of demand around Fredericton, for example. We see demand around St. John's, Newfoundland. It tends to cluster — at least that has been our experience to date — around the metropolitan areas. Activity brings activity.
There are still other technology type projects that are being undertaken in small rural communities, what might be referred to as stand-alones. Some of it is in the shipbuilding or boat building industry, small boats, for example, out of Newfoundland. There is some activity around maple syrup. There is a diversity of things happening under that technology fund. It is something we would like to see continued to be supported by the Government of Canada.
Senator Cordy: Thank you for the good news stories because I do not think people know as much about them as they should.
Mr. Burton, you referred to the forestry industry as being in crisis in Alberta. Certainly that is what we are hearing from people in the forestry industry across the country. It is due to a number of factors and, of course, the economic downturn would probably be the major one. You talked about the effects on jobs being lost, both directly and indirectly, as Mr. Ryan spoke about. We even see the effect of it in Atlantic Canada because people working in Alberta suddenly at Christmas came back home and there was no job for them to go back out. They used to have their flights paid for. That is not happening anymore. We certainly see that kind of thing in Atlantic Canada, and certainly in Nova Scotia, at least.
On another committee dealing with poverty and housing, a gentleman from Alberta said to the committee ``never waste a good crisis.'' By that, he meant use the crisis to make things better. We have heard from some witnesses that perhaps the forestry industry was not running as effectively as it should have been because times were booming. If anything, there was a shortage of wood products for the housing market in the United States and in Canada.
Are we using this crisis to make the forestry industry better? I think Senator Mercer said earlier that the people we heard before us are all optimistic about the revival of the forestry industry. Are we using this time to the best advantage? No one wants a crisis but we are in it.
Mr. Burton: I can see some of that happening. Some of the mills are trying to run more efficiently, whether it is redesigning the way the mill is operating, or the way they are doing their logging and bringing it into the mills. They are trying to cut operating costs so they can continue operating. Once you get through this crisis, the ones still in operation will be far ahead of the ones that have been shut down for years.
Like you say, they are using the crisis to try and better things. However, you still have to help them by fighting. When the U.S. announces a $6-billion subsidy for this black liquor, what will companies here in Canada do? They can save $200 million or $300 million in operations by taking advantage of that. No mill in Canada can fight against something like that.
If we can develop some international markets or subsidize moving the product from Western Canada to Eastern Canada. If it has to go by rail, go after CP and CN to lower their costs. There are different ways to help them out without actually giving them money. Transition loans could have low interest rates to be paid back over a long period of time.
You mentioned stimulus funds. Some of them could be one third/one third/one third, 50/50 or 75/25, whatever it takes to keep these operations going. Then, when the market redevelops down the road, they would be farther ahead than a new company trying to start up.
Senator Cordy: You have made an excellent point. We cannot let the industry go down that far. If it completely bottoms out, when we need it, it will not be there. I agree with you that the federal government must take this seriously.
[Translation]
Senator Rivard: The economic crisis has been mentioned and you added to that our exchange rate; there is also the competition from emerging countries like Brazil and China; let us also remember that 20 years ago, in Quebec, we had the spruce budworm infestation — have forgotten the scientific name — which was really devastating for our forest in terms of economic costs.
I would like to hear you tell us about the pine beetle disease which is affecting forestry in Western Canada. What are the long-term consequences on your industry and your communities?
[English]
Mr. Burton: Mountain pine beetles are very detrimental to the industry, especially the way they are still advancing across Alberta. We must do something to slow the transition from one side to the other. It is terrible for the industry with the beetle killing the trees and no market for that blue denim wood.
As I said previously, China was taking much of that wood for making furniture, et cetera. We can try to find other countries that would also take some of that wood. It may come down to where you have to grind it up for pulp. However, that is not good, either because of other subsidies. We need somehow to develop a market for it.
Mr. Ryan: We have not seen the mountain pine beetle in Eastern Canada yet. We suffer with the spruce budworm. It was devastating to the forest in Atlantic Canada.
Mr. Rhodes: Our forests are not all pine in Alberta. We have a mixed boreal forest. A lot of our diversification in the forestry industry happened in the 1980s when we moved into aspen forest. Much of our pulp is aspen pulp. That is a good thing.
