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Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 5 - Evidence - Meeting of June 2, 2009


OTTAWA, Tuesday, June 2, 2009

The Standing Senate Committee on Agriculture and Forestry met this day at 6:35 p.m. to study the current state and future of Canada's forest sector.

Senator Percy Mockler (Chair) in the chair.

[Translation]

The Chair: Honourable senators, since we have quorum, I call the meeting to order. I would like to welcome all of you to this meeting of the Standing Senate Committee on Agriculture and Forestry.

My name is Percy Mockler, and I chair this committee. We are pleased to have with us this afternoon Mr. Clark, Mr. Arsenault and Mr. Reid.

[English]

To start, I would ask the members of the committee to introduce themselves, beginning with the deputy chair, please.

Senator Fairbairn: Thank you. I am Senator Joyce Fairbairn from Lethbridge, Alberta, very close to where the pine beetles are.

Senator Mercer: I am Senator Terry Mercer from Halifax.

Senator Cordy: I am Senator Jane Cordy, welcome to our committee. I am a senator from Nova Scotia.

Senator Duffy: I am Senator Mike Duffy from Prince Edward Island. We are very glad you are here tonight.

[Translation]

Senator Rivard: I am Senator Michel Rivard, from Quebec City. I would like to welcome you. We apologize for the delay; we were dealing with Senate business.

[English]

The Chair: The committee is continuing its study on the current state and future of Canada's forest sector.

[Translation]

Today, we have with us representatives from groups in New Brunswick, who will share with us their concerns and suggestions regarding our study.

[English]

We will discuss the difficulties, challenges and solutions specific to the forestry sector in New Brunswick. As chair and being from New Brunswick, I am very honoured to say that Tom Reid is experienced in New Brunswick as a deputy minister. Mr. Mark Arsenault is the president and CEO of the New Brunswick Forest Products Association, and Mr. Andrew Clark is president of the New Brunswick Federation of Woodlot Owners. Thank you very much for accepting our invitation to be here today. The committee will hear your presentations, following which we will have a question and answer session. I would invite Mr. Reid to begin, to be followed by Mr. Clark and Mr. Arsenault.

Tom Reid, Deputy Minister, Department of Natural Resources of New Brunswick: I trust everyone has a copy of this. There are a number of graphics included. I apologize for the covering page because this is the Standing Senate Committee on Agriculture and Forestry, and it has ``parliamentary committee,'' so my apology. I am off to a bad start.

Senator Fairbairn: No, we are easy.

Senator Duffy: We know your heart is in the right place.

Mr. Reid: I want to be able to show you the importance of forestry in New Brunswick and quickly explain to you what New Brunswick is doing to try to meet the challenge. Then I will go through the challenges from a government point of view, from an industry point of view and from a private woodlot point of view, and then I will conclude. I will go very quickly and try to stay within my time limit.

The first slide is the share of the forest resources sector in real GDP. You will see all the provinces and territories, and if you look, the forest sector is more important to New Brunswick than to any other jurisdiction in Canada. It is 8.9 per cent of our GDP. The next one closest to us is British Columbia at 7.4 per cent. Forestry is a major contributor to the New Brunswick economy, and we need to be able to sustain and continue that.

The next slide shows just a few more facts about the New Brunswick forest sector. There are 15,000 direct jobs and 12,000 indirect jobs. We have lost about 5,000 jobs in the last five years because of mill closures and that type of thing. The export value in 2008 was $1.8 billion, and it used to be $3 billion. We believe that if we make the right choices and decisions, we can grow that export value back to $3-4 billion. CIBC has done a study for us and has indicated we can do that, if we make the right choices. There is $300 million annually in revenue to the province from our Crown timber sales and taxation related to forestry.

Slide 3 shows you the impact in our province. I have divided the province into five sections; North Shore, Miramichi, Northwest, Central, and Southern New Brunswick. The next slide shows you the mills within these geographical areas in 2004. The ones with the smoke stacks are anchor mills or pulp and paper mills, and the piles of lumber are sawmills, value-added facilities. The next slide shows 2009 and what we have actually lost in the last five years. We have lost a lot of our pulp mills. If you look at the Miramichi, we have lost all our pulp mills, our OSB plant, Weyerhaeuser. If you look at the North Shore, we have lost two pulp mills. We have retained the pulp mills on the west side of the province, and we have lost many sawmills. We have had a significant impact in terms of the downturn in the forest sector.

