Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 1 - Evidence - Meeting of April 21, 2009
OTTAWA, Tuesday, April 21, 2009
The Standing Senate Committee on Agriculture and Forestry met this day at
5:10 p.m. to study on the current state and future of Canada's forest sector.
Senator Percy Mockler (Chair) in the chair.
The Chair: I declare the meeting in session.
I welcome you to this meeting of the Standing Senate Committee on Agriculture
and Forestry. Thank you very much being here.
I am Percy Mockler, from New Brunswick, and I am chair of the committee.
I would like to invite all members of the committee to introduce themselves.
I would like to ask the members of the committee to introduce themselves. I
will start with the deputy chair of the committee.
Senator Fairbairn: I am Senator Fairbairn, from Lethbridge, Alberta,
in the south part of the hills in the Rockies. I have been on this committee for
quite some time, and I am delighted that we are able to speak to those across
Senator Eaton: My name is senator Eaton, from Ontario. I was just
appointed senator and I am a new member of this committee.
Senator Poulin: My name is Marie Poulin. I have been representing
Northern Ontario in the Senate since 1995. I think that, with the staff and
members of this committee, we will meet our objectives, and our study will be
fruitful and will support Northern Ontario growth.
Senator Cordy: I am Senator Cordy, from Nova Scotia. This is my first
time. I am brand new to this committee.
Senator Poy: My name is Senator Poy. I am here to replace Senator
Mahovlich. I did not know that this is the very first meeting. I have never
attended the agricultural meeting before. This is my eleventh year, and I will
find out how interesting this committee can be.
Senator Mercer: My name is Terry Mercer, from Nova Scotia.
I have been a member of the committee for five years now.
The Chair: I will ask the senator who just arrived to introduce
Senator Meighen: I am here to replace senator Duffy who had a minor
surgery, as I was told, and who has to take some rest. This is not the first
time I attend a meeting of this committee. As my knowledge of these issues is
somewhat limited, I am here to learn.
The Chair: Today is our first meeting about the current state and
future of Canada's forest sector.
In order to gain an overview of the forest industry, the first phase of the
study is to gather more global information. On that, today we have Assistant
Deputy Minister Jim Farrell, who will make a presentation.
Mr. Farrell, we thank you for accepting the committee's invitation to appear
today. I would now invite you to take the floor and make your presentation.
Jim Farrell, Assistant Deputy Minister, Natural Resources Canada:
Thank you very much, senators. I have a short presentation that presumably we
will follow with some questions and answers afterwards.
I thank you for the opportunity to speak to you about some of the challenges
facing Canada's forest sector and the role that Natural Resources Canada is
playing to address them.
As you are no doubt aware, the forest industry in Canada is in the midst of
probably the most difficult period that is perhaps unprecedented in living
memory. The situation is a result of a confluence of factors, some of which are
cyclical in nature and others that are structural.
While segments of the industry, such as lumber and other wood products,
generally prospered through the middle years of this decade, other parts of the
industry, the newsprint sector for example, were challenged by factors such as
declining North American demand and increased global competition.
More recently, the sharp weakening of the U.S. residential construction
market, combined with the global economic downturn and tightening of credit
markets have resulted in a situation where virtually the entire industry is
facing an extremely difficult operating environment. Since 2003, employment in
the forest industry has declined by nearly 100,000 jobs across Canada, with some
20,000 lost in 2008 alone.
Despite these difficulties, there is reason to believe that over the longer
term, growing global population, combined with rising incomes in key markets,
will create new opportunities in global markets for Canada's wood products
sector. In addition, a number of emerging technologies in the forest sector open
up the possibility of creating new markets for wood fibre-based products ranging
from petrochemical substitutes to green power and cellulosic ethanol. The
development and commercialization of these technologies creates the possibility
of generating new economic opportunities and once again attracting investment in
Canada's forest sector.
Through the 2009 Canada's Economic Action Plan, the Government of Canada is
taking a series of measures that will help the forest sector, as well as the
workers and communities that depend on it. These measures include: improved
access to credit for businesses and consumers by providing up to $200 billion
through the Extraordinary Financing Framework; extended, accelerated capital
write-offs; eliminating tariffs for a range of capital investments in equipment
and machinery; $1 billion over two years for the Community Adjustment Fund to
help moderate the short-term impacts of restructuring in communities, including
agriculture, mining, fishing, manufacturing and forestry; $8.3 billion toward
the Canada Skills and Transition Strategy to help Canadian workers and their
families through training and benefits, including the extension of the
Employment Insurance Work-Sharing program; and $7.8 billion in tax incentives
and funding for residential renovation and construction projects that increase
domestic demand for lumber by as much as 1 billion board feet, while also
increasing demand for other building products.
More specifically for the forest sector, last week in Quebec City, Minister
Raitt announced the details of $170 million in funding over two years for
measures specifically designed to secure a more sustainable and competitive
forest industry. These measures include $40 million for the renewal of the
Canada Wood Export Program, the North American Wood First Initiative and the
Value to Wood Program.
Working in partnership with provinces and industry, the Canada Wood Export
Program helps to grow demand for Canadian wood products and targets overseas
markets, including China, South Korea and Europe, through education promotional
activities and work on building codes and product standards.
The North American Wood First Initiative focuses on realizing the untapped
potential to increase the use of wood within North America in commercial and
institutional buildings or other end uses outside the residential sector. Last
week's announcement also included $10 million to support large-scale
demonstrations of Canadian-style use of wood for construction in offshore
markets or non-traditional uses of wood in domestic markets.
These programs will showcase Canadian wood products and building systems in
high-profile domestic and foreign markets. They will build on the experience of
the Canada-British Columbia Wenchuan Earthquake Reconstruction Project, where
Natural Resources Canada is supporting the construction of public buildings in
the region of China devastated by an earthquake last year. Beyond its
humanitarian benefits, this project is helping to showcase the value, quality
and remarkable seismic properties of Canadian-style wood-frame construction
In addition, $120 million over two years is being invested in advancing the
development and commercialization of emerging technologies in the forest sector
in such areas as bio-energy, bio-refining, nanotechnology and next- generation
building products and systems. More specifically, this funding includes $80
million for the Transformative Technologies Program, administered by
FPInnovations, as well as $40 million to develop pilot-scale demonstration
projects of new products that can be used in commercial applications.
