Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 4 - Evidence - Meeting of May 4, 2010
OTTAWA, Tuesday, May 4, 2010
The Standing Senate Committee on Agriculture and Forestry met this day at 5:02 p.m. to consider the current state and future of Canada's forest sector.
Senator Percy Mockler (Chair) in the chair.
[Translation]
The Chair: Honourable senators, I see that we have quorum and therefore I call this meeting to order.
I would like to welcome you all to this meeting of the Standing Senate Committee on Agriculture and Forestry.
I am Percy Mockler, chair of the committee.
The committee is continuing its study of the current state and future of Canada's forest sector, with special emphasis on biomass.
[English]
Today, we have two witnesses appearing who bring many years of experience. On behalf of the committee, thank you for accepting our invitation. Avrim Lazar is President and CEO of the Forest Products Association of Canada. Thank you for bringing another perspective.
[Translation]
We have the great pleasure of welcoming Mr. Guy Chevrette, President and Chief Executive Officer and Communications Director of the Quebec Forestry Industry Council. I have worked with him on various issues in our respective areas.
Mr. Chevrette is, in my opinion, an essential witness. He is a man who works for the industry and workers. He is also an ardent advocate of the forestry sector.
I also have to add that Mr. Chevrette has never been afraid, as we have seen, to advocate his beliefs both in Quebec and beyond. The enthusiasm and vigour he demonstrates in defending the Canadian lumber industry with the Americans is always impressive.
Our two witnesses today are leaders in the forestry sector.
[English]
The committee is examining the causes and origins of the current forestry crisis. We also wish to examine and promote the development and marketing of value-added products.
[Translation]
This may mean considering potential changes to the 2005 National Building Code as a way of boosting lumber usage. It may also require a study of education in the forestry science sector as well as the development of a joint vision for the long-term global positioning and competitiveness of the Canadian forestry industry.
[English]
Thank you for accepting our invitation. I invite you to make your presentations.
[Translation]
Your presentation will be followed by a question period.
Mr. Lazar, you have the floor.
Avrim Lazar, President and Chief Executive Officer, Forest Products Association of Canada: Thank you, Mr. Chair. It is a pleasure to be here this evening with Mr. Chevrette, a good colleague and a real friend of our industry.
[English]
It is especially interesting because, to do anything in the forest sector, we need both federal and provincial policy. We have problems if one or the other level of government is not contributing.
It would be helpful to have both the federal and provincial level forestry industry associations appear before the committee. That would be useful and practical.
It is also a pleasure to appear before the committee because it is good to see the leadership and interest of the Senate on this issue. We look forward to your report, the sooner the better. The time is coming for industry to make use of your report. We look forward to it.
The last time I appeared before the committee, the forest industry was declining. Tonight, I can say that the industry is improving. We are not out of the woods, but we are definitely on a positive trend line. It is nice to be able to talk about that. Biomass is also a topic of tremendous importance for public policy.
I will begin with a little context before I discuss biomass.
In business, the first need is always markets. Do you have a customer? The industry has always said that markets for forest products will return, and indeed, markets are returning. Pulp markets are good. Lumber markets are returning; they are not as good as newspapers suggest, but they are returning. Housing starts are picking up.
In the medium to long term, there will be tremendous demand for Canadian forest products on the global marketplace. The industry is not worried in that context about such markets. They will be there.
If you want concrete reassurance, simply consider that, over the next 20 years, world population growth will be equal to China's current population. Per-capita income will triple in emerging economies. That will result in a huge demand for pulp and paper and wood. The resources available to produce these goods will be constrained.
Canada is well positioned over the long term, not only currently when prices and demand are increasing. Forestry is a winning industry for our nation. We have what the world will want. Few other nations will be able to produce the way we can.
To benefit from markets, we must be competitive. It is not the job of the forest industry to sit back and say, "Okay, we have gone through a bad time. Markets will come back and there will be a good time coming." We must ask ourselves how we have to transform to be ready to benefit from good times. Simply being in existence when there are good markets does not mean success.
The industry has been and needs to continue to transform itself to benefit from the marketplace.
The industry across Canada has been pursuing this transformation along four lines. The fourth relates to your biomass topic, so I will go to it last, but it is good to have a sense of the whole thing.
The first line of transformation is improving productivity and efficiency. If you do not do that all the time, if you are not continually finding ways of becoming more productive and efficient, you will be out of business. The good news is that, in the lumber sector, we have outpaced U.S. productivity increases over the last 10 years. In fact, we are the only sector of Canadian industry that has outdone the U.S.
Throughout the whole forest sector, this recession has sent us to efficiency school. Things that we did not think were possible are being done. Efficiencies are being found. We are capable of being as productive as anyone in the world. We are not there yet, but we understand that it is our job to keep getting there.
Efficiency and productivity are necessary but not sufficient. The second thing we have to do is to become less reliant on the U.S. marketplace; less reliant on residential construction and more on non-residential; less reliant on the traditional commodities — for example, less on two-by-fours and more on engineered wood; and to penetrate the Asian market and the markets of the emerging economies.
Again, we have not been sitting back and waiting for someone to do it for us. Canada's forest industry is the leading exporter to Asia from Canada. No other sector exports as successfully. We are leading into China, and I think we are third place into India. We are very strong into these markets in pulp and our wood sales to these markets are exploding, growing by leaps and bounds.
We have been less successful in diversifying into non-residential construction. I would alert senators that there is a private member's bill to encourage the use of wood in non-residential government buildings. I know it has passed second reading. Should it come to you, I hope you all — from all parties, because this is a non-partisan issue — will be champions of this Wood First bill.
As a wood-producing nation, it is good. For example, when we go to China and the government asks us, "What are you doing about using wood?" it would be good to have our government say we are doing it as well. First, efficiency and, second, market diversification.
The third pillar of our transformation is to gain market advantage for environmental excellence. We have the best forest practices in the world in Canada. There are other countries that are as good, such as Sweden, but no one is better and we are far better than most. However, we have not succeeded sufficiently in translating those environmental credentials into market advantage.
One of the things we see as our mission over the next few years is not just to continue to improve our environmental performance — even though it is as good as any in the world, it has to be better than anyone in the world — but to translate that improved performance into market advantage.
In a world in which there are huge problems of illegal logging, huge problems of deforestation — in which 80 per cent of forest operations are not certified, whereas all of ours are for their sustainability — in a world in which we have done Kyoto 10 times over, it is time that we got, for Canadian workers and Canadian businesses, the market advantage we deserve for our environmental performance. That is the third pillar of our progress forward.
The fourth is we have to be in a position to extract more value from every tree harvested. It is not enough just to think about value added, necessary though that is, because many value-added opportunities are labour intensive and put us at a competitive disadvantage. Sure, we have to do more value added and produce more engineered products. Certainly, any time we can, we should be producing door frames and windows and panels but, in addition to that, we have to adopt a value extraction philosophy.
What is value extraction? It is not just taking the lumber, the chips, the pulp and the paper from a tree, it is also extracting the bio-energy, the biofuels and the biochemicals that can come from wood. If you think about crude oil as old biology, old biological material, we can think of wood as the same thing but quite a bit fresher. The future of our industry will be that, from every tree, you take the two-by-fours, you take the chips to make pulp and paper, but you also extract — in a refinery model like for crude oil in a bio-refinery — the chemicals, the bio-energy, the biofuels that can make the industry more competitive.
We have recently completed a major study and I think the clerk has circulated it. Between periods, I am certain you will find it will be excellent reading. We have recently completed this study, which says that the future of our industry depends upon the economics of lumber — without that, we are nowhere — and the use of the woody residue from the lumber industry to produce pulp and paper. However, even that is insufficient for sound economics. We also have to diversify the use of the woody residue from the lumber industry into bio-energy and biochemicals.
Some governments have thought that the answer is to simply produce bio-energy from wood. We can tell you from this study that, if you simply produce bio-energy, you lose 80 per cent of the jobs. In addition to that, if you simply produce bio-energy, your economics are very shaky unless you are completely dependent upon government subsidies. Government subsidy is an interesting thing, but when you go to investors, they are quite reluctant to invest upon the basis of continued subsidies.