However, I understand that when pine beetles are really hungry, they eat aspen as well. They could become a problem. Currently, at least we have one part of the tree stock that is a little different. The higher quality trees where dimensional lumber comes from is the highest value wood and that is what the beetle consumes.
[Translation]
Senator Rivard: Do you think that there is a link between climate change and pine beetle infestation in Western Canada?
[English]
Mr. Burton: Yes. Climate change is what brought the beetle across the Rockies to Alberta first. High winds and hotter temperatures in British Columbia also made them multiply quickly. The strong prevailing winds all of a sudden had the beetles in those airstreams and they arrived in Alberta much sooner than we expected.
[Translation]
Senator Rivard: Of course, we know about the federal support to your industry, but I would like to hear about the support you get from your respective provinces, from the Maritime provinces and Alberta and if you know it, of the provincial program in British Columbia.
[English]
Mr. Burton: I do not know about any support in British Columbia but there probably is. I can research that and send more information to you.
Our province is trying to help the forest industries, but with the Softwood Lumber Agreement in place, they cannot directly hand industry the money. They have to come in the back door, whether it is through municipalities helping to construct roads or lowering taxes if possible. I do not know if the municipal government act will allow them to distinguish the forest industries. I have not researched that part of it.
Mr. Rhodes: Alberta organized a task force on the forestry crisis, which released a major report last week. I have not reviewed it in detail. There was not much monetary support. It was identifying issues, bringing stakeholders together and seeing where we had to go. The issue is on the province's radar.
Alberta's fortunes changed dramatically last November from major surpluses to major deficits. We are much more dependent than others on the price of oil. We have a financial crisis unlike anything we have ever seen because so much of our revenue is based on the oil and gas sector, which you obviously know is not doing well at this moment. It is kind of a ``double whammy.''
In Alberta's case, forestry was always meant to be a major diversification of our economy, but if there is no money from the oil sector, there is not much to diversify with in forestry and other sectors. That is what Alberta is facing currently.
Mr. Burton: The report that Mr. Rhodes referenced gives 49 recommendations to the province. The province cannot deal with six of the recommendations because of the lack of money or because they contravene the Softwood Lumber Agreement.
Sustainable Resource Development Minister Ted Morton announced last Friday in Grande Prairie at the forestry show that they will look at 43 of the 49 recommendations to help make the forestry industry more viable and sustainable.
Mr. Rhodes: We will ensure that the clerk gets a copy of that report from Alberta.
Senator Baker: My question is a supplementary to Senator Rivard's. The spruce budworm problem in Quebec and New Brunswick saw a great deal of objection from people and communities about spraying chemicals to get rid of the insect. I understand you have the same reality in spraying chemicals near water reservoirs and communities.
However, in Quebec, the national forestry service of Canada and the Quebec scientists all got together and developed what is scientifically known as bacillus thuringiensis. It is called BT. It was a non-chemical substance to be sprayed over the budworm. It was very effective and it got rid of the problem of having a chemical.
If you have the same problem in Western Canada — a public outcry against the chemical spray regarding the pine beetle — have the provincial governments and the federal government in Western Canada, as they did in Quebec, paid any attention or assigned any resources to developing a non-chemical spray for the pine beetle? Finally, what is the natural predator of the pine beetle? I think it is the shrew. The problem with that, of course, is that you might have an overrun of shrews. The natural predator of the shrew is the snake and you would not want an infestation of snakes. Has that come up in your discussions in Western Canada?
Mr. Burton: I have not heard of any discussions on developing a non-chemical spray. I could research the mountain pine beetle and find out if they done that. Mr. Rhodes may know something about that.
I do not know if the natural predator is the shrew. I am not a scientist. I know the old woodpecker beats the heck out of the trees in a hurry.
Senator Baker: Is there a shortage of birds?
Mr. Burton: There is no shortage of birds, but no shortage of mountain pine beetles either.
Senator Baker: Do the birds eat the pine beetle?
Mr. Burton: They are too fat to fly.