I will give you an example of a very exciting prospect in innovation. A
consortium of researchers at FPInnovations and universities across Canada is
working on the development of bioreactive, or "smart'' papers that could have
applications such as the development of food packaging that could prolong the
shelf life of food by repelling pathogens, or at least warn consumers of
contamination via colour signals.
Another example is the development of products from the very micro or nano
level of tree fibres called nanocrystalline cellulose. Light and extremely
strong, this material is showing excellent properties in the lab, and, over the
next two years, we will be funding pilot-scale operational projects to move
closer to commercialization.
The Government of Canada recognized that the forest product sector is facing
significant and immediate challenges. Supporting the sector and its workers
continues to be a priority for the federal government as evidenced by the
measures announced in Canada's Economic Action Plan. It also affirms our
commitment to our traditional industries by creating the conditions that will
enable them to succeed by adapting to the emerging market opportunities in the
Senator Mercer: Mr. Farrell, thank you for coming here and starting
off our study. It is important that we start with the federal department. You
are probably one of a number of people we will talk to in the department. We may
want you to come back at some point, and we hope you will be monitoring our
progress so that you may give us direction if we have missed something as we go
along because we are learning as we go.
I am a little confused. In the media this week, we heard the good news that
the Government of Quebec made an offer to AbitibiBowater of some loan
guarantees, I believe it was, and some actual money because of their problems.
However, I was confused by the response that I heard. People talk about the
softwood lumber deal being problematic with this. I do not see the relationship
between paper and softwood lumber.
I come from Nova Scotia, where we produce a large amount of paper. I see a
significant difference between paper and softwood lumber. Perhaps you could help
me, and maybe others, understand why the Softwood Lumber Agreement would spill
over into governments trying to assist paper producers.
Mr. Farrell: One of the provisions of the Softwood Lumber Agreement is
an anti-circumvention clause. Under the anti-circumvention dimensions of the
agreement, Canadian governments, both federal and provincial, are prevented from
offering what would appear to be subsidies that may confer a benefit on the
AbitibiBowater, for example, is a firm that makes wood products, as well as
newsprint and pulp. It is a highly integrated company, as I am sure you know. If
there were to be a subsidy conferred at AbitibiBowater, the U.S. would no doubt
challenge us under the anti-circumvention clause of the agreement.
Senator Mercer: If the Government of Quebec, or any government, who
made this offer were to restrict the aid or benefit to only the paper portion of
their operation, would that help not impose the problem?
Mr. Farrell: It would be difficult to make that argument in an
arbitration hearing. Again, I want to clarify that the action that Quebec took
last week, in our minds in Canada, was not a conferred subsidy. The Quebec
government reacted quickly after the company declared protection under the
Companies' Creditors Arrangement Act and offered what they call
debtor-in-possession financing, which is something that lending institutions
would do as a matter of course to all businesses. In their particular case, they
offered up $100 million under pretty strict conditions of restructuring.
Senator Mercer: I am excited about the Province of Quebec being the
first one off the mark to do this. I would like to explore that further with
them at some other date. I am not being critical of them but trying to find out
In your presentation, you said that, since 2003, the industry has declined by
nearly 100,000 jobs, and 20,000 jobs were lost in 2008 alone.
I know this is only April, but much has been happening in this industry in
2009. I am not suggesting that you would have hard numbers, but you must have
some estimate as to how that number has grown, just in the first four months of
this calendar year.
Mr. Farrell: You are right, senator; I do not have a number off the
top of my head. Those numbers include temporary curtailments, as well as
permanent closures. Certainly, since January 1, we have heard more announcements
of either new curtailments or extending curtailments based on the poor markets
and poor pricing out there.
Senator Mercer: Again in your presentation, I was excited about the
Canada-B.C. reconstruction project in China and the marrying of a problem that
we have — an ability to produce wood products with a pretty soft market — with
our foreign aid or emergency aid.
Is this a new innovation, or is it something we have done in the past? If it
is new, are there plans to continue to link the availability of wood products
with perhaps the operation of the Canadian International Development Agency,
CIDA, and other organizations that are working overseas to provide Canadian aid
to places such as China? We are obviously active in Afghanistan and other parts
of the world.
Mr. Farrell: I would have to defer to the officials at CIDA, but the
project in China is essentially based on a partnership with the Chinese
government as well as the state government to actually demonstrate the use of
wood in their suite of construction.
China does not have a culture of using wood. It may have many years ago, in
terms of temples. However, certainly in China today, it is nearly all concrete;
unlike the work that we started in the late 1960s and 1970s when we opened up a
market for Canadian wood products in Japan. We were working with a culture there
that used wood, but the applications we were looking at were a little different.
In China, it is a bit more of a challenge in that there really is not a wood
culture. However, the attractiveness and what helped in Japan was to be able to
see how well wood stood up in severe seismic conditions. In the Kobe earthquake,
which I believe was in the 1990s, the wood construction — two- or three-storey
wood buildings — fared much better than the concrete and steel buildings.
Senator Poulin: Mr. Farrell, thank you for your excellent
presentation. As I said earlier, I represent Northern Ontario, and you are
probably aware of the fact that the forest industry is very important for this
region. When I look at the history of our families, my grandfather, Émile
Charrette, settled in Northern Ontario just outside Sudbury, where he bought and
developed a wood yard. He was coming from Quebec City, and during the recession,
he managed to sustain his family and create many jobs in the region.
Yet, one hundred years later, we see our cities and communities in Northern
Ontario completely devastated because of the weakness of our forest industry.
You have probably read our order of reference, for the Committee on
Agriculture. The first item is to identify the causes and origins of the present
forest industry crisis.
In your presentation, you talked about the decisions made by the government
in this regard. I would like to ask you, Mr. Farrell, as the assistant deputy
minister, what are, in your opinion, the causes of the crisis we are going
through and its impact on all regions of the country.