The next slide shows what the government has done, and we have done some good things. We have just used a balanced approach. We have engaged all stakeholders, and we have developed a new forest management strategy for the public forest or Crown forests, and that will be implemented in 2012. It takes into consideration the wood supply objectives for the forest industry, but it also takes into consideration many objectives that are non-timber, such as wildlife habitat, biodiversity, ecosystems, protected areas and that type of thing. We are getting ready to do our forest management planting and start implementing this new forest management strategy in 2012.

As I indicated, we had CIBC do a competitive forest sector study for us. They did some forecasting on where we should be investing our money in terms of opportunities: What type of mills and what commodities we should be producing in New Brunswick, what the new opportunities are, and which traditional industries we should be backing away from. We have a good idea of what our industry should look like and the path forward.

We are providing financial help for our mills to modernize so they can be competitive. We are providing financial help to our mills to convert to alternative energy and get off fossil fuels. We have provided a rationalization strategy for our sawmill sector. In other words, we provided a six-month window for those sawmillers who wanted to exit the industry, and we did that with incentives by allowing them to sell their Crown allocations, and allowing the purchasers to transfer them to their existing mills. We basically rationalized our sawmill industry.

We are providing property tax rebate for high electricity users, that is, the pulp and paper sector. We are decreasing our corporate tax rate. We have increased our silviculture budget. Since 1982, New Brunswick has heavily invested in silviculture. We invest $25 million a year on Crown land, and we also invest on private land. We increased that this year, and we do thank ACOA and its minister, the Honourable Keith Ashfield. They are providing $7 million as a supplement to the monies we are already spending in silviculture this year. We are piloting what we call a private wood equitable market access, where we are trying to give the private woodlot sector access to the market. That is a big challenge today, given the market conditions. I will talk more about that in a minute.

The next map shows you the ownership. Roughly 47 per cent is owned by the Crown, 34 per cent by private woodlot, 17 per cent industrial freehold and 2 per cent federal. It is important to understand land ownership in New Brunswick in order to understand the challenges facing the private woodlot owners. They own 34 per cent of the land base in New Brunswick. Wood sales have been a major problem. Their wood sales have dropped by 60 per cent. They were harvesting, in the good years of 2004 and 2005, 2.4 million cubic metres of wood, and in 2008 they only harvested 700,000 cubic metres of wood. Some land owners are not interested in harvesting their woodlots now because of the purchase price of wood. We have lost capacity with producers, harvesters and truckers, and I am sure Mr. Clark will talk about it, and it is difficult to recruit new entrepreneurs into that business.

One of the challenges is access to credit. Banks will not finance producers, contractors and truckers because it is a high-risk business today. That is a challenge going forward, and that is one that I will emphasize: Access to capital and credit is very challenging, not just in New Brunswick but for the forest sector all across Canada.

Competitiveness is one of the challenges facing the forest industry, and we are trying to help them to get competitive financially. Wood supply is a real challenge. Historically, in New Brunswick, we consumed about 11 million cubic metres of wood annually. We were actually a net importer of wood. With the loss of private wood into the marketplace, it is too expensive to import wood. Wood supply is a challenge today in New Brunswick.

Wood costs. Eastern Canada had the highest wood costs in Canada, and we must bring those wood costs down.

Energy costs. In New Brunswick, we are middle of the pack in Canada, but if you look at competition in Quebec and in the U.S. south, they have much lower rates, which makes it more difficult for our mills to be competitive.

I have already talked about access to capital and credit. The forest industry has challenges in accessing credit. If they can access capital or credit, the rates are high, probably in the range of from 8 to 15 per cent.

The labour force is a challenge. People are leaving the business. Harvesters, producers and truckers are getting out of the business because it is a very difficult business to work in, and it is difficult to recruit young people into this business. That is a challenge for going forward.