Senator Baker: You do have a problem with chemical spray, do you not?
Mr. Burton: Yes, we do. In many of the areas where these trees are, whether in the national forest areas or provincial parks, they do not want to use chemical sprays. I did not realize Quebec had developed a non-chemical spray to get rid of the spruce budworm. I am learning something while I am out here, too.
As I say, I will have to find out and get back to you.
The Chair: Before going to Senator Poulin, Senator Rivard has an additional comment.
[Translation]
Senator Rivard: I only wanted us to recall the name of the Canadian scientist who had developed the famous product; his name is very easy to remember, it is Dr. Smirnoff — like the Vodka.
[English]
Senator Poulin: Now you know what it is.
Mr. Burton: That might contribute to the antifreeze that they develop. I do not know; there might be a reaction.
[Translation]
Senator Poulin: I wish to thank our witnesses who came from so far. The very strong message that we are getting from you from the beginning is the very serious impact on our communities, everywhere in Canada of this forestry crisis. I represent Northern Ontario in the Senate and you can imagine the stories that I hear, family, social and economic stories. It has a tremendous impact.
My first question is for Mr. Ryan. Our first goal in this study is to clearly establish the causes and the origins of this forestry crisis. As an observer, and with your members and clients, I would like very much to know how you interpret the causes of the crisis we are living through in all parts of Canada.
[English]
Mr. Ryan: I do not know if there is a clear consensus on the causes of the collapse. Some argue it is overcapacity in the industry. Some argue it is the cost of production in Canada. Some argue it is the cost of the getting goods to market. It is a whole array of things that contributed to the collapse of the forestry sector. It is not one thing or another that has caused it but a combination of things.
Senator Poulin: When your clients or members look at the causes, do they feel the crisis could have been avoided?
[Translation]
Would it have been possible to avoid this crisis?
[English]
Mr. Ryan: Hindsight is always 20/20. They always think there are things you could have done a number of years ago that may have reduced the collapse. I am not sure how to answer that. Maybe I can refer to Mr. Burton. He may have something to offer with respect to that.
Mr. Burton: I agree with all the comments to begin with on what caused the crisis. You have dumbfounded me on this one.
Senator Poulin: I will ask it another way. All of you spoke of the role of government in trying to balance the effects of the crisis. Is there a role for the federal government in making sure that it is so much in touch with different industries that it can always be a step ahead in public policy with respect to the forestry industry? Is the federal government there only to fix or is it there to forecast?
Mr. Burton: Now it is maybe to fix, but it is a combination of everyone working together to fix the problem. The economy has dropped down. The impact of the mountain pine beetle is part of it, as well as the subsidies that other countries are giving to their forest sectors. It is just a combination.
To be a step ahead, I honestly do not know how answer that, unless Mr. Rhodes has something to add.
Mr. Rhodes: It is because of our severe linkage to the U.S. on this one. The U.S. has a crash and there is no way of sugar-coating that. No government could have stopped that. It is what it is. The diversification of the markets has been really big with our provincial government, to try to get into other markets. It has been helpful. When Mr. Burton talked about 30 per cent increase, we are still only talking 5 per cent of that market that has the 30 per cent increase so it is not enough, but those are things that can be done.
We have always had the ongoing issue that our federal government has to work very hard fighting all these trade wars with the U.S. that is not holding up their piece of the North American Free Trade Agreement. That is a huge part. Strengthening that might help us out. We have always had the question: Do they open this agreement or not? What will come out the back door if the agreement is opened? Will it be worse?
You can have the strongest trade agreement, but if they have no market it does not help us. I think the numbers that Mr. Burton gave us was that our forestry crisis is not tied to what happened last October-November. The numbers that have declined in Alberta go back three years, strongly. Part of that was a slowdown in the housing market in the U.S., which was the foretelling of something that was going to happen really big, where we were going to have a financial collapse, but it is not what just happened. There was a market and I think governments were working to try to diversify to get out there, but it is a long-term process to hit international markets and try to get things overseas and those kinds of things.
I do not think a lot of blame can be put on government for this. It is just the reality. The role for forestry and lumber is a long-term thing. It has to be a long-term thing. We have not invented new products to replace what we live in. It will come back.