Mr. Farrell: May I reply in English?
Senator Poulin: It is always easier to speak in one's mother tongue.
When you speak in English, I understand you very well, and when I speak in
French, you understand me as well.
Mr. Farrell: I started my career in the forest products industry in
1974. I spent eight years with AbitibiBowater before I worked in the provincial
government in Southern Ontario and then with the federal government. I have had
a chance to see the industry over the last 35 years.
It is a good question. These sorts of challenges do not occur overnight. The
issues are different in the wood industry than in the pulp and paper industry.
In spite of the market today, Canada probably has the most competitive softwood
lumber mills in the world, primarily in British Columbia.
These two sides of the industry in Canada are highly integrated. That is what
happens when one part of the industry has trouble. There is a supply and demand
dimension between wood and chips, and between the pulp and paper industry and
The pulp side of the industry is a very capital-intensive industry. The mills
going into places such as Central America and South America are in the range of
$1.5-billion to $2-billion investments. We have not seen a greenfield operation
invested in Canada probably since the 1970s. That was in Alberta when the
province opened up their wood supply.
First, in simple terms, when you are in a commodity business, size matters.
The new facilities across Southeast Asia, Central America and South America are
much bigger. Therefore, their cost per unit is much more competitive than our
own. Having said that, Canada has a very attractive fibre basket with the kinds
of species we have in softwoods. Nonetheless, technology and printing capacity
currently has narrowed the gap in many respects between a good- quality fibre
and a marginal-quality fibre.
Second, in Eastern Canadian, I spent 14 years living in Sault Ste. Marie,
Wawa and White River. I am familiar with the mills in some respects. The
newsprint industry in North America has been seeing a secular decline. Thirty
years ago, everyone forecasted the paperless office. We are getting there
quickly, especially in newsprint.
It is no surprise to anyone here that the next generation gets their news
from different places than I do. I still enjoy my newspaper, but my children
would much rather get it on the Internet. Therefore, we have seen approximately
a 20 per cent decline in demand in North America for Canadian newsprint. Some of
our newsprint producers still market all over the world. However, we are still
quite heavily reliant on the U.S. market for newsprint.
It is a combination of demand, cost of production and our input costs. Our
wood costs in Canada, especially in Eastern Canada, are quite high. The forest
products industry in Canada assumes a large degree of responsibility for land
management. As a result, we are shipping delivered timber a long way. In
Northern Ontario, some wood is hauled over 250 kilometres.
All of those factors together make it difficult for the current model and the
model of the past that produced commodities from Canadian forests to be able to
compete worldwide. We went through that brief period with a high Canadian dollar
for about 20 or 25 months. That was tough for the industry given that the
differential between the Canadian and U.S. dollars was one that gave Canada
extra advantage. In 2007, the U.S. housing market started to deteriorate.
In going forward, I fully expect the wood products industry to continue to be
competitive once the economy starts to pick up again. Challenges will remain for
the newsprint industry. Our pulp industry will be looking for opportunities to
differentiate their pulp product from some of the globally-traded products. Some
firms have already been able to do that.
Senator Poy: Thank you, Mr. Farrell. This is new to me, so would you
explain what FPInnovations is?
Mr. Farrell: FPInnovations is a newly created forest products research
institute here in Canada. It has a unique structure from that of any of our
competitors in the world. Until about two years ago, we had three national
forest research institutes: Forintek, which used to be part of our department
back in 1979 but spun out and succeeded on its own, focused on wood products;
Feric, a forest engineering research institute, which did transportation
harvesting; and Paprican, which did pulp and paper research.
The board of directors — at the time I was a member — came to the view that
this is a highly integrated industry, and it did not make sense for the
innovation system to be as fragmented as it was. In fact, it was becoming a
liability. The board of directors was made up of provincial deputies and
industry CEOs. They agreed to consolidate these three institutes. My own
organization, the Canadian Forest Service, created something called the Canadian
Wood Fibre Centre, which is a fourth body that focuses on how to extract the
most value out of the Canadian forest.
We now have this continuum from the forest all the way through manufacturing
and targeting markets at the end. Even in a time of bad news for the sector, we
are counting on that innovation system to position us for when better times
arrive. We have invested heavily on the innovation in that system.
Senator Poy: Can you explain a little more about nanocrystalline
Mr. Farrell: I can try. I am not a chemist or engineer. The part of
the tree that makes paper and pulp products is the cellulose, which consists of
strands that are glued together by lignancy. When the lignant is melted out,
cellulose is left. At the nano level, particles can be manipulated to change
some of the characteristics at the cellulose level or even at the wood-product
level. It creates a product that has unique characteristics in terms of weight
and strength. Work has been done on this in various places around the world.
However, over the last three years, the work done at FPInnovations has moved
the research and development agenda forward remarkably. We are already looking
at a couple of pilot-scale projects that will have private-sector investment as
well as applications in product areas such as aerospace and automotive. If you
can imagine a very light- weight body, either on a car or in an aerospace
application, it would be a remarkable development.
I do not think we will see a commercial product within three years, but I
would say that perhaps within five to six years you could start seeing some of
this on the market.
Senator Poy: Currently, are smart papers being produced?
Mr. Farrell: The Sentinel Bioactive Paper Network is headed up at
McMaster University and FPInnovations is heavily involved. It began as a Network
of Centres of Excellence, NCE, and is into its fifth year, I believe; it is a
good five years out. The challenges are remarkable, but the team they put
together is equally as remarkable in terms of microbiologists, chemists and
others with the types of skill sets you would not normally associate with the
The application is not only in the packages industry but also in the
sanitary-products industry: for example, hospital applications such as a
surgical masks that gives a colour signal when it comes into contact with a
virus or a bacterium. In the future, it might actually have the capacity to
neutralize the virus or bacterium.
I received a brief on this two weeks ago or so and learned that great
progress is being made but technical challenges exist to producing this on a
large scale. If it remains a boutique item, it will not serve the industry well.