I do not have to tell you this, but for the whole manufacturing sector in Canada, the whole private sector, pensions is a challenge for these companies. Most jurisdictions do have regulations around private pensions, and companies must meet those regulatory requirements of paying into the pensions. If you are losing money, how do you pay into these pensions? That is a challenge going forward for forest companies.

Government faces other challenges. There will be a fiscal challenge in New Brunswick in terms of the government continuing to sustain their investments in the forest industry in New Brunswick. I am saying that because revenues are down, and forestry is competing with health care, education and social development. It will be hard for the New Brunswick government to continue to maintain or sustain investments as they have done for the past 25 years in forestry.

Socially there is a challenge in terms of jobs. As you modernize and become competitive, there are fewer jobs. People in New Brunswick are used to the forest sector having a lot of jobs and they cannot understand why we are losing all the jobs in forestry. That is a challenge for us as a government in terms of how we create jobs in the forest sector. There are ways to create jobs in the forest sector. You create them through value added. In other words, by taking your primary commodities and turning them into something else and getting jobs that way and not by sending your commodities to the U.S. or to Europe and letting someone else get the jobs.

Environmentally, we believe we have a real good, balanced approach in terms of managing our Crown forests. As a government, however, we continue to get pressure from all the stakeholders. They want this and that. Through our engagement, we have come to a forest management strategy for the future which I think most New Brunswickers, while not totally happy, will be okay with.

Politically, how do you help those communities impacted by the forest crisis? I told you all about the mills that we have lost. In the Miramichi, for example, they have lost all their pulpmills and one of the last sawmills there has just filed for bankruptcy protection. How does the government help the communities that have been impacted? In New Brunswick, we appreciate the Community Development Fund and the Community Adjustment Fund which are federal funds that help us to do that, but it will be a continuous challenge for us.

If I leave any messages with you this evening, this is what I want to leave: Sustaining and supporting New Brunswick's forest sector is essential if New Brunswick is to be self-sufficient. Our forest sector in New Brunswick needs to be ready when the markets recover. That is our goal, to get them ready for when the markets recover. We need federal help and support. If we work together, we can win together. I will close with that.

The Chair: Thank you, Mr. Reid. I will now ask Mr. Clark to proceed.

Andrew Clark, President, New Brunswick Federation of Woodlot Owners: I have a prepared presentation, which, upon reviewing, I found to be too long. I will paraphrase the first bit of it and then move quickly to the recommendations.

My first duty is to thank senators for inviting us here this evening and for giving us an opportunity to have input on behalf of the 40,000 woodlot owners in New Brunswick.

The second page of the brief has a map which shows where the private woodlots are located in New Brunswick. If you knew New Brunswick very well, you would know that these are the developed areas and the farming areas. The private woodlots in New Brunswick tend to be on some of the best land base in New Brunswick as well, because they are near the settled areas. We woodlot users use them for a variety of purposes, for example, for recreation, to earn income, sometimes as a fund when we need extra money if a barn burns down, if a child goes to college, and so on. Those are parts of it.

My presentation starts with the Second World War, but I have read newspaper reports from 100 years ago, where people were complaining that Crown land was unfair to private woodlot owners. This is an old issue in New Brunswick.

Following the Second World War, there were more challenges than usual as mills got larger. They started using secured amounts of timber from Crown land while woodlot owners were losing their markets. We needed some adjustments to that and we needed help with scaling practices, extension services and silviculture programs. There was not a lot of capacity for professional woodlot management planning.

Starting in the 1960s and going on through the 1970s, we developed a system of marketing boards in New Brunswick. It started with associations and moved to marketing boards using the farm products legislation. That process was completed by 1981. In 1982, a program was put in place called the primary source of supply, which said that the industry was obligated to negotiate for the annual allowable harvest that private woodlots had before they could access Crown wood. That is what that whole program was about.

Dealing with the origin of the current forestry crisis, most of the hardships that the Canadian forest industry and woodlot owners throughout Canada are currently facing are largely created by outside influences which are almost entirely out of our control. The global economic recession, in terms of building products; and the subprime mortgage fiasco in the United States can take most of the blame. However, after recognizing these things that have caused the current state of affairs, there are some things that government and the forest industry could have been doing that would have lessened the impact of these particular dramatic outside influences.