The government has a role to be visionary and create mechanisms and methods to help us maintain our focus on the horizon, because that is where we have to look now. Right now, we with a dip, and we have to somehow bridge our way over the dip. The government can help in forecasting and planning. A few years ago, there was a large manufacturing tax incentive for all types of manufacturing plants to put new technology in the plants and help them to be competitive through tough times. Those are some policy decisions. I do not know whether anyone will want to do that now when there is nowhere to sell the products. I cannot put blame on someone. It is a circumstance and the kind of perfect storm in many ways.
Senator Poulin: It is interesting, because as you heard all of my colleagues say here, we have heard from many witnesses that there is a light at the end of the tunnel. Senator Cordy quoted one of the witnesses in another committee as saying, ``Do not waste a good crisis.''
One of the things that struck me when I began hearing about the problems in Northern Ontario, is that forestry is an industry with a huge challenge, that is, our geography. When we were negotiating with the United States, the members of Parliament from Northern Ontario heard from many companies in Northern Ontario about what we could do and what they were recommending. We heard that the industry in B.C. is not the same as the industry in Alberta, and it is not the same as the industry in the Atlantic provinces and not the same as the industry in Ontario. I heard more divisive comments than I did uniting comments. In other words, every province seemed to want to stand alone in the crisis. That was a few years ago. I am not hearing that any more. Is there a role for the federal government to unite the industry? Could it be possible? Is there an opportunity here to give a better voice to the industry across the board?
Mr. Rhodes: The majority of our market is in the U.S, and the federal government has to deal with the U.S. in trade agreements, so you have a huge role to play. Certainly in Alberta, with our numbers, when the majority of our market is U.S., there is no question that this is not a provincial issue. We need to deal with those trade issues at the federal level.
Mr. Burton: This is not an individual problem. At one time, companies used to try to fight everything alone. Now you are finding that they will unite and try to solve a problem together. If the federal government can play a big role in developing markets or whatever it takes to make the industry sustainable, I do not think you will get an argument from a province or a company.
Senator Poulin: Do you have any recommendations for that role?
Mr. Rhodes: You talked about the provinces and all the industries taking a stand-alone approach a few years ago. There has been an amalgamation of the industry, like any other industry. In the forest industry in Canada, a number of large companies are in multiple provinces, so the likelihood they would stand united from a company perspective, regulatory or otherwise, probably exists more today than maybe it did 15 years ago. In Alberta, we have Miller Western, which is one of our major pulp and sawmills. There are very few of these that are only Alberta based.
Mr. Burton: Weyerhaeuser has a mill here in Ontario, do they not? They are in New Brunswick as well. It is not just individual provinces any more. As you say, it has become a national thing.
Mr. Ryan: All provinces have been impacted by the crisis in forestry, from Newfoundland and Labrador right through to B.C. and even in the north, so there is a need for a national strategy. Perhaps the role of the federal government is more principle based. You develop that broad framework and agree on some principles. It is difficult for the federal government in this large country to come up with the intimate details of how things can work. You may refer that to the provinces, but at least you come with a broad framework with some principles set out very broadly, and then you have half a chance the succeeding.
The Chair: Before I ask our deputy chair to conclude the line of questioning, I have a few questions I would like to bring to your attention. You have not touched on one subject, and I would like to raise it. For the record, my oldest two sons were in Alberta and B.C. for tree planting. This goes back about eight or ten years. You have not touched on silviculture. I would like to have your comments on silviculture. What should be done in view of the pine beetle, your percentage of hardwood and softwood, for silviculture and tree plantation and commercial cutting.
Mr. Burton: Currently in the province, they do selective logging, so they go out and take a tree here and there. When it comes to replanting the forest, they are planting two trees for each one they harvest. They are trying to redevelop the renewable resource. Some of the problems there are that, with climate change, some of the trees are not lasting, or they get to a certain height and then the pine beetle or spruce budworm will attack the trees. Silviculture is also an issue.