To be able to produce a paper-based product in mass quantities that is
recyclable and to utilize it well while taking into account the fine engineering
requirements around biotechnology and microcircuitry in some of these
applications is truly quite demanding. I am told that if we can keep the
investments up, we could have something out there within five to seven years.
Senator Poy: How do our innovations and research and development
compare to other countries? I would like to know whether we are ahead or lagging
Mr. Farrell: You will likely hear from other witnesses who are more
expert on this subject than I am. We focus specifically on those two areas
because they give our natural fibre basket — black spruce, Jack pine and boreal
trees — a specific advantage, although perhaps not some of the other areas of
pulp and paper production. Our innovation strategy is such that we need to go
with our strengths. If the rest of the world can produce many commodities more
cheaply than we can do it, then we must ensure that we carve out a niche where
we will have a long-standing, competitive advantage.
Senator Fairbairn: Mr. Farrell, thank you for painting a picture for
us in terms of how we are doing competitively. It is most helpful for us to know
This committee decided a few years ago to travel to every province and
territory during its study on rural poverty. We heard about the difficulties
faced by people, whether they were growing wheat or working in the forestry
sector. As a committee, we made a commitment to that study and released a final
report just prior to last summer.
In respect of the forestry industry, we visited all of the provinces and as
many areas of the territories as possible up North. I am thinking about all of
the efforts made by the government to try to keep up with not only the selling
but also the producing in the various parts of our country, which are quite
different. At one time, Northern Ontario was really hopping in the industry, and
then, suddenly, it had moved, which raised great concern for them. They were
concerned about schools and buses and all the regular daily activities because
they were losing their foundation. Various sorts of realities existed in other
parts of the country.
I come from Lethbridge, Alberta, near the Rockies and cross-border into
British Columbia. We have had a marvellous forestry industry in our history.
Currently, we face a difficult situation because of the pine beetle. We went to
Prince George and saw the effects of the mountain pine beetle. It was quite
breathtaking. In one small town people picked up these pink wood tree things
that were on the ground and thought that perhaps they could make something from
them. They insisted on us coming to see them. They were making decorative items
for the dining room, living room or bedroom. People were coming to that town and
buying the items because they were so attractive and slightly pink.
Unfortunately, we have learned since that the place has shut down.
At the heart of the industry, which you know, is the issue of the pine beetle
and the devastation it is causing. I am not sure how far it is jumping the
border in Northern Alberta, but it is working its way south. We are looking
intensely in all those little towns in the Crowsnest Pass because if it appears
there, we will be in dreadful trouble.
It is natural to think that we can do nothing about it. However, in the last
year, has the federal government made any effort to hone in on the science that
is working hard to try to stop this pest? How has government been helping those
who, in spite of it all, have survived and are trying to get into the
Mr. Farrell: A $200-million investment was made in 2006 that had two
dimensions: slowing the spread, which was basically through the forestry
program; and $100 million to mitigate the impact through community economic
development and investment in infrastructure. Certainly, before the global
slowdown, the western Asia Pacific Gateway and some of the networks around
Prince George and Prince Rupert being part of that intermodal transportation
were gaining enthusiasm. Those investments have been made.
The primary focus in the forestry program was twofold. One was doing what we
could to slow the spread. As you can imagine, with a 9-million hectare
infestation, the key question is where to start. That goes back to the science
that we have done at the Canadian Forest Service to forecast where the beetles
will be so that efforts to slow the spread of the pests can have the maximum
We have resigned ourselves to the fact that we will not stop the pine
beetle's advance specifically through controlling the spread. The key thing is
to try to buy some time to salvage as much value as possible and to return to
the weather that we used to have that would slow the pest down naturally —
primarily for the fall to be cold before the beetles bore in and settle for the
winter. A couple of colder falls have slowed it down, but it will in all
likelihood take more than that to have an impact.
Alberta has invested much time and effort. Again in the southwest, as you
know, in the foothills of the Rockies, the water source for many of the rivers
in the southern part of the province — I do not have to tell you this, senator —
is a concern.
Senator Fairbairn: The Oldman River.
Mr. Farrell: The Oldman River is a major concern. In the northwest
part of Alberta into Grande Prairie, again, there has been a great deal of
effort to try to slow that pest down.
In terms of control, some chemical products have been developed. However,
they are pretty expensive at this point; it takes time to get the application
cost down. Also, given the size of the infestation, it is not up to the
challenge of mass control, unlike spruce budworm, for example, where the larvae
are out and exposed in a feeding period for four to six weeks. They are exposed
to some sort of biological applications. With beetles, they spend such a very
small part of their life cycle outside of the tree and as soon as they hatch,
they fly off. Therefore, being able to target them in a feeding state is
essentially impossible. They feed inside the tree, so it makes control much more
of a challenge, certainly mass control.
Senator Fairbairn: Recently, travelling out there, I ran into a couple
of young fellows from New Brunswick. They had their boots on, and I saw them
carrying stuff into the plane. When I asked, they told me that they had been
studying this and were going to Crowsnest Pass as part of an army to try to make
it all stop, if possible.
These young people, who had been discovering different ways to tackle issues
with other insects or whatever in their own areas, were not feeling down and
under with this issue. They were full of confidence that they would really
accomplish it. I am quite sure that the department is part of encouraging this,
to get people who think they can help to move across the country to do their
best in our area.
There is hope. There is no doubt about it, but it is scary stuff.
Senator Tkachuk: Senator Fairbairn and I were at hearings in Vancouver
— this would have been about 10 years ago, maybe not quite that long. We were
looking at climate change and agriculture at that time. We had these scientists
from the University of Victoria who told us that they had predicted and told
government officials that the pine beetle infestation will become a serious
problem if we continue to practise the forestry methods that we practise, which
is basically not to let forests burn.
They said that the officials did not listen, and hence we have a pine beetle
infestation. I do not know whether the Americans have one or not.
Mr. Farrell: Yes, they do.