Also, if you just use the trees for energy, you find that your environmental footprint is suspect because of all the energy used in harvesting, transporting and processing. On the contrary, if you integrate bio-energy, biochemicals and biofuels into the existing industry, your trees are getting a lift to the mill on the lumber truck; your economics are much sounder because you are using what was your waste stream to produce bio-energy and biochemicals; and your employment multipliers are better than any other alternative.
You may hear some say the future of the industry is to forget about the old stuff and get into bio-energy. That is a short-sighted future.
There are situations in which it makes sense; if you have beetle-killed wood and there is nothing else to do with it, or if you are in a region where the pulp mill is down and you want to do something with your fibre, it makes some sense. However, generally speaking, for public policy, if you care about jobs, communities, the environmental footprint or economic solidity, integrating bio-energy and biochemicals into the existing industry is the only sound answer.
I have gone on probably longer than I should, given that it is a hockey night. Perhaps I will pass the microphone over to my friend.
[Translation]
The Chair: Before I give the floor to Mr. Chevrette, I would like to introduce Mr. Yves Lachapelle, Special Adviser, Strategic Issues, Quebec Forest Industry Council.
Without further ado, Mr. Chevrette, you have the floor.
Guy Chevrette, President and Chief Executive Officer and Communications Director, Quebec Forest Industry Council: Mr. Chair, the first summit on lumber use in the Quebec construction industry was held last Wednesday. It brought together over 150 people to talk about the present and the future. I used the opportunity to read your questions and to attempt to provide answers.
We have to recognize certain differences between the situation of the forestry industry in Quebec and that of other provinces. We are going through an economic downturn, which is mainly due to the collapse of the construction sector in the United States. The number of building permits has dropped from 2,200,000 to just 500,000 or so. However, we know that the number required to restore buoyancy in the various sectors, especially in lumber exports, is somewhere between 1.4 and 1.5 million.
The second reason for this deep economic slump is of course the parity of the Canadian and U.S. dollar. It is not common knowledge but our industries have for a long time relied on the exchange rate to generate profits and to offset the lack of a profit margin between the selling price and production costs.
The industry's profits have been based on the difference between the rate of the U.S. and Canadian dollar. It does not look likely that the exchange rate will ever return to past levels. When I took up my current position in 2005, the Canadian dollar stood at US$0.71 and no one was complaining.
Quebec is also going through a structural crisis. Quebec fibre is the most expensive in Canada and indeed in North America. This is why we were the first to be hit by the downturn four or five years ago. The price of Quebec fibre is not competitive. There is a disparity with Ontario of $7 per cubic metre. New Brunswick is also advantaged by the softwood lumber agreement. It is considered a border province and, as such, does not pay a surtax. A London court ruling means that Quebec and Ontario are required to pay a 10 per cent surtax.
Lumber is also the least cost-effective of all Quebec's resources. In Quebec, it takes nine trees to produce one cubic metre of lumber whereas in British Columbia it requires only four. You get a better idea of the scale of the problem when you factor in the number of additional steps in the production chain as well as initiatives required to ensure competitiveness.
I could give you several other examples. Quebec mills are all small in comparison to those in British Columbia. The largest Quebec operation would be medium-sized by British Columbia standards. B.C. mills have double the capacity we do. The Quebec Forest Industry Council has 130 members, some of which own three or four mills in small villages. This reality really reflects Quebec society. In many cases, these communities developed around the sawmill even before the village church was built. The current structure of Quebec society means that government intervention is required to ensure the industry can compete with other provinces and neighbouring American states.
The lumber dispute hurt us badly. We ended up leaving a billion dollars on the table when we signed the softwood lumber agreement in the fall of 2006. We have never recovered. The agreement was designed to give some breathing room. However, it has deprived us of borrowing power and has, for example, prevented us from using the parity of the Canadian dollar to purchase equipment at a better price than we could in the past. We have no cash-flow. We are experiencing a significant financial crisis. Funding is very thin on the ground. Financial institutions and banks are risk averse. As a result, we have had to go to the Government for help. However, they are afraid any assistance might violate the lumber agreement.
Our Canadian counsel argues that a business-rate loan is not an infringement. We have sought legal opinions. The Americans recognize that business-rate loan guarantees are considered legal. However, in spite of all these arguments, our various governments are afraid and refuse to take action.
This latest crisis is depicted in Richard Desjardins' film L'erreur boréale. It portrays the forestry industry as a destroyer of forests. Scenes in the film show clear-cut forest and suggest that it never recovers, when in actual fact, 80 per cent of it grows back naturally. Human intervention is only required to regenerate the remaining 20 per cent. The views in the film are widely held, especially among urbanites. The industry is wrongly perceived as killing trees and destroying forests. This image creates enormous problems. I think it is important that you realize this. We are working to counter this perception. One of your questions deals with education in the forestry-science sector. I will address what we are doing in this area.
As far as the future is concerned, I will not repeat what Mr. Lazar has already said. A conference was held on the studies conducted by Mr. Don Roberts and FPInnovations. We met both of them. Mr. Lazar has spoken at conferences at Laval University and in the Lac-Saint-Jean area. The conclusion is clear. We have to develop natural resource-based products that cannot be copied. Several developing countries dump into the American market, and as a result, undermine our ability to compete. We have to identify new specific niche markets. This is our challenge for the future.
Governments have the power to help us and I believe that it is their responsibility to do so. Indeed, the Canadian Constitution states that forests are a provincial jurisdiction. On the other hand, international trade and treaties are a federal responsibility. Therefore, both levels of government should work in lockstep with each other, including in the area of support and assistance programs. It is important that we urge our governments to adopt this approach. Honourable senators, you are best placed to do this. Government initiatives should complement each other. There should be no overlap. Programs should supplement each other and specifically promote development for the future. We would suggest that a specific program be developed for research and another for innovation.
It will take teamwork. At the end of the day, any interference in jurisdiction, rivalry or confrontation means we all lose. Both levels of government have to work in a complimentary fashion and focus their assistance accordingly.
I have been mandated to ask you to help us. Our best companies need to refinance if they are to weather the downturn and take advantage of the recovery. This is a serious issue the industry is now facing.
We have also discussed support for research and innovation. I also believe that we need a national policy on lumber usage to stimulate domestic consumption. Obviously in the short and medium term, as Mr. Lazar has said, we will have to focus on foreign markets.
These are the major priorities as we see them. If we felt that both levels of government were working towards these goals, I can assure you that they would have our support.
I would like to raise one final point. Although we are all frustrated by our situation, the fact remains that we have made great strides. Quebec, for example, is the world leader in the area of berry processing. We have developed certain specialty areas where we lead the world. We should not be afraid to recognize this fact. Indeed, we should be shouting it from the rooftops instead of allowing ourselves to be beaten down by environmental activists.
Quebec and Ontario rank equally in the area of secondary and tertiary processing. Our accomplishments are therefore real yet insufficient because the challenges we face mean that we will have to focus more on resource components than on the actual resources themselves. This is the coming challenge. The industry is looking into combining wood with plastic and other substances with a view to developing specialty products which are readily marketable overseas.
Perhaps we have been overly focused on the North American market. To tell you the truth, I am fed up of Uncle Sam continually getting his own way on everything. It is outrageous when you think that we are signatories to free trade agreements.
I sat on the Cliche Commission with Mr. Mulroney. He told me that a free trade agreement would open doors and prevent barriers.
I have to admit that the way some free-trade agreements have been implemented, does not look much like free trade. When our products are too competitive, protectionist measures are introduced to prevent a genuinely free and effective market.
I realize that it would not go down well if I were to say that I was advocating an end to the softwood lumber agreement. We all, despite everything, want the agreement with the Americans to remain. However, we have to make them see reason and to realize that the agreement applies to both sides. We lost one arbitration and now Quebec and Ontario have to pay a surtax. How much did they lose under the first, second, third and fourth lumber agreements?
The tribunals have consistently ruled against the U.S. but no penalties have ever been imposed. The Americans recognized none of the rulings and always appealed. It is starting to wear a little thin and I think that we have to demand our governments end their softly-softly approach, show some backbone and stand up and be counted.
Despite the fact that I am a former Minister of Natural Resources, I have never worked in the private sector. This did not serve me well when I started working in the forestry sector. The fact is that governments simply do not defend our forestry sector despite the fact that lumber was the very first ever Canadian industry. When the French first arrived, they traded mirrors. What was there subsequent livelihood? What was the first ever-basic industry in Canada?