Mr. Rhodes: Certainly we have a sustainable forest in Alberta. We are planting more than we are taking, so that is very positive. In silviculture, perhaps there is a role on the science end in trying to find trees that are hardy to the bugs and pests that we have. You talked about scientific advancements. In agriculture, it has been very common to find rust resistant wheats and such things. I am sure someone is looking into these things, but we have seen some problems, and it will certainly bring some attention. When you plant one of these trees and do not harvest it for 25 years, that is a long-term solution.
The Chair: Having the Alberta Association of Municipal Districts and Counties here is an opportune time to ask this question. We do not want get into a debate about the Constitution and responsibilities of governments, but I do want to follow on Senator Poulin's question because it is important. What should be your role as municipalities in the managing of our forests, in encouraging research and development, in helping or encouraging the industries or stakeholders, whether it be the employees or R&D? What role should your association have in the forest sector in the forests of tomorrow?
Mr. Burton: The major role that municipalities can probably fulfill, as we said before, is in the infrastructure side, developing the roads to access these forests to bring this product to the mills. Maybe they can look at the tax side of it to see if some kind of program could be developed between the municipalities and the forestry sector. However, I believe the MGA act does not allow you to isolate forest companies from oil and gas companies or any industrial entities.
Mr. Rhodes: Our role is more limited. It is more to provide municipal services. Municipalities are not a subsidization vehicle, certainly not in Alberta. We are there for the sole purpose of providing essential services, mainly roads, water and sewer, community facilities, those types of things. Those sorts of supports would continue. As well, though, there is an awareness of the importance of the industry certainly in the northern and eastern sides of our province.
We are not what I call one-industry towns. We are what we call two-industry towns. Right now the second industry is not doing so well either, so I really understand the problems of communities that are one industry. In the last couple of years when the forestry industry started tanking, it happened to be when we had this extreme boom in the oil and gas side. There were some people finding other jobs. They are all unemployed now. Those guys have had this twice. They first got laid off in forestry and then from the oil and gas industry as well.
Municipally our role is limited. It is more to provide what we can on the infrastructure side and to be a voice. One thing our organization does is not only represent rural municipalities, but we are an advocacy group for rural areas. We advocate on behalf of rural issues and this is a very large rural issue, which is why we are here today. It is more to be a voice for citizens in the rural areas who do not have a voice.
The Chair: Living on a border town, about 1,000 feet from the U.S., we have companies that have mills on this side of the river and on that side of the river. We say the Fraser companies, we see the Irving companies and we have also seen AbitibiBowater and others.
Since you do have municipal responsibilities, and we have had some groups through the years and lately, saying that you should be involved in community forest management. What would be your comments on that if that idea ever popped up in your province?
Mr. Burton: To be honest, I could not see our municipality being involved in the management of the forest areas. It is between the province and the forest companies themselves. Each forest company has to have operating guidelines in place and they get audited every year. The municipalities do not really become involved in those audits. Some of these forest companies have advisory groups that include some people from municipal sectors or from the private sector, whether it is environmental groups or other forest companies. They do have other forest companies that sit on their advisory groups.
They are more able to look after the management of the forest areas with the leadership of the provincial government rather than the municipalities, because the municipalities do not really have any say over the operations of the forests.
Mr. Rhodes: I would add that 97 per cent of our forest stock in Alberta is on Crown lands. The province has the responsibility for managing Crown assets. In Alberta, it is called the green zone and it is not a subdivided area; it is untitled. The white zone is where the province has surveyed and deeded, separate deeds are created and sold to individuals.
The Chair: You have mentioned, Mr. Rhodes, that it is the 97 per cent Crown land.
Mr. Rhodes: I believe 90 per cent of the forested areas are on Crown land.
The Chair: Therefore, by the fact it is Crown land, and you are looking at jurisdiction for infrastructure of your municipalities. W know the responsibilities of municipalities, provincial governments, territorial governments and the federal government. People are saying that because of the perfect storm that we have now maybe it is time that governments play a bigger role. There is openness because the jurisdiction over our forests belongs to provinces. That said, if we do open, and if there is a time to open a dialogue and to permit the sharing of responsibilities, would you like to play that role because of the fact that you have 90 per cent of your forest that is Crown land?