Mr. Reid alluded to the fact that in the Miramichi region a group of mills — and they are listed there — were using 1.5 million cubic metres of wood. With the closure of the last sawmill, none of that wood is being used in the Miramichi region. Although the Miramichi region is an extreme example, around Dalhousie the AbitibiBowater mill closed. That made things worse in that area. In the southeastern part of New Brunswick, both Downie Lumber and Fawcett Lumber closed. In the upper Saint John River valley area, where I am from, we hope there are only temporary closures of the juniper and plaster rock sawmills which were the main markets for woodlot owners there. There has been a serious loss of consumption of primary forest products.

There is a schematic in the brief that shows you a flow chart. If you are finding it confusing, then you are beginning to understand the situation. How all these mills work together — one mill buys another's by-product and helps create another — is a complicated pattern. Mills do business with each other and trade wood back and forth. However, when you take one piece out of that puzzle, it creates great difficulty for the rest. It then becomes difficult to harvest and sell wood from a private woodlot sector.

The shortage in product diversity in Canada's forest industry makes it extremely susceptible to volatility in the commodities that it currently produces. For the most part, we are pulp and paper and dimensional lumber producers and New Brunswick is no different.

When you look at the remaining mills in operation in New Brunswick, you see a few common threads. The sawmills that remained in operation during this time were those that well diversified in terms of the products that they produced and those that were diligent in maintaining their infrastructure, making regular investments in facility upgrades. Failing to undertake key measures has put many companies in a position where they had no choice but to close.

The commodities that the sawmills were producing were largely destined for the United States, which, for all intents and purposes, had a full stop on the demand for lumber and other building commodities. In the case of pulp and paper mills, many of the facilities were old and had not had significant upgrades to keep them efficient and competitive so that they were at a competitive disadvantage. In difficult markets, they were the first to close. By the time it became imperative to invest in upgrades and potential new value-added product lines in order to survive, the financial climate made it difficult or even impossible to access capital and complete the appropriate investments.

It is also noteworthy that some of the facilities that have continued to operate through the economic downturn are companies owned and controlled by New Brunswickers. The fact that they live there, that that is where they are from and that they are not just companies with investments there but that this is their life means they have put in extraordinary efforts, in many cases, to survive.

With respect to the decline of the woodlot sector in Canada, and more specifically in New Brunswick, it does follow the ebbs and flows of industry markets. However, there have been other factors that have contributed to the drastic decline in private woodlot activity. Along with the loss of industrial capacity through the plant closures, the harvesting of timber from Crown land in New Brunswick has remained quite stable, creating a lack of demand for woodlot timber. Also, training and research and development has historically focused on large industry and, therefore, not met the needs of smaller-scale woodlot owners.

Woodlot owners, over the last number of years, have lost their connection to our federal government. The Canadian Forest Service had, in the past, supported training and R&D at the woodlot level. Currently, the main link has been through the Model Forest Network, which has been a valuable partnership, although that program has suffered cutbacks as well.

In general, the boards and the federation seek to represent woodlot owners on all matters of concern. Having said that, we would like to offer the following comments and suggestions:

1) Increase emphasis on research and development for biofuels and other value-added products from wood. This is an emerging sector where Canada can play a leading role and diversify the product mix to better diversify our forest economy.

2) Programs for woodlot owners to generate income from their woodlots rather than simply fibre production. The development of ecosystem goods and services, with the inclusion of markets for carbon offsets, is a very positive step in diversifying the group of revenue streams that can be generated from well-managed forests. We strongly support the development and promotion of these programs. We caution, however, that these programs must be developed in such a fashion that small landowners can participate, and they are not just for large industrial landowners or government.

3) Support for bio-energy plants producing green energy, in particular, small-scale community-based projects. We strongly support the movement towards green energy, particularly from renewable resources such as wood. We envision a future where communities could be producing heat and power from locally grown wood to provide to local schools, government buildings and residences. Woodlot owners need leadership from the federal government to encourage the modernization of regulations and policies that currently restrict development of small-scale bio-energy projects.