The industry is responsible for 190,000 direct, indirect and spin-off jobs in Quebec. In Canada as a whole, there are 825,000 direct, indirect and spin-off jobs. It is one of the largest industries in terms of job creation.
It seems to me that governments and politicians of all political stripes should be clamouring to protect this basic industry. This holds even more true given that it is a renewable resource. We are not talking here about a mineral resource, which once extracted from the ground, is gone forever. No, lumber is a genuinely renewable resource. Forests are not receding in either Quebec, Canada or in North America. There are only two continents where forests are expanding - Europe and the Americas. The remaining three continents are experiencing shrinking forest coverage.
Perhaps I could ask the environment lobby to address reforestation on continents, which are losing their forests and leave us in peace here. I say this because I believe we are working to ensure the survival of our forests. We are currently the country with the highest degree of certification. We have failed to make much headway in the area of traceability but we have recently got our act together. As a result, by 2013, Quebec operators will have to be traceability-approved to be eligible for membership of the Quebec Forest Industry Council.
So as you can see, we are making progress and moving forward in leaps and bounds. However, specific organizations, that I will refrain from identifying to avoid raising their profile, have written reports distributed around the world contending, for example, that a fire on Levasseur Island in Quebec was caused by the forestry industry. This is a disgusting accusation. It was a forest fire!
This type of thing has to stop. I have already said and I shall say it again. We are the most highly-certified country in the world. We are surprised at being singled out for attack. Our clients have been approached and our companies disparaged but no other industry is developing across-the-board certification like the Quebec and Canadian forestry sector.
[English]
Senator Mercer: Thank you, witnesses, for being here. I appreciate your time. Mr. Lazar, you are here quite often. We appreciate your commitment to helping us.
I want to go to the issue of biomass. Some of the statistics we have indicate that in 2009 in Canada, production capacity was at 1.731 billion litres. Of that, only 5 million litres came from biomass from wood. What is the single biggest thing that will help us move that number up and maximize the use of what some would call waste and others would call opportunity?
Mr. Lazar: Let me answer in two parts. The use of biomass in the forest industry is primarily to displace fossil fuel use. The litres you see actually are the ones that are exported out of the industry, but we produce and use enough green biomass waste-based energy in our mills right now to replace three nuclear reactors, or enough to power Vancouver full time. We do that right now, and we use the energy instead of using fossil fuels. That is how we manage to do Kyoto ten times over. The potential is three times that, or the equivalent of nine nuclear reactors. Much of that would be used to take us to 100 per cent biomass waste-based renewable power in the industry, but it would also allow us to produce more liquid biofuels, more bio-chemicals and, of course, district heating in those regions. The numbers look small because we are using it instead of selling it, but of course that displaces all that fossil fuel.
The second part of the answer is how we could go from the equivalent of three nuclear reactors to nine, which is our potential. There are several key pieces. The first is investment. It requires retooling. As Mr. Chevrette pointed out, we are a cash-poor industry right now. The payback on retooling to go into bio-energy is quite significant, but you need the cash to start with.
One thing the governments could do — and I certainly would very much welcome it in your report — is some kind of revolving fund, a green bond fund, which would be repayable from the savings by displacing fossil energy for the transformation of all our forest industry factories onto renewable fuel. We could be 100 per cent renewable, and we could get there fast if we had access to capital to transform our mills. I am not asking you to give us the money, but just loan it to us on a revolving fund basis, a green bond basis, or some basis on which we could have access to that capital. It would, first, improve our greenhouse gas record as a country, and second, improve our economics and therefore make employment more sustainable. You could do that, and the capital investment is the number-one thing.
The second thing governments could do is to do whole footprint assessments in encouraging bio-energy. Some provinces are looking at the short-term gain of burning wood without looking at the medium and long-term pain of displacing workers. As I said before, you lose 80 per cent of the jobs if you do bio-energy stand-alone as opposed to integrating into the existing industry. That was one of the key findings of this report, which, by the way, was done by bankers, not by us. We wanted to see how you could drive investment. The chief author of this report is the vice- chairman of the CIBC.
The last thing governments can do is to make certain that any programs for renewable energy are source neutral. There is a tendency to go with fashion, so let us put money into solar or tidal or wind or agricultural waste. Government should not decide where the renewable energy should come from. It can create encouragements, premiums or subsidies for renewable energy, but they should be source neutral, and then let the marketplace decide who can produce it the fastest.
[Translation]
Mr. Chevrette: I would just like to flesh out one particular issue broached by Mr. Lazar. Operations have to be integrated.
In some cases, three separate operators are harvesting the same lumber. This is not cost-effective and kills profits.
This is an important issue that I wanted to raise with you. Failure to integrate will mean ridiculous prices and no customers for biomass. Biomass transportation must be integrated with the initial harvesting operation. Any failure to do so will undermine the industry.
[English]
Mr. Lazar: You will be subject to the same cynical scrutiny that the American corn ethanol is subject to, where you use as much energy in producing the ethanol as you save by deploying it. I am not saying it is a bad thing, but it is a long way from a good thing. Using the waste stream as opposed to purposed harvesting is the only one that makes environmental sense.
Senator Mercer: The use of corn for ethanol production is a bit of a distraction and a lost leader for many people in the agricultural industry.
You also talked about value-added extraction. I like that concept. We visited the Irving mill in St. Leonard. I was impressed with the technology used. There are more CAT scans in that mill than there are in most major hospitals in this country, analyzing the lumber at every turn.
Do we know what the next phase of technology is that is needed? That mill in St. Leonard, I think, would be one of the more modern ones. It may not be the most modern, but what is next?
Mr. Lazar: First, we instituted what we call the zero waste imperative. It turned out to be a mistake, because there is no such thing as waste. As soon as we went down the road of the zero waste imperative, we realized what we used to call waste is simply a natural resource and could be turned into anything from biofuel to fancy chemicals.
We have many candidate emerging technologies, such as the production of nano-crystalline cellulose, which can be used in everything from food additives, to paint, to pharmaceuticals, to pyrolysis, to the production of biodiesel. Many of these are beyond the R&D and into the commercial phase. Who will be the winner? Watch the marketplace. The beauty of this is they are all bubbling up and people are trying them.
[Translation]
Mr. Chevrette: There is also the example of newsprint, which we alluded to earlier. If the newsprint market were suddenly to disappear overnight our mills would be left with hundreds of thousands of tonnes of wood chips, which they bank on for a portion of their profit margin. As a result, compensation schemes are urgently required.
Both Mr. Lazar and I have suggested that Quebec consider replacing the current Îles-de-la-Madeleine electricity- generating station with a wood-fired plant. This initiative would take care of several hundred thousand tonnes of wood chips.
I also think that all levels of government should be focussing on short-term initiatives to keep some of our mills open.
[English]
Senator Mercer: Mr. Chevrette, you mentioned the number of small mills that are in Quebec, and they are spread around. It seems that, for this forest to become more efficient, following on what Mr. Lazar was talking about, we will have to consolidate those mills into larger mills. That ends up displacing communities. Sometimes in a small community a mill is the sole industry. If you consolidate three mills into one, then you have three communities — or two of the three — now affected.
How do we manage that? There is a human resource side of this question, from the government's point of view, that we end up with two communities that are in much worse shape than they are now and maybe one that is far better off in growth.
[Translation]
Mr. Chevrette: That is the million-dollar question. First of all, no small community actually wants to disappear. However, you are quite right. The market will not support a lot of different mills when none of them are profitable. We must aim for profitability and productivity.
Some people only live 20 or 30 minutes from work while others have a daily hour-and-a-half commute across the Champlain bridge. Everyone has to realize that for plants to be profitable, they have to consolidate their operations, for example, by turning a single shift into two. Some mills might have to close but we cannot take that as a given.
A way of offsetting these closures would be to develop innovative initiatives in these small communities.
I have to admit that your question is very political. Political parties advocate rural development but I have to tell you from personal experience that moving communities is not a pleasant thing to have to do. It is not an easy decision for either the minister or the government as a whole.
These are extremely difficult decisions. Economically speaking, it would be cheaper in some cases to fund alternative initiatives and to leave the communities where they are. However, market conditions make your question quite logical. Closely located smaller operations have to be consolidated to create a single profitable, more highly-productive unit. However, I am talking from a businessman's and not a politician's point of view.