Mr. Rhodes: When you say ``would you like to,'' are you saying would our province like to?
The Chair: I am saying you as a body of government.
Mr. Burton: I would not hesitate to sit down with forest companies and the provincial government as a rural councillor and try to see what we can do to help these companies be sustainable, whether to be a voice for them with the provincial or federal governments or to play whatever role they can see fit for us to do. I have never been scared to tackle anything.
The Chair: For your information, there are some parts of Canada where municipalities would like to play a greater role or bigger role.
Senator Fairbairn: This has been a very interesting and emotional evening. We want you to know that the information that you brought with you to give to us has been enormously helpful in an issue that is hard to understand if you are not there.
One issue struck me. It is a question I thought I would ask and it goes back to when our beloved province went through another crisis not so long ago with the so-called mad cow issue. I am in that country down in the southwest corner surrounded by wonderful small towns and very vigorous mayors and people who want to stay and do what they are doing. They want their children to stay and hopefully follow them.
I could only remember, when I was listening to you tonight, that at one point in the height of the other difficulty I got a call from one of the small communities. They were becoming somewhat agitated because it had reached a point where people were asking the questions of whether they should stay and raise their children there.
The local mayor, who is long gone now, was finding out the answer to that by getting calls from the teachers at the schools who would phone in and say that so and so has removed their children from school now because they have decided it was time to leave at that point in time. I am sure there is a great deal of angst in your communities. There certainly was on the BSE cattle issue. There was a great deal of anxiety that it would have a major impact on the smaller communities and wanting desperately to have people stay and try to get through it.
As it turned out, to a large degree the people did stay, but there were others who left in the hopes that they could have a better route for their children elsewhere.
You have done a good job in putting all this together for us and others. Has there been any indication like that in your areas, of people thinking this is time to leave?
Mr. Burton: A comment was made earlier by Senator Poulin or maybe it was Senator Cordy. Many people that went back East to their homes at Christmas from Alberta did not return to Alberta because there was no job to come back to. That shifts responsibility from one part of the country to the other because, all of a sudden, Eastern Canada has all these unemployed people. I am sure the economy in Eastern Canada is not better than it was in Western Canada. Some people are staying to fight it out and others are going back home to see what they can do back there. They may still have a house there and can give up the one in Alberta. They walk away.
Senator Fairbairn: Thank you. What you have told us tonight gives us a warm notion once again of what our country is all about. We are very grateful that you are here and that you have taken a great deal of time during a tough period to put this information together for us.
You say you have relatives in the eastern part of Canada. When I fly home to Alberta practically every weekend, I am always sitting with someone coming from Atlantic Canada. On three recent occasions, I have been sitting with a young person who was full of energy and excitement.
In one case it was a young person from New Brunswick who was coming with equipment that they thought would be useful to go to the Crowsnest Pass to help try to keep those little devils out of that beautiful part of Canada. They very much wanted to come and help. It says a lot about our country.
Senator Baker: Are those little devils you were talking about or were they the pine beetle?
Senator Fairbairn: Yes, it was the pine beetle. We are not as close to the beetles in the Crowsnest Pass as these gentlemen, but we will be looking at it this summer.
Thank you for your time and bringing words from the far East as well. We wish you all the very best of luck. If you have other thoughts, never hesitate to give any one of us a call.
Mr. Burton: Thank you for the opportunity to bring our thoughts to you. If there are any other questions that you may think about in the future, do not hesitate in contacting us. If we do not know the answers, we will try to find the answers for whatever questions may arise.
Mr. Rhodes: I want to say thank you to Senator Fairbairn particularly. My family is from southern Alberta as well and she speaks very well for an area where there are no trees or if there are any trees, they are at a 45-degree angle because of the wind.
The Chair: On behalf of the committee, I want to thank you sincerely for being here today.
We would appreciate if you could provide us with the report you discussed from Alberta. It was an interesting session. Do not hesitate if you feel that you want to add anything or if you have questions of your own.
Honourable senators, we have another meeting scheduled for Thursday at 8 a.m. We will hear from Quebec and Ontario groups on community development and the role of municipals in local governments.
(The committee adjourned.)