Senator Tkachuk: It is not just the cold weather. It is the fact that
we do not let forests burn. Maybe we should light them up. Something has to
happen; otherwise, they will continue to proliferate, and they will always be
Mr. Farrell: The pine beetle is an endemic pest to western North
America; they have always been part of that ecosystem. Before European
settlement, the pine forest, the ponderosa pine — what they call the interior
pine forest — was probably on a varying burn cycle of 35 to 45 years. You would
constantly have this fire as part of that ecological cycle, which would have a
tempering effect on any pest outbreaks. In many respects, it was similar to
Eastern Canada in the boreal.
Public policy around timber management — as well as human settlement, more so
in the U.S. — was to protect the forest. In our case, it was more for timber for
commercial use, and in the U.S. it was more for human life and property. In
Canada, we have had big outbreaks before. A cold winter, or a couple of them,
would put the problem aside, and it would be a couple of decades before another
real outbreak was seen.
With all due respect to the B.C. government, they were thrown off because
they had been through these outbreaks before. The assumption was we would get
another cold fall — maybe not this year but in one year, three years or five
years — and by the time they realized we would not be having another really cold
fall, the epidemic had exploded.
Senator Tkachuk: I do not know much about B.C. weather except that I
have spent some time in B.C. and know the northern part gets cold at times,
particularly Prince George and that area. However, Southern B.C. does not get
cold. It is pretty warm all the time and has been.
This issue has to be addressed. It might be a good idea to analyze how much
the forests have really been saved by the forest policy because it has all been
destroyed by the pine beetle. Maybe controlled forest-fire management might be a
better way to go, to let nature take its course from time to time to get rid of
these pine beetles. In the long run, it will save the forests rather than
It would be a worthwhile study.
Mr. Farrell: It is an ongoing challenge for provincial governments to
try to incorporate what they call prescribed fire as part of that regime. Even
though we know much about prescribed fire, it is never 100 per cent. Every now
and then, a fire gets away, and that, unfortunately, does put back the fire
policy for a number of years. It has always been part of the ecological cycle in
the boreal, particularly in the inner mountain area of British Columbia.
It is important to remember that it is the pine trees in the interior of
British Columbia that have suffered. The question that the B.C. government is
still working on is how many other species will be there? Not all the trees are
gone. In some parts of the interior, pine represented a high percentage; but
other parts with spruce and poplar will continue to make up a substantial
portion of that forest. However, some areas will be heavily hit for a number of
Senator Eaton: Who are our biggest global competitors in terms of
Mr. Farrell: It will depend on the product. In terms of lumber, our
biggest market by far is the U.S. Until recently, we had 30 to 31 per cent of
that market. The balance of that market was domestic production, with the
exception of about 3 to 5 per cent that came from Europe or Central America.
Frankly, the U.S. domestic market is the big competitor for softwood lumber, in
the U.S. market.
Senator Eaton: You were talking about the huge mills that are being
built in South America. Are they competitive with us?
Mr. Farrell: In pulp, especially in hardwood pulp, yes, they are. The
big competitors for hardwood pulp are Central and South America. Their cost of
production is such that they can ship copy paper, or printing paper, into Canada
much cheaper than we can even produce it.
Senator Eaton: When you talk about those big mills, you mentioned at
the beginning that some things are cyclical and some things are structural. I
guess I am more excited by the innovative part of what you presented.
What type of structural changes will we have to encourage in Canada in order
to start making these wonderful cellulose masks, cellulose as ethanol, the
wonderful wood products that we will ship to China that are stronger than steel
and lighter than aluminum? What will we have to do?
Mr. Farrell: That will not occur overnight.
Senator Eaton: No. However, if we have a road map, we can begin to
encourage people to go that way.
Mr. Farrell: My bias is that our great advantage here in Canada is the
size of the forest. Even with the changing climate, a 400-million hectare
forest, especially in the species that we have, is second only to Russia. We
have infrastructure, skill sets and a governance and organizational structure
that make it an attractive place to invest.
The key challenge is how to recast the investment opportunity for the
Senator Eaton: If we were trying to create a road map in this
committee, what would the road map look like?
Mr. Farrell: It would deal with two aspects, in my view: innovation
and markets. We need be able to have an innovative agenda that extracts more of
the value rather than the volume from Canada's forests. We have had a forest
industry in this country that has been great, but it has been based on the
volume model. We will always be producing pulp and some level of paper and wood
products, but we need to diversify that portfolio of products.
We need to show the way in terms of what the opportunities are, whether they
are nanocrystalline cellulose, NCC, or whether they are a more cellulosic-based
ethanol. That is where the public investment comes in to set the table. However,
at some point, it has to attract private investment, then, to move it forward to
commercialization. Therefore, setting the table for that investment in
innovation is a very legitimate and important aspect of our strategy.
The second aspect is markets. We will, in all likelihood, continue to be
quite reliant on the U.S. market. However, we need to be able to ensure we have
many options. That has been behind our developing a market for wood products in
Japan, and, frankly, it is behind the same effort that we are now working on in
Korea and China. If all the forecasters are right, these are parts of the world
that will continue to move up the prosperity curve. Certainly, even though the
dense populations in places such as Shanghai and Beijing will continue to make
it difficult to build high- rises from wood, there is an awful lot of interest
around what we call aesthetic uses for wood such as wood coverings and wood
furniture. Again, that is a very competitive market. Canada is part of it, but
it is a very competitive market.
Therefore, that road map would include opening up opportunities for the
Canadian fibre basket with innovation as well as diversifying markets for our
Senator Eaton: Do you see that easily done?
Mr. Farrell: No, this will not be easy.
Senator Eaton: Why not?
Mr. Farrell: It will take some time to be able to refine the
applications for Canadian fibre to the point where it will attract that first
big investment in creating a product from the forest instead of creating a
forest product; creating a product from Canadian fibre.
Restructuring will be difficult. Some mills will not open up. Again, having
lived in Northern Ontario, the impact on the community is huge with that type of
restructuring. Some of that will take some time. Replacement for a mill closure
to a mill that will produce cellulosic ethanol will not be immediate.
The geographic distribution of where this infrastructure will be located will
be different than where it is today, especially in Eastern Canada. Most mills
are on the water because water was the source of transportation. If you were to
put mills in the Canadian geography today, you probably would not put many of
them where the existing ones are located.