[English]
Mr. Lazar: With Mr. Chevrette and me here, you will never get to the second questioner.
The social contract that the provinces signed with the communities on the sawmills was based upon a low dollar and no competition. It was a righteous contract, saying communities should benefit from the resource. However, it is an unsustainable contract because those communities cannot make it in the global marketplace, and in the end it becomes an anti-social contract because trying to keep three mills going, where only one mill can survive, kills all three.
The Chair: We have a full complement of senators. The last senator who came to the table is Senator Mahovlich.
[Translation]
Senator Eaton: I find all this very interesting and disheartening at the same time. We have been hearing from witnesses from industry and academia for almost a year now and I think that it is now time for the Canadian forestry industry to speak with one voice. I realize we are a large country and there are different issues and solutions in each region but would it not be possible to organize a national forestry seminar? Do you not think that would help?
I am aware that the issues facing British Columbia are different from those facing Quebec and the Maritimes but it is a real shame we are not talking to each other. We could learn from one another.
Mr. Chevrette: We have started developing close ties with Ontario. I am sure that you have realized that the surtax issue has been a catalyst for closer links and common positions. However, this has been far from easy since the contexts are different and I have to admit that despite our efforts, results have been mixed.
For example, there are only a few major players in British Columbia whereas in Quebec I am dealing with four major and 130 small-scale stakeholders. I have to consider both small and large-scale operations in my positions. The industry's make-up is quite different.
Buchanan, a major Ontario operator, has laid off workers. It is much easier to deal with Ontario since some of the same stakeholders present in Quebec, such as Kruger, Domtar, AbitibiBowater and Tembec also operate in Ontario.
The four largest operators in Ontario are also members of the Quebec council. As a result, it is much easier to discuss and understand each other's issues, which is not the case with Western Canada. Having said that, we do share some affinities with Saskatchewan and we talk on a regular basis. They too pay a surtax levy.
Senator Eaton: Do you not have any common ground in the value-added forest products sector? Could you not talk to each other to get a handle on the situation in British Columbia and perhaps in the Maritimes? Could products manufactured in Quebec also be produced in Ontario or Saskatchewan?
[English]
Mr. Lazar: In our association, we have a national table; we have CEOs from British Columbia, Alberta, Saskatchewan, Quebec — there is no CEO from Manitoba — and Ontario. They are all there.
Senator Eaton: So you do speak with one national voice.
Mr. Lazar: Yes. Let me tell you what we have been saying consistently to the government over and over again. There are differences, but there are some things we have been clear on. First, government can help us by developing foreign markets. We all say that. That is a huge area, which is a public good, making us less dependent on the Americans and promoting our products.
Government can help us with a wood-first policy, so that we can get more wood into non-residential buildings. Government can help us with more money for R & D — development of innovation, tax credits for R & D. Government can help us with capital for investments in bio-energy and biochemicals and the transforming of our mills. Government can help us with labour training. Government can help us with transportation. Right now, 80 per cent of Canadian forest mills are captive to one railway and our rates are too high.
It is not a problem of lack of consensus. The industry does talk to each other. We talk frequently and we talk with one voice.
Senator Eaton: We have heard from both the concrete industry and the steel industry. They have been saying we do not want a wood-first policy. Please do not have it legislated.
On the other hand, is the forestry industry learning from them? They talk about going into engineering schools, architectural schools and teaching people. Last week, we had the Maritime Lumber Association saying they had a `réunion' with municipalities who came, teaching and encouraging them to use wood. Are we doing this on a national basis?
Mr. Lazar: We are certainly doing that.
Let me point out that Finland and Sweden have wood-first policies, not because they hate concrete or steel, but because they recognize that their economies, their heritage, their culture, their rural communities, have grown up through a forest industry. B.C. has a wood-first policy.
There is nothing in a wood-first policy that prevents other commodities from doing well. Each nation has an identity, and that identity should be reflected in national policies. We are not saying wood first should mean that, when wood is an inferior product or a wrong application that it should be used, but it is time. There are a million Canadians depending upon this industry, with 300 rural communities, and government is saying, "I cannot help you because of softwood or because the treasury is empty or because CN will yell at me."
Here is something government can do that is free, and that would be a reflection of our heritage, that would be standing up for an industry that is quintessentially Canadian. When we went to China and the industry met with the mayor of Shanghai and suggested building government buildings with wood, he was intrigued and asked if he could see the Canadian examples.
It is not a lot to ask for the government to stand up for this industry.
Senator Eaton: I have something useful you could help us do, Mr. Lazar. We know wood stores carbon. When our minister of environment goes out to these conferences, how can you help tell him what a green country we really are?
Mr. Lazar: I will take a minute to reflect upon the answer. I will talk from my industry's perspective, because other industries may have their own points of view.
Senator Eaton: Yes, from the forestry industry.
Mr. Lazar: You are asking specifically about climate change. Let us think about climate change the way it should be thought about, which is throughout the entire life cycle — in the forest, in the factory, in the product, and in the landfill.
In the forest, if you replace every tree that you harvest — which is what we do by law, as well as good practice — and you preserve soil carbon, then you have a completely carbon-neutral production. That is where we are at.
In the manufacturing, if you go to 100-per-cent waste-based renewable energy, you have an astonishing advantage, from a green perspective. We are 60 per cent of the way there; 60 per cent of our production is waste-based renewable. We will get to 100 per cent.
In your product, if you are storing the carbon —
Senator Eaton: Why are we not hearing about that from the forest industry? Why is there not information in magazines and newspapers, saying how green we are and what trees can do for us?
Mr. Chevrette: Because we have no money.
Senator Eaton: I rest my case.
[Translation]
Mr. Chevrette: The Quebec Bureau de la promotion du bois has developed a successful initiative with the QWEB to achieve just that.
Firstly, we have failed to focus on the scientific properties of using wood in construction. Wood captures greenhouse gases. It is the greenest of all building materials. Politicians only talk about environmental protection and going green because it is fashionable to do so. I fail to understand why we do not promote building in wood more.
Secondly, we have also failed to explain to young people that a mature forest, which in industry jargon we call an over mature forest, emits greenhouse gases. Clearing this type of forest and overplanting it with seedlings creates sinkholes. It would be in politicians' interest to promote this fact, which would in turn dispel any myths about lumber clearance or harvesting.
Senator Eaton: I agree with you.
Senator Robichaud: You said that Quebec is experiencing a structural crisis linked to the price of wood fibre. You also stated that the industry must be restructured and refinanced but that in order to achieve this you require borrowing capacity in the form of loan guarantees, which you do not currently have. You have suggested that governments are rather reticent to move in this direction since they fear stoking claims from specific American groups that they have infringed the softwood lumber agreement.
Have you noticed any change in the attitude of federal and provincial governments to indicate a stiffening of resolve and a readiness to move in this direction?
Mr. Chevrette: When AbitibiBowater sought court-ordered bankruptcy protection, we felt that the Quebec government had started to come around to the idea. It provided $100 million in loan guarantees and purchased a North Shore dam to ensure repayment of the loan.
At the federal level, I sense palpable concern when it comes to the lumber agreement. However, ministers asked me for a legal opinion, which I gave them. I also provided them the U.S. document stating that loans are compliant as long as they are made at the business rate. Canadian counsel has argued that loan guarantees are allowed if a business rate applies. What more can I do to allay these fears?
Senator Robichaud: At one point, we won our case but it cost us one billion dollars in the process. Do you think that it is this that makes governments nervous?
Mr. Chevrette: The new agreement provides for an implementation period of one year if the U.S. or Canada decide to pull out. The only relief mechanism is the one-year grace period. No one is giving an inch. If it were not for the economic downturn, we would not feel the effects so much because we could ramp up exports.
Given the current crisis, the U.S. is claiming that it can supply all its own lumber requirements and is therefore monitoring everything across the board. They are monitoring Grade 4 in British Columbia, operations in Ontario and Quebec and over quotas in Alberta. Saskatchewan, which has remained within its quotas, is nevertheless required to pay a 10 per cent surtax. They are playing hardball. We have met with Natural Resources Minister, Mr. Paradis, and we are scheduled to meet with the International Trade Minister, Mr. Van Loan, in the near future with a view to developing a position before the agreement runs out. We have a serious choice to make. Do we renew the current agreement as it stands or do we seek to renew with amendments? If we suggest amendments what amendments will the Americans seek? We have to do some serious analysis so as to avoid penalizing the Canadian forestry industry.