4) Support for certification and management plans on private woodlots with incentives for sustainability. With the increasing demand for third-party recognition of sustainable managed forests, woodlot owners seeking certification of their woodlots will require financial assistance. Certified woodlots will require management plans to demonstrate a commitment to sustainability. Increased financial assistance in management plan development and recognition for management plan implementation in the way of tax incentives would also be useful.

The level of encouragement exerted by our federal government will directly impact the effectiveness of private woodlot certification programs and the resulting side benefits. Not only will we be able to achieve and prove our sustainability, but we will also have the information available for carbon credits and ecological goods and services as an added benefit to third-party certification. The support and leadership of the Model Forest Network in Canada is an important example of the type of role that our federal government can play.

5) Increased investment in silviculture from the federal government to ensure the healthy future growth of forests and private woodlots. Tree planting, as one activity, offers many benefits, not only on the employment side. It enhances biodiversity as well as having impacts on greenhouse gas reduction targets. Programs that encourage the use of stand improvement silviculture techniques would be of benefit by using a different avenue to achieve the same end goal.

6) Programs for citizens who switch to renewable resource heating; rebates for infrastructure. Incentives for homeowners to switch to a renewable heating source will encourage increased investment in the renewable sources of heat and power fuelled by wood.

7) Tax initiatives that will encourage sustainable practices; a system to allow for income spikes caused by natural disasters to be averaged, as well as the ability to use expenses from silviculture treatments against income. This would lead to greater woodlot owner confidence for the future.

8) Programs that allow small and medium-scale projects to advance by providing the necessary support in accessing capital for investment in such projects. These projects could assist in increased diversification and value-added opportunities.

9) Financial assistance that will enable access to capital or refundable tax credits, or both, in order to assist in the rebuilding of logging capacity that has been lost as a result of the economic recession.

10) Strengthening the responsible enforcement of federal competition laws, especially around the enforcement guidelines on the abuse of dominance provisions in the Competition Act.

In closing, the New Brunswick forest industry is so important to the economic health of our province that I am confident that we will find ways to rebuild our industry. This rebuild will include and embrace existing and new technologies to improve the productivity and efficiency from the harvesting stage to the final manufacturing stage. Leadership from the federal government by way of incentives, policies and harmonization of regulations will enhance and expedite the opportunities to rebuild and reinforce our forest industry for our children.

The Chair: Thank you, Mr. Clark.

Now we will hear from Mr. Arsenault.

[Translation]

Mark Arsenault, President and CEO, New Brunswick Forest Products Association: Thank you, Mr. Chair, and thank you to the members of the Senate and of this committee. It is a pleasure to be here today. It is an honour, and we appreciate the opportunity to talk to you about our problems and policies.

[English]

On behalf of our 50 members and our board of directors, I would like to say thank you for giving us this opportunity. The New Brunswick Forest Products Association is a non-profit organization that represents the forest industry in New Brunswick. We represent the pulp and paper companies and the sawmills and a few other independent sources as well.

In the few minutes that I am given today, I want to address four key issues where I think we can have an impact and that we can work on with the federal government.

The first issue is access to credit, about which you have certainly heard from us, and I am sure you will hear from many other people. I want to address the black liquor issue, the black liquor energy subsidies that are now taking place in the United States and that are wreaking havoc on our industry. I would also like to touch on silviculture funding and wrap up with a view as to what we think we should be looking to in the future, and that will revolve around carbon sequestration, carbon trade and new emergences in green technologies.

While there is no doubt that everyone is going through challenging times right now, we are optimistic that the future will be bright. We want to make sure that we position ourselves in the right way so that when we come out of this, New Brunswick is a leader, that we have all our systems in place and we can compete on the world market. The goal is not just to be good; we want to be the best in the world. These times of transformation, albeit forced transformation, give us the opportunities and motivation to do that properly.