Senator Eaton: Do you mean you would move them closer to urban
Mr. Farrell: Possibly, or move them closer to the U.S. markets or to
deepwater ports for access across the world.
Senator Cordy: By the way, Halifax has the only ice-free harbour in
Canada. Let us send all the industry there.
I will follow up on Senator Eaton's comments. I am new to the committee, but
when I look at the future of the forest industry, I get a little nervous,
especially with 100,000 jobs lost since 2003 and 20,000 jobs lost in 2008 alone.
We are all aware of a number of lost jobs in the first three and a half months
In order to get the investment for research and development for innovation,
will we have to change our tax system and provide tax incentives so that people
will be more willing to invest in the forest industry?
Mr. Farrell: I am sure later this week you will have some guests who
will have strong views on that. I will defer to them from an industry
perspective. From the Government of Canada perspective, I really should not
comment on tax policy.
Senator Cordy: However, one could say that we will have to make
changes if we are to expect change. I guess I can ask you how you see the
industry looking in 10 years time. What should it look like? That is maybe a
better question because if we look at the number of jobs lost, it is scary.
Mr. Farrell: I am a forester by training, but a hard-edge economist
view might be the fact that those who get through this will probably be meaner,
leaner and much more competitive than perhaps the ones who did not quite make
it. In many respects, you will likely have a smaller industry, one that probably
is more tied to demand.
Some might tell you part of the issue is that there is far more supply than
demand. If you look at newsprint over last five years, we see a desperate
see-saw attempt to try to correct supply every time demand continues to decline.
The reality is that it is almost impossible to catch up with that declining
Ten years out, I think we will see fewer facilities but probably healthier
companies. I would like to think we will see a bigger, broader suite of more
higher-value and more knowledge-based products to fill out the mix. Perhaps we
will see new players, maybe companies that are not even in the forestry
business, such as energy or pharmaceutical companies. It would be great to see
joint ventures that include transportation or companies that make aircraft,
helicopters or auto parts.
That is the sort of more diverse mix that your average person would get very
confused as to whether it is forest products business or not, which is great. It
should be a business based on the forest.
Senator Cordy: In your opening comments, you talked about the
announcement last week by Minister Raitt about the $10 million to support
large-scale demonstrations of Canadian-style uses of wood for construction in
I am curious how you would spend the $10 million. Are the offshore markets
mainly Asian? What do you do to demonstrate? I know you spoke earlier about
building houses in Japan, I think you said, and they withstood China. What do we
do? Is it similar to "if you build it, they will come''?
You also talked about non-traditional uses of wood in domestic markets. Can
you give some examples of those? How is the $10 million spent to demonstrate to
Canadians the non-traditional uses of wood?
Mr. Farrell: I will start with offshore markets. As I mentioned, in
places such as Shanghai or even Seoul, the big challenge is that land is so
expensive. The traditional single-family dwelling is not something that is
saleable. Therefore, if we cannot go up, we will not be able to compete.
Ingrained in building codes in places such as Shanghai and Beijing is an anxiety
about fire and how far and how fast fire can move through a structure.
From a public investment perspective, it is codes and standards. Codes and
standards basically decide residential construction in all parts of the world.
It is usually decided by governments, whether they are city governments in
China, state governments or even the national level of government. This
interaction at a governmental level allows us to start having that discussion
around codes. Their codes are entirely based on concrete. Therefore, this idea
of introducing a wood product, which has historically been viewed as an inferior
product, is one that starts as a technical discussion.
We have been at that in China, for example, for about seven or eight years
with experts from FPInnovations who are engineers and technically competent. The
next step, then, is a question of how far we can go. What if we build a
five-storey structure? We built three-storey structures. The more we can
increase height, the more we open the market because it is still on the same
Some of the demonstration models we will be looking at are five- and even
seven-storey structures that are hybrids. We can build the bottom two stories
with concrete and the top five with wood.
Another area for consideration in Chinese cities is roofing systems. In
Shanghai, almost every roof is flat. From a landlord's perspective, unlike
Canada, the top floor is generally the poorest because, inevitably, all the
roofs leak. If we can build an extra storey with a peaked roof on the top, the
landlord gets extra revenue because he has an extra floor, plus the leakage
problem has been solved. It is one thing to talk to people about that but
another to do it and show people.
Those are the two examples on which we have started working. We will expand
it, but not necessarily to the Shanghai-type and Beijing-type cities. In many
cities outside of Shanghai that have 20 million or more people, before the
slowdown, the building boom was just as active as it had been in Shanghai.
In North America, we call the non-traditional uses of wood non-residential
construction. This is something on which we are working with the U.S. In many
respects, the difficulties we have had over the Softwood Lumber Agreement during
the last 25 years have always been about market share. However, if we can grow
the market, in theory, there is more for everyone.
The U.S. is as anxious as we are to see broader applications of wood in
non-residential construction. In my own department, we have people working on
concrete and steel who have done an excellent job engineering all that.
Everything is codified. Wood is not a product made in a factory, so it has a
The challenge is about getting codes and standards accepted, and getting
designers, engineers and specifiers to be more comfortable with the use of wood.
We are trying to engage an entire chain of people in the use of wood. We have a
good story to offer on sequestered carbon; wood is recyclable, reusable and
renewable; it is a greener product. Market acceptability is there. However, it
is about ensuring the comfort level of the entire community that specifies
buildings and engineers and designs them.
One of the best ways to do that is to have working examples of buildings made
from wood. A number of buildings across Southern Ontario — hospitals, seniors'
residences and community centres — are great examples of the use of wood. Work
needs to be done around cost competitiveness, but nonetheless, that is a gap
that we will continue to close the broader the applications are.
Senator Meighen: I can be quite brief since Senator Eaton and Senator
Cordy explored the area in which I was interested. When you have been around as
long as Senator Tkachuk and I, you remember events that happened. I think
something happened five or six years ago, but it turns out to be 10 or 15 years
ago. I remember the big push to convince the Chinese and Japanese to build their
houses out of wood from when I was young.