Senator Robichaud: In actual fact it would not cost the government much to accede to your requests.
Mr. Chevrette: There are always risks associated with loan guarantees. There is no getting away from that fact. I do not want to trivialize the risks, especially in the current climate. Of course governments must assess each file to ascertain which operators have the greatest chance of weathering the economic downturn. Those that make the grade, in my opinion, should be eligible for loan guarantees. We can more or less predict when the recovery will come. We are already starting to see the first signs of a turnaround now. Green shoots are starting to show. However, specialized firms are all telling us that the recovery will be slow, especially in the lumber industry, and will not peak until 2013 or 2014. That is a very slow recovery indeed. We have already experienced rising prices but the volume is not there. This is giving cause for concern.
It goes without saying that governments have to proceed with caution since they are dealing with taxpayers' money. However, I do think that they should support the refinancing of the most robust operations so as to ensure the survival of the heavyweights in the forestry industry right across Canada. Some operations need refinancing to get them through the downturn. Others require new equipment to improve productivity. Credit has dried up. Banks are hesitant to lend them money. As a result, industry has turned to government either through Economic Development Canada at the federal level or Investissement Québec and Société générale de financement in Quebec. Of course, I know it is not easy but if they are available in other sectors why not do the same in the forestry industry? That is all I really have to say on the matter.
[English]
Mr. Lazar: I will add a few words to that. Having legal opinions saying we can do it does not mean they will not come after us. Our experience is that, when we have been right, we still suffered mightily by their capacity to put on tariffs and countervails. By the time it is all settled, even if we win the case, we have lost the commercial war. There are grounds for caution because we have suffered deeply.
Our vulnerability is probably bigger now than it has ever been because the definition of dumping is selling it below production cost. Who has recovered production cost over the last three years on either side of the border? There is a real vulnerability.
There is also a vulnerability that comes from the U.S. protectionist sentiment at a time in which their economy is in a fairly delicate position, and where the concept of jobs going offshore is a big part of the Democratic Party's rhetoric. It would be easy to get caught in that, and for them to tear up the softwood lumber agreement and come after us.
There is a fair case to be made for an excess of caution on this, but in one area we have successfully had government support for the industry, without any American reaction, and that is in the greening of the industry. The billion dollars that the government spent on the green transformation, the green upgrades of the industry, got not one word of objection from the Americans. The agreement is quite clear that you can spend on environmental measures.
Take the fact that the future of the industry would be much sounder economically if we invested in bio-energy and biochemicals, and take the fact that the whole country's greenhouse gas performance would be improved, and that this is help to the industry that would be softwood safe. Again, I would encourage your report to suggest funding for the capital transformation of the industry on a loan basis, because the stuff will pay for itself, and there we would be relatively safe with the Americans.
Will this save all the sawmillers? Will it save everyone who is in trouble? No, but that might be beyond the government's reach. Some people may say that saving everyone is not necessarily what you are looking for in an industry transformation.
[Translation]
Senator Robichaud: How much time do we have to restructure? The situation is going to start to deteriorate at some point.
Mr. Chevrette: It started to go downhill a few years ago. Take newsprint for example. I would go as far as to say that almost half of Quebec mills have closed. Others will follow if we fail to boost our competitive position with the U.S. from the fourth to the second quartile. I do not want to make any predictions and I hope that I am wrong. In my opinion, we still have 500,000 tonnes of excess newsprint capacity. Just imagine the situation mills would face if demand dried up. They would have all this newsprint on their hands. It is an integral part of their production costs.
As I mentioned earlier, the situation in this sector is becoming urgent. Two of the three newsprint mills have been placed under the protection of the Bankruptcy Act. Kruger is the only Quebec newsprint operation not under Bill C- 36.
[English]
Mr. Lazar: That is company structure rather than economic. Let me just add to that. Given that time is short and the industry is moving and we need government policy to move, we would love to see your report. We are growing trees a little faster than you guys are getting it written.
Senator Plett: I have a few questions. You commented, Mr. Chevrette, about the pulp and paper industries. Is that not one of the largest reasons for pulp and paper industries shutting down right there? That and computers? We are in a paperless society? Correct me if I am wrong, but I do not think that government can help there. They can certainly help in other areas, and biomass intrigues me, and I will speak about that, but I do not think government can help in keeping our pulp and paper mills open if we do not want to use paper.
[Translation]
Mr. Chevrette: I totally agree with you. What is most surprising is that newsprint consumption is on the rise across the world. It does not make any sense at all.
Let us at least look at the facts. Of course the Internet is the underlying reason. When more books are available on the Internet, the price of newsprint will drop again.
It is important that you be ware that, as far as competitiveness is concerned, we are in the second rather than the fourth quartile. However, that does not necessarily mean that it will be operations in Quebec and elsewhere in Canada that will close. It is possible that it be newsprint producers in other countries, including the United States, that will disappear.
However, Quebec operators are currently the ones being hardest hit. They are the least profitable and competitive. As a result, it is Quebec paper mills that are closing. We are currently in discussion with the Minister of Development and Innovation, Mr. Gignac, to find ways of boosting our mills to the second quartile to avoid closure.
I do not blame the government for the downturn in the newsprint market. However, it is possible that newsprint does not impact lumber. Indeed, we have a letter from the American coalition stating that this is in fact the case for pulp and paper.
Therefore, we have all the information we need. We are legally able to make basic corrections in order to ensure the survival of as many pulp and paper mills in Canada as possible. This is my message to you. As for the billions of dollars in federal funding, Quebec has benefited but to a lesser extent than British Columbia. This is due to the fact that Quebec mills use a thermo mechanical process rather than the chemical process used in British Columbia.
[English]
Senator Plett: Let me apologize if you had the impression I said it was government's fault. I did not read that into your comment.
I read into your comment that government could help. You say that the paper industry is on the rise. I believe that rise alone should help the pulp and paper mills. I own a Kindle. I no longer buy books at the store; I buy books on my Kindle.
Mr. Lazar: To be clear, projections from the United Nations for pulp and paper and wood products see demand rising year after year. Canada's probable niche will be for more pulp than paper because paper tends to be manufactured closer to the place of consumption. North American paper consumption will continue to decrease. Global paper consumption will continue to increase.
I repeat that, over the next 20 years, global population will increase by the equivalent of the current population of China. Emerging economies will triple their per-capita income. Global GDP, gross domestic product, will double.
Even if people use one-tenth of the paper we now use in North America, demand will be huge. Where it comes from depends on the industry's structure. Again, the limiting factor in producing pulp and paper is land and water. If you have good arable land, you can always grow a tree, cut it down and produce pulp.
The United Nations' forecast for availability of arable land is exactly half of their projection for pressures on arable land. Food, protein and biofuel production will compete with pulp production. That will put Canada and other boreal nations at a tremendous advantage. If there is one thing we can say about the boreal forest, it is useless for everything except nature, forestry and canoeing.
I would put those competing usages in reverse order, but I understand this is not a canoeing committee.
Senator Plett: I also want to touch on the free trade agreement. You suggested at the start of your presentation that Canada left $1 billion on the table and that we should play hardball. I probably agree with both of those statements.
However, we sometimes get more from a negotiated deal by focusing on friendship as opposed to demanding — playing hardball.
Consider interest costs, legal bills and the rise of the Canadian dollar against the American dollar, what do you think the benefit would have been to hold out? How could we have negotiated a better deal? I am not suggesting Canada could not have negotiated a better deal, but what would be the upside of holding out?
At least we finally have a deal. We need to be friends with the United States. We have had good relationships with the United States in the past. They have been strained at times, and I believe the relationship is currently on the rise.
[Translation]
Mr. Chevrette: I arrived in May right in the middle of the negotiations and I have to tell you that the Quebec industry was so cash strapped that everyone was at each others' throats. The negotiation of the settlement was a source of much bickering between members.
After attending the hearings, I came to the conclusion that Quebec operators would never have signed the new agreement had they not been so financially starved. I remain convinced that they would have continued on with negotiations and would not have signed the agreement in its current form. However, it was a short-term lifeline for many paper mills.
I still believe this. I witnessed it with my own eyes and no-one can tell me different. Operators were saying that if it were not for the funds in trust, they would have had to declare bankruptcy. They preferred to leave a billion on the table and walk away with four of the five billion dollars. I have to tell you that the majority of stakeholders were not in favour of the deal. The paper mills only signed on to it because otherwise they would have quite simply had to shut up shop.
I witnessed the negotiation process first hand and I believe it should have been more flexible. Remember we had won all the arbitration during the negotiation of the previous agreement yet we still ended up leaving money on the table.
People were angry and were asking what the point of winning arbitration was if they ended up always having to leave money on the table anyway. This was a very natural reaction. I believe that had the industry been in good financial shape, it would never have signed the agreement.
As far as the negotiation model is concerned, that is something lawyers will have to thrash out. That will cost a small fortune. The actual negotiations themselves cost an arm and a leg. Let me tell you how much the negotiations cost my council alone. They set us back $5 million in legal fees. Arbitration or negotiations are both expensive. All it takes is two lawyers and its costs even more.
[English]
Mr. Lazar: There are more productive questions than to second-guess what was done in the past. However, could Canada have negotiated a better deal? Who knows? I have negotiated many things. Whenever I come back from negotiations, someone tells me I could have done better, but I did not see them do better than me.
When Canada reached the deal, none of us thought it was pretty; it was a pig of a deal. If we had not had that deal in place over the last three years, Canada would have been in profound trouble. Whether we could have reached a better deal is like having a beer after a hockey game to decide if so-and-so should have passed the puck. Make they should have; maybe they should not have. However, frankly, the game is over and the deal saved our bacon. If we did not have a deal over the last few years, with the prices the way they were, the Americans would have killed us.
Senator Plett: I am sorry that you do not like the questions I asked.
Mr. Lazar: I did not mean any disrespect.
Senator Plett: You talked about playing hardball. The point I am making is that someone was playing hardball too, and maybe they had a larger bat than we did.
Mr. Lazar: Point well taken.
Senator Plett: If you want a report, for which are you quite anxious and I am also, I will ask the questions that are relevant to me.
Mr. Lazar: I apologize for the remark.
Senator Plett: Fair enough. My last question is in regard to bio-energy. In terms of total resources available at ground level, such as dead branches, bark on the ground and logging waste, what volume of biomass is available in Canada? You may have answered that at the start in your presentation.
Mr. Lazar: I did in a roundabout way because I do not have the actual number at my fingertips of the actual volume of biomass, but the energy potential of the readily available biomass is equivalent to the energy output of six nuclear reactors. That is quite carefully without vacuuming up the forest floor. We are a bit worried that the enthusiasm for biomass production could be an ecosystem disaster if we sweep up every bit of stored carbon from the forests in order to burn it in the name of the environment. However, if it were just using the waste stream, so responsible biomass production, we could output the equivalent of another six nuclear reactors and it would be economic.
Senator Plett: You have to pardon my ignorance. I do not know how much energy one nuclear reactor outputs. I would like something a little more specific.
Mr. Lazar: I will get the exact numbers. I am sure it is here in the report. I have to apologize; I have almost no capacity to remember numbers. A nuclear reactor seems to be a unit of count that my intelligence is capable of retaining. We will send you the actual numbers in biomass, volume and tonnage, and in kilowatt production.
Senator Lovelace Nicholas: I would like to apologize to the chair and the witnesses for being late.
You are the CEO of a Canadian association. Do you have any First Nations people involved with this association?
Mr. Lazar: We have a memorandum of understanding signed with the Assembly of First Nations for economic development, which we are working very actively on, working on youth education and training. We also have a First Nations entrepreneur-of-the-year award, which we presented at a ceremony last year. Actually, I started to cry when I was presenting it because it was given to a woman whose husband had started a forest harvesting business up in Northern Quebec. When he died, he made her promise to keep it going for the community and, despite many adversities, she did.
The forest industry is the largest industrial employer of First Nations. Perhaps even more interesting is we have thousands of business-to-business relations with First Nations.
[Translation]
Mr. Chevrette: In Quebec we have the Cree and Innu nations. I set up two mills when I was Minister of Indian Affairs. Mr. Lazar stated that we could increase the labour pool by training more Aboriginals. They already live in rural areas where they are needed. They are not city dwellers. They would be an extraordinary source of labour. I am convinced that we have to focus on training aboriginals.
[English]
Senator Lovelace Nicholas: Just one more question. You talked about the future. What about partnering with First Nations on their land? I would say that would be cost effective.
[Translation]
Mr. Chevrette: There are two things we have to bear in mind. Firstly, there is the issue of Aboriginal land claims leading to treaties or agreements. Secondly, there is Aboriginal control of resources. I think this is an ideal partnership. Having been the Quebec Minister of Indian Affairs for six years, I have to admit that we have a tendency to pass them over. We throw lots of money at them without any follow up. It was to remedy this situation that we build a very successful mill in Obijwan, north of La Tuque in the Mauricie region of Quebec. I was present at the opening and it has been remarkable to see how the young people we trained have flourished in the workplace.
We replicated this initiative in the Cree area of Waswanipi, where we built a Domtar-affiliated mill. The one we built in Obijwan was affiliated to Donohue, which is now AbitibiBowater. I firmly believe that we need to promote partnerships. These initiatives would provide for the training of managers and workers and allow for the aboriginals themselves to take control of the operation within a period of five to ten years let us. I think it is a great mistake not to train people. The key to success is training for both managers and workers.
[English]
Senator Marshall: How much reforestation is being carried out, is this sufficient, and who bears the cost? Is that an issue?
[Translation]
Mr. Chevrette: Approximately 20 per cent of harvested areas are artificially reforested. Eighty per cent of a cleared forest regenerates naturally. However, there are times, following forest fires, for example, where we have to scarify and then replant. How much does all this cost? Reforestation initiatives are covered by the stumpage fees paid by operators. Stumpage fees are levies, which government uses to set up reforestation and silviculture operations. Young people are employed as planters. They are either paid a wage or on a piecemeal basis.
Annually, approximately $80 million to $90 million are allocated to silviculture in Quebec. As for the amounts allocated strictly to reforestation initiatives, I am not in a position to give you exact figures since silvicultural operations also include commercial thinning, which is not strictly speaking reforestation.
[English]
Senator Marshall: Is any of that subsidized by the provincial government or is it totally by the companies?
Mr. Lazar: It is a condition of the company's contract with the government that they have to completely reforest. In Canada, reforestation is a question of law. By law, we have to plant and regenerate all the forest we harvest.
In some ways, that is the lowest bar. Just replanting a bunch of trees is the lowest bar of environmental performance. That is why we have gone to forest practice certification, to raise the bar beyond simple regeneration of the forest. The certification standards require that, first, you harvest in a way that leaves riparian zones, animal movement corridors and areas needing special protection left alone. Secondly, that your harvesting methods allow the returning of the natural ecosystems. These are not tree farms. These are forests. In fact, it is both our advantage and disadvantage in Canada because most of our competitors destroy the forest and plant a tree farm. In Canada, the way we do it is we actually try to harvest within natural forests.
This allows us to enjoy both the ecosystem services and values and wilderness values of a natural forest and, at the same time, allow forest communities to earn a living. It is more expensive but it is actually higher value to the country.
I wonder if things we expect will happen, as there is more pressure on agricultural land, working in a natural forest may turn out to be an advantage. As the global population comes to better appreciate the value of communities living within nature rather than cutting it down, our model will prevail.
Right now, most deforestation comes from areas in which a community cannot earn a living from its forest. If you go to places in Indonesia, Africa or South America where there is deforestation, the only way you can earn a living is to take down the forest and put in soybeans or start to manage cattle. In Canada, we have the model where a community can actually earn its living by keeping the forest healthy. It is not just reforestation; it is sustaining ecosystem values.
Senator Marshall: To elaborate on keeping the forest healthy, is there an issue with regard to pest disease? Do your organizations take positions on issues, or forest fire protection or things of that nature?