I take encouragement from your description of the new and more innovative
approaches being put forward now. I do not want to mix metaphors and say that
they will catch fire, but I hope they will.
Senator Mercer: You mean catch on.
Senator Meighen: Yes, catch on. Thank you, Senator Mercer.
I must say that I am a bit sceptical. However, we will see. It seems to me
that the landscape and practices in Canada are not changing radically.
I want to move on to the softwood lumber deal. I cannot remember how many
years are left now before it expires. Even during the course of the agreement,
an irritant pops up once in a while. It may be about shares, but it is also due
to the fact that we have different regimes within Canada of timber management.
Is that what you would call it?
Mr. Farrell: It is more public policy.
Senator Meighen: Also vis-à-vis the United States.
Therefore, it seems to me, perhaps incorrectly, that those differences were
at the base of the dispute. Perhaps out of ignorance, I am not aware of any
fundamental changes that have come to pass to remove them. Can I expect in
another four or five years when the Softwood Lumber Agreement expires that we
will go through the same old negotiation dance that lasts so long and causes
such injury to the industry?
Mr. Farrell: The deal was negotiated and signed in 2006 for seven
years. Presumably, we will maintain it for seven years. With any agreement with
the U.S. that we have had over the last 20 years, we have had differences of
view and different mechanisms have resolved those. We have an arbitration
process now that is used to resolve differences.
Canadian provinces have made specific changes to public policy. You may want
to invite representatives from Foreign Affairs and International Trade Canada at
some point to appear. They have the lead on the Softwood Lumber Agreement and
all trade policy issues. We do a large amount of work with them around economic
and policy analysis.
I would not want to identify any specific provinces, but I would suggest that
all of them have made progress in moving to a market-based system, in
particular, the four main provinces — B.C., Alberta, Ontario and Quebec. In many
respects, that was part of what was at the heart of the concern with the U.S..
Market share is definitely an ongoing issue.
We have certainly seen a much tighter relationship between operating levels
and the sale price of lumber. Some of the American criticism in the past has
been that when the lumber price continues to drop, Canadian mills keep
operating. As we have discussed, that is certainly not the case today.
I do not know if those issues will ever entirely go away. About two years
ago, we had work done to try to identify the history of disagreements between
Canada and the U.S. relating to lumber. Apparently, the first notation is around
1780. New Brunswick and Maine exchanged shots over white pine logs. I am not
sure if that is the first dispute, but it goes back a long way.
Senator Meighen: The Maritime provinces have less change to bring
about in public policy than some other provinces, as you are well aware, Mr.
Both the provincial governments and the federal government have a substantial
role to play in forestry policy in Canada. Is there a clearing house to ensure
the left hand knows what the right hand is doing? To what extent has it been
Mr. Farrell: There are two avenues: First, the Canadian Council of
Forest Ministers, CCFM, involves all the provincial and territorial ministers
and the federal minister responsible for forests. They meet at the ministerial
level once per year, and the deputy ministers meet two or three times per year.
Below that are numerous groups working on issues ranging from national pest and
fire strategies and national forest inventories to working through some
competitiveness analysis. This was undertaken about a year and a half ago before
the serious downturn.
Second, Foreign Affairs has done an outstanding job in building a network
with all the provinces and territories starting in 2003-04 when the previous
agreement expired. They worked together on a collaborative approach that is not
easy to achieve, as you can imagine, given the diversity of regional
circumstances and public policy. That mechanism has been in place specifically
around lumber issues as they arise and has been working quite effectively.
Senator Mercer: Thank you again for being here; we have learned a
great deal tonight. You piqued our interest in research when you talked about
FPInnovations, McMaster University and the Sentinel Bioactive Paper Network. I
quickly added them to my list of potential witnesses.
Who is doing the best research in the field in Canada today? You mentioned
research at McMaster University, and other universities are doing similar work.
Who is doing the most interesting research?
Mr. Farrell: I have to be careful in my response here. I happened to
mention McMaster University.
Senator Mercer: Where did you graduate from?
Mr. Farrell: The University of Toronto. Bob Pelton, the lead in the
research group, works out of McMaster University. Highly interesting work is
happening at many universities. You might want to hear from the Chief Executive
Officer of FPInnovations, Pierre Lapointe. FPInnovations has a number of
networks: nanotechnology, genomics and smart paper. That might be a good place
to start, depending on the interest of the committee and what areas you want to
explore — wood products or novel pulp products. Many universities have a
remarkable amount of research work, even beyond the classic forestry
universities, such as Laval University, University of New Brunswick, University
of British Columbia and Lakehead University. When you take a broader view of
developing forest products, you move into areas that are beyond the normal
purview of forestry. The truly rich opportunities are to innovate in applying
Canadian fibre to novel, different applications.
Senator Eaton: How do we bring the research to the market? That will
be the challenge. Is that right?
Mr. Farrell: That is right.
Senator Eaton: We need to determine how to take it from bench to
Mr. Farrell: Yes.
The Chair: Mr. Farrell, we all know that building codes fall under
provincial jurisdiction and, in some areas, federal jurisdiction. In order to
enhance our construction by using more wood or a combination of wood fibre and
cement, we could look at other avenues.
What could we do to impress provincial and municipal jurisdictions to amend
building codes in order to allow the use of wood products for the first 5 floors
when constructing a 15- or 20-storey building?
Mr. Farrell: I might encourage the committee to hear from someone who
is an expert on codes. The Canadian Wood Council, CWC, is located in Ottawa, and
they are the experts on building codes and standards. I would be cautious about
what I say.
In many respects, the codes and standards are not the issue. They do not
create a real limitation in Canada. A program called WoodWorks is operated in
collaboration with the CWC in many provinces, including Ontario, which promotes
the use of wood. The CWC works to give the specifications experts — engineers
and designers — the tools to make it easier and more attractive to use wood.