Mr. Lazar: Yes, we do. We have a strong position against disease. So far, we have not prevailed. The pests have beaten us back. The natural disturbance patterns in the Canadian forest involve huge fires. In the boreal forest, the natural disturbance pattern is either small or huge fires, and the forest regenerates from that. It is hard to mimic natural disturbance patterns in our forestry because the huge burns would be considered to be clear cuts, whereas in fact it is actually the way it happens naturally.
In a normal year, insects and fires take six times as many trees as forestry. We are bit players in the consumption of wood compared to fires and insects. Of course, we have had the disaster of the pine beetle in B.C. and Alberta, and it is marching towards Saskatchewan. Most scientists believe it is partly a result of climate change. Some are saying it is partly forest management. Then you have the natural tension between allowing the natural cycle of fires and burns and human management of the forest in a time in which you have sensitivity to greenhouse gases. If you have a big forest fire, all our greenhouse gas savings seem pitiful compared to nature doing its thing.
[Translation]
Mr. Chevrette: As far as insects are concerned, they are a cyclical phenomenon. Spruce bud moths operate on 20 to 25-year cycles in Quebec. They were already a problem, and even more so, 25 or 50 years ago. I remember there being more than there are today. Some scientists contend that infestations are due to global warming but the fact is that these insects have cycles.
The spruce bud moth is spreading throughout Quebec, especially on the North Shore. They are now also present in the Lac-Saint-Jean and Outaouais areas. We are waging a war — if you will pardon the expression — because chemicals treatments have been prohibited and we are now only allowed to use environmentally-safe substances to deal with outbreaks.
A lot of work is being done in this area. I sit on the board of Socfin, which is an insect-management company.
[English]
Senator Marshall: Considering the impact that forest fires have on the forest, is what the provincial governments are doing sufficient with regard to protecting the forests? It is their responsibility.
Mr. Lazar: They could always do more, but there is both a social and a scientific question to be answered: To what extent do you want to suppress fires below the natural occurrence? If you suppress them too long, the forest litter builds up, and then you have huge conflagrations. We do not have a position as to whether or not the provinces are doing enough, except in some particular fires. Frankly, what they do is so heroic when they do it that we tend to stand back in awe.
[Translation]
Senator Rivard: Mr. Chevrette, I made myself a couple of notes when you were talking about the pulp and paper industry and I think that you have already answered most of my questions. However, would I be right in saying that the industry has reached rock bottom or are there further closures to come?
Mr. Chevrette: I firmly believe that the newsprint industry has yet to bottom out. Our members contend that there is still excess capacity to the tune of 500,000 tonnes. Nevertheless, they are trying to ensure that a maximum number of plants survive competition from the U.S.
Senator Rivard: Would it be safe to say that the United States continues to be the major customer for newsprint manufactured in Quebec or elsewhere in Canada?
I am thinking specifically of the La Malbaie mill, which if I am not mistaken, sells all of its production to the Chicago Tribune. Is this still the case?
Mr. Chevrette: I think you are right. Rivière-du-Loup, for example, supplies the White Birch newspaper in the United States. We export very little newsprint to Asia, yet India and Asia in general are a huge untapped market.
Mr. Lazar: We should be focussing on boosting exports of pulp. Abitibi Bowater already exports a lot of newsprint to Asia. However, in the medium or long term, the Chinese will start manufacturing their own newsprint and our industry will have to focus on pulp production.
Senator Rivard: Is it also true that Brazil is a major competitor for Canada in the U.S. market?
Mr. Chevrette: It is in the broadleaf pulp market because they have quick growing eucalyptus. These trees can reach harvestable size in only eight years while it can take trees in Canada like the poplar 25 or 30 years to reach maturity.
Obviously, the over-harvesting of Brazilian forests has been criticized throughout the World, and rightly so in my opinion. As you know, the Brazilian forests are the lungs of the world and governments should work together on this issue. We cannot really do much from our end. I could not really swear that I do not have any members importing Brazilian wood.
If they do, it is due to specific business-related issues that we are unaware of. Even if we were aware of the practice we could not admit it publicly. We are a council of individuals with no single approach to business. We are all in competition with each other. None of the hundred members would be overly upset to see one of the others disappear since that would mean a bigger market share and one fewer competitor.
I have experienced the two extremes: a teacher's association in total unity and my current council with members marching to different tunes.
Senator Rivard: Mr. Lazar, you gave a figure of 825,000 Canadian jobs, including 190,000 in Quebec. Do these reflect the current state of affairs or the situation before the downturn?
Mr. Chevrette: These are pre-downturn figures. Quebec has shed 60,000 of the 190,000 direct, indirect and spin-off jobs.
Senator Rivard: Do you think that in light of the time it will take to recover from this slump and assuming that the current trend continues, that 2013 is a realistic target for a return to previous employment levels?
Mr. Chevrette: The workforce will not be the size it once was and I am sure that many operators will have closed up shop by then. There will be fewer operators, greater efficiency and production will be nothing like it used to be. It is important to remember that 20 per cent of lumber resources were harvested barely five years ago. There will therefore be fewer players, a smaller workforce and probably more specialized equipment and new products.
Will new niche markets, for example, generate many new jobs? We hope so. However, if we continue to focus solely on current products and markets, there will be fewer stakeholders and operators.
[English]
Mr. Lazar: According to government statistics, the direct and indirect is 604,000 nationally. The direct employment is about 238,000. It is true we have lost a lot, but you are still talking about 600,000 Canadian jobs. Even if nothing comes back, it is still the single largest industrial employer, still more than the big car manufacturers combined, still the lifeblood of many communities.
When you lose a lot, people tend to forget how much is left. It is 250,000 Canadians' direct employment, and then all the other parts.
Will it come back to previous levels? No. Should it? Probably not. Will it stay and be strong? Absolutely.
[Translation]
Senator Rivard: On April 26, the Minister of Canadian Economic Development, Mr. Lebel, announced $100 million in funding specifically to help Quebec forestry-based communities. I think I remember reading somewhere Mr. Chevrette that you had said this was too little too late. I can see that you have not lost your political instincts. However, I would imagine that once a politician always a politician. The opposition in the House of Commons automatically says that every announcement is too little too late but I was surprised by your reaction since you represent industry. Why did you react in the way you did?
Mr. Chevrette: I am pleased to hear you say that I have not lost my political instincts but I did not come here today to engage in political debate. I am here just to make a presentation. I will tell you however that I will reserve judgement until I have seen the terms and conditions. I personally telephoned Mr. Lebel's communication officer to ascertain whether the terms and condition had been published. He told me that they would not be available for between three weeks and a month. I will reserve my judgement until then because you know as well as I do the devil is in the detail.
[English]
Mr. Lazar: He remembers his political instincts. He knows how to dodge. With Mr. Chevrette, it is a rare occasion.
[Translation]
Senator Duffy: It is a great pleasure to meet you this evening, gentlemen.
[English]
It has been a long time but the issues remain the same. I have a couple of quick points. How much money do you need in your green fund? As much as possible, but in realistic terms, what kind of money do you think would be reasonable to expect for these revolving bonds?
Mr. Lazar: If I was doing it, I would look at what is happening among our competitors in Europe, the United States and China. You are talking about mega-billions. I would not do it specifically for the forest industry; I would do it for the renewable energy industry, because I know the forest industry can be a real powerhouse within the renewable energy industry.
I would put a minimum of $5 billion, although I think the country would be better off with a $10-billion revolving fund. That being said, that money can be infinitely renewable. Remember, it is a revolving fund; it is repayable.
Senator Duffy: As long as we do not lose the payees.
Senator Robichaud: We are going to lose them anyway.
Mr. Lazar: Would $1 billion help? Of course, $1 billion would help. Would $2 billion help? Of course, $2 billion would help. Given that it is a loan and repayable, and it is not the type of loan to help someone who is at the brink of disaster save themselves, but rather for the creation of bio-energy, I would not do it for the industry; I would do it for the renewable energy industry and we will make use of it.
Senator Duffy: How would it be administered, by bureaucrats in Ottawa or would it be given to the industry to dole out among its members? How do you see it working?
Mr. Lazar: I would have it managed by an independent panel. I would not give it to the association. Handing out the money might be the end of my job.
Senator Duffy: You are handing out guarantees.
Mr. Lazar: I would have the Canadian renewable energy green bond program, a revolving fund with a panel of bankers — and senators, of course.
Senator Duffy: It would be a kind of Crown corporation.
Mr. Lazar: That is right, having a professional staff.
Senator Duffy: That is good.
Mr. Chevrette, you mentioned a video documentary on the forestry industry. Can you tell us a bit about that and what is wrong with it, for people who see it? How does it compare to the truth?
[Translation]
Mr. Chevrette: It is a film by the singer Richard Desjardins called L'Erreur boréale. It does not accurately portray the real situation. While a cleared forest may be very ugly for one, two or three years, all traces of the lumber operation have disappeared in the space of seven or eight years.
I made a short film lasting seven minutes and two seconds to be precise of a fell site eight years on. I will send it to you. You will see the difference. However, the perception among millions of Quebecers bears absolutely no relation to the scientific reality of the situation.
You might also wish to take a look at a film by Patrick Moore, the co-founder of Greenpeace. I have had it translated into French for the Quebec audience. I will send you a copy of that too.
[English]
Senator Duffy: Finally, on the national policy on the use of wood, Wood First, do you remain confident that this would not be countervailable by the Americans?
Mr. Lazar: Yes.
Senator Duffy: On the basis of your $5-million-a-year lawyers?
[Translation]
Mr. Chevrette: This is a domestic market issue and has nothing to do with the Americans. A way of boosting the domestic market would be for governments to encourage municipalities across Canada to develop a policy requiring a specific percentage of wood in their public buildings. This would have nothing to do with the Americans.
[English]
Senator Duffy: It is similar to their "Buy America" program.
Mr. Chevrette: Similar, yes.
[Translation]
Mr. Chevrette: Some European cities and even countries have set compulsory targets for wood content in buildings of 5, 10, 15 or 20 per cent.
Senator Eaton: France.
Mr. Chevrette: France has regulated in this area. It would be a positive step for governments, provinces and even political parties to promote this initiative nationwide as a way of tackling the downturn.
Senator Duffy: Do you have a percentage in mind?
Mr. Chevrette: Do you mean the overall target?
Senator Duffy: Yes.
Mr. Chevrette: It is very difficult to say because it will never be implemented.
[English]
Senator Duffy: How much wood would you want?
[Translation]
Mr. Chevrette: I would advocate a minimum of 20 per cent.
[English]
Mr. Lazar: Twenty-seven per cent.
Mr. Chevrette: Yes, your number; I agree.
Senator Plett: You suggested B.C. does have a wood-first policy and Quebec does not. Is this something you should be going after the provinces for, as opposed to the federal government?
Mr. Lazar: Not as opposed to — in addition to.
Senator Mahovlich: I am sorry about being late. You mentioned Asia and China. Did China ever have a forest?
Mr. Lazar: China had a forest. They are actually planting a lot now.
Senator Mahovlich: Are Canadians helping?
Mr. Lazar: Yes, but most of their forest production in China right now is not for harvesting but rather for ecosystem services. They are planting to avoid erosion, to have some sort of minimum critical mass of nature. No country in the world, with the exception of the boreal countries — Russia, the Scandinavians and us — in the end will have forests capable of this sort of production, except in tree farms.
China will not be a competitor to us in fibre production. They will never come close to their own demand. They will be a competitor to us in manufacturing. Once you get above lumber and pulp, they will produce for their own market and compete with us in our markets, but not in actual trees.
Senator Mahovlich: They will buy our raw product. They will, say, take a tree and put it in a bin and send it to us.
Mr. Lazar: No. The situation will not be that bad. Canada will harvest and do the first- and second-order processing. We will turn the trees into pulp. In doing so, we will extract bio-energy, biofuels and biochemicals.
Our dream over the years has always been whether we can continue up the value chain in terms of manufacturing. The industry does much of that, but it is hard to compete on global markets with anything labour intensive unless processing is close to the resource.
Extracting wood, pulp and paper, bio-energy and biofuels is close to the resource, and Canada is competitive. Once you go up the value chain, we end up working for Chinese wages.
People often look at Ikea in Sweden, which is a high-wage country. Almost all of Ikea's manufacturing is done in China and Eastern Europe. Ikea spokespersons make ads talking about Swedish meatballs with their charming accents, but the manufacturing plants for their products are not in Sweden.
Senator Mahovlich: The Chinese have a lot of earthquakes and catastrophes where many people die — 2,000 or 3,000 people die in an earthquake. Their homes simply collapse because they are made of clay. Do the Chinese know that a wood home is more substantial than a clay home?
Mr. Lazar: Wood is better than substantial; it actually bends. We have a Canada wood export group based in China to demonstrate building with wood in earthquake zones. To give the Canadian government credit, both provincial and federal governments help to fund this initiative.
Senator Mahovlich: A wooden home is much safer.
Mr. Lazar: After an earthquake, we push safety factors in trying to market our products, but it is hard to break from traditional building materials.
Senator Mahovlich: The Chinese do not know how to build.
Mr. Lazar: The way my father built a house is always better than the way some other guy tries to teach me to do it. It is hard to break the cultural fix in this regard.
[Translation]
Mr. Chevrette: China is not the only country facing this problem. Haiti went through the same thing recently.
We have developed an initiative to build wooden houses, which have been tested and proven to withstand earthquakes of up to eight on the Richter scale. Wood is much safer than concrete, especially non-reinforced concrete, which is used in some countries where they add thinner to cement. We are not talking Ciment Saint-Laurent here.
[English]
Mr. Lazar: Asking for the advice of both Mr. Chevrette and me before a hockey game is a mistake. We are both capable of talking for a long time.
[Translation]
Senator Robichaud: There is focus on bio-industries and biomass energy generation. How have we missed out? There is also focus on wind-based energy. Wind turbines are being built across New Brunswick, which I am sure has fibre and biomass that could be used. Wind turbines have been erected on Prince Edward Island and all across New Brunswick. You can see them everywhere.
Why has the forestry industry failed to carve out a role for itself in the area of energy generation? Does the technology not exist? The basics are not in place.
Mr. Chevrette: There have been initiatives. A church in Temiscamingue has been heating using biomass since 1950 and people are starting to discover the benefits of biomass. I have read and listened a lot on the issue and I have to tell you it is because we have failed to develop policies to promote the use of biomass. We have opted for soft energy sources like wind power. However, Danes might find themselves eating dinner in the dark if the winds fail.
Canada is lucky enough to have several different sources of energy. This is especially true in Quebec, which produces and stores hydroelectricity. It would be a fantastic idea to use wind and hydropower where viable as well as biomass to heat homes and public buildings. I believe this is the way of the future. Things are changing. The ideas you and I had 50 years ago bore absolutely no relation to the ones we have now.
Senator Robichaud: Not entirely, we did not have the means either.
Mr. Chevrette: I have to admit that I would like the means but above all the capacity.
Senator Robichaud: I think we should deal with this in our report in order to educate the government and the general public to the opportunities. The current focus is on wind and atomic energy as well as on wave power in the Bay of Fundy. They are all prohibitively expensive and require the building of technological infrastructure. However, all the requirements for biomass are already available on site, would you not agree?
Mr. Chevrette: There has to be a balance. I am quite certain that if we remove all the biomass and leave the ground completely bare, we will run foul of the environmental movement. We have to harvest it on a smart scale if we are to avoid renewed conflict with environmentalists.
The Chair: To conclude our meeting, we would like to present you with the initial interim report on the past, present and future of the Canadian forestry sector. While we are aware that forestry is a provincial and territorial jurisdiction, we refer on page 30 of the report to "federal involvement in the forestry sector since Confederation in 1867."
We quote you in the report, Mr. Lazar. Mr. Chevrette, I would like to point out that the report also mentions Mr. Yves Lachapelle. We will provide you with a copy.
[English]
At the end of page 33 of the English version of The Canadian Forest Sector: Past, Present, Future, we do have the assistance in the forestry sector since the beginning of 2009, including the $1 billion for environmental performance and also the $1 billion for the community adjustment fund.
In respect to that reference, we have 30 seconds for each of you to make closing remarks.
[Translation]
Mr. Chevrette: While I am a Canadiens' fan, thank you anyway for having invited us to testify. We are reassured to know that there are people willing to listen and understand.
The Chair: On that note the meeting stands adjourned.
(The committee adjourned.)