Those are the real challenges, more so than the codes and standards. We are
moving to performance-based codes that are, in theory, blind to any material we
might use to achieve the performance standard. It is the promotion of using wood
and some of the benefits associated with it, in particular from a life-cycle
analysis. That is the promotion we are trying to develop, both domestically and
The Chair: Thank you for the suggestion. Some areas of Canada have
been planting trees for over 50 years; and I know you follow that closely. I
would like to have your views on silviculture and hardwood stands.
Mr. Farrell: In temperate hardwoods, the types that we see in Ottawa
such as maple, birch, poplar and some softwoods, the general prescription is to
not clear-cut, although perhaps more so in Algonquin Park and the Gatineau
Hills. It is what they call an improvement cut. Such a prescription allows a
harvester to intervene in the stand and cut a portion of it every 20 years. A
good, well-managed hardwood stand will allow an entry every 20 or so years to
take out some product.
One of the challenges in Quebec and Ontario is that over the last 60 to 70
years, a number of areas of the forest have deteriorated, in that to bring them
back into some sort of an ongoing cut every 20 years that would yield
good-quality timber, the first couple of entries would be low-quality cuts. That
is the challenge to good hardwood management.
Once you have taken out two passes of firewood or some low-end saw logs in
many areas of Quebec and Ontario, you will begin to see a much better yield. The
prescription is to manage the stand for crop trees that will give you high- end
saw logs or veneer logs.
The Chair: What percentage of forestry R&D in Canada is done in the
Mr. Farrell: In forest management, not much R&D is done, although I
stand to be corrected. The prescriptions to raise the yield are reasonably well
understood. However, the ongoing questions arise around topics such as
biodiversity and sustainability, which are much more complicated than simply
maximizing the yield. The effects on flora and fauna succession over time are
still being sorted out.
In terms of manufacturing, a fair bit of the research on wood products being
done both in universities and in FPInnovations relates to hardwoods.
The Chair: It is quite promising in some areas of Canada.
Mr. Farrell: Yes. Certainly, the hardwood industry in Canada was more
prominent years ago than it is today, but it could be prominent again one day.
The Chair: Another concern of ours is access to credit for the
forestry industry. With your experience, what would you deem to be the
challenges and the recommended mechanism that would help the industry gain
access to credit?
Mr. Farrell: The Export Development Canada, EDC, is a separate banking
institution that operates similar to an independent bank. They have
responsibility around confidentiality of the clients with which they deal.
With the unfortunate situation today, I have gotten to know EDC quite well,
and they do outstanding work. At the same time, because of the business that
they are in, they are not in a position to speak publicly about the work they
are doing with clients, including the forest industry.
As an export industry, EDC has been a partner with many, if not most of the
forest products companies in Canada that export across the world through their
insurance program. However, EDC is an organization, a bank that operates on the
basis of commercial terms, and they provide that service to firms that propose a
commercial business case. I can only guess that many of those discussions are
The Chair: Another issue with which we are faced with the stakeholders
across Canada is black liquor energy subsidies with our friends down south. I
would like your opinion on that. Can you apprise the committee on the status of
that particular issue?
Mr. Farrell: In 2005, the United States Congress approved a
substantial transportation bill that provided all sorts of incentives to
essentially expand the use of biofuels. An amendment was made to that bill in
late 2007 that provided an incentive in terms of a tax rebate for new blended
fuels that were derived from biomass — liquid hydrocarbon, which is a fuel from
Translated, that appears to have provided an opening for the U.S. pulp
industry in claiming credit for one of the interim products they produce in the
kraft process of making pulp. Unlike the mechanical process, which grinds wood
down and then releases the fibre, the kraft process essentially cooks trees and
melts away the lignin, releasing the cellulose to make pulp and ultimately paper
products. The glue that held it together, primarily lignin, in the cook is
called "black liquor.'' It is a routine part of the kraft process that they
extract the chemicals and then burn the liquor to provide thermal energy for the
In Canada, one of the biggest producers of bio-energy is the Canadian pulp
industry, which is primarily based on this black liquor.
It is our view that this tax rebate, which is 50 cents a gallon of black
liquor produced, was an unintended consequence of this incentive. At 50 cents a
gallon, the subsidy represents a significant rebate in terms of the cost of
Whereas the U.S. primarily uses their pulp domestically, Canada ships a large
amount of pulp into the U.S. If that domestic production continues to enjoy a
substantial subsidy, it will make it increasingly difficult for our Canadian
pulp producers to compete in that market.
The Chair: Do you have any suggestions on how we can find solutions
for that particular problem?
Mr. Farrell: I believe you will have a witness later in the week that
I am sure will have some suggestions. We have been in discussion through our
embassy in Washington with the U.S. registering our concerns; it is a discussion
that is very active right now.
The Chair: When we talk about the vision of long-term positioning in
the industry and the stakeholders in the forestry sector, do you have any
suggestions on how we can better improve the relationship between the
stakeholders — namely, the employees, the industry, sawmills, pulp mills; and on
the environmental side also, cities, provinces, federal government, even though
we know that the policies for forestry are the prerogative and under the
regulation of the provinces?
Mr. Farrell: I am not sure if I am an expert from a labour-relations
perspective. However, it is interesting to see over the last three to five
years, that the industry, the employees and the communities that support mills
are rallying around this notion of sustainability — ecological and economic
sustainability — and the impacts that has across rural Canada.
In many respects, the recent downturn has complicated many of those
relations, but there clearly was a growing consensus around how important that
is to the viability of the sector. My sense is that that will continue to be an
important topic as we come out of this recession.
Given that the vast majority of the forest industry operates on public land,
clearly the public has a big say on how that land is managed. Certainly the
industry, communities and employees all recognize the importance of maintaining
that social licence to being able to operate domestically, as well as to be able
to sell products overseas.
The Chair: Are there any other questions from senators? If not, on
behalf of the committee, I would sincerely like to thank you for participating.
If we need additional information, there is no doubt in my mind that you will
follow the mandate of our committee. We have some interesting stakeholders who
will be coming to the committee starting this week and ending in June.
I would like to remind committee members that on Thursday, the meeting will
be at 8 a.m.
If senators could stay for a few minutes, I would like to have an in camera
session for a short time.