Let me start by giving a brief snapshot of the impact this forced transformation has had on our province. Over the past four years, the forest industry has been subjected to what we have called a perfect storm of events. There is no doubt that they have all hit us at the same time. Just as we thought we were coming out of it, we were hit with the U.S. economy, which caught everyone off guard. We all thought we would be in a period of recovery right now, and unfortunately that is not the case.

It is worth noting that while Canadian manufacturers have suffered greatly in the last year, forestry has been in such a downturn for more than four years. During that time, due to closures, New Brunswick has lost half of its pulp and paper and more than half of our sawmills. We have been hit the most with the largest decrease in the last two years. In 1999, there were 99 registered sawmills in New Brunswick, and in 2009 there are 50 or 55. In an operating survey, we found that only slightly more than 20 or 22 sawmills are operating at capacity. As you can imagine, that has a devastating impact on the province.

The impact is more when we lose the pulp mills. The forestry sector is so interdependent on each other that it creates a chain reaction, particularly in the Miramichi. If you lose your capacity to use up the low value wood — if there is no one to purchase the pulp wood that is extracted from the forest and you cannot get a revenue stream from that — it makes it difficult to go and harvest just for saw logs. You need both in tandem in order to have a whole system that works. When one goes down, the other one suffers.

The closures hit New Brunswick hard. Mr. Reid talked about the gross domestic product being at 8.9 per cent, but in the past it has been as high as almost 12 per cent, and we have lost that ground over the last couple of years. We have gone from about 23,000 jobs down to 15,000-16,000 jobs, depending on which statistics you use and which group. Losing that many jobs in a short period of time has an impact on an economy. I would point out as well that these are rural jobs in areas where people do not have the alternatives of easily moving to the next sector through training and the like. For New Brunswick, which is primarily a rural province, it is critical to keep that in mind. It has been a great source of jobs in the past, and we would hate to see it disappear for the sake of a couple of bad years.

Let me turn to our first issue, which is access to credit. Our member companies have identified access to credit and reasonably priced credit as a top issue. The current global economic crisis has had a devastating impact on all industries' ability to access capital. This is particularly true for the forest industry. We have been considered a high risk for several years now, and the expanding credit crisis is wreaking havoc. As companies scramble to cover debt in these difficult times, financial institutions are unwilling to lend at normal risk premiums, and in the rare chance that they do invest, it is usually at extremely high premiums, from 8 to 15 per cent. This makes it very difficult to look at any innovation, any new ideas, any new markets or any new product. Without that capital, it becomes virtually impossible to move forward.

We recognize that, in the last budget, the government put access to credit as a key issue. They have invested many billions of dollars at the macro level to try to free up markets that would allow financial institutions to start lending again. That said, we have not been able to trace the path to the credit. If you bring it down to the micro level, when you look at industry, while there might be some movement on the macro level, it is very difficult for our members to say, ``Okay, well, actually the bank is lending me money now.'' We have not been able to trace the path to that access. Unless you address that, you are not solving the problems.

I know that the federal government tends to play at the macro level, but somehow, there has to be some consideration given to how it will get back into the industries, especially the tough industries. It is often a matter of mathematics. The forest industry has a lower return than other industries, so investors say they are not investing in forestry. Maybe there is a way to ensure that there are certain pools of dollars available under normal loan processes, but that there is a certain pool of money available through other sources. That would go a long way to helping access to credit.

The second issue that we want to touch on is certainly the hot issue at the moment, and it is black liquor. Recent subsidies have been offered under the renewable energy initiatives to pulp and paper companies in the United States. These are a great cause of concern for us here in Canada. Black liquor is the residue coming out of the pulping process. Generally speaking, we burn it. It is like an oil, and it is used to create energy and heat. It is a great source for our companies and has been for many decades. The U.S. has found a loophole in a tax law down there that allows them, by adding diesel fuel to it, for it to qualify as an alternative fuel and get 50 cents per gallon for the black liquor they are burning. This is creating multi-million dollar subsidies for individual companies. International Paper received a $70 million cheque for one month as a subsidy. It is estimated that they could receive as much as $1.2 billion if this continues. It is one of the largest paper companies in the world, but individual companies are getting multi-million dollar cheques for this tax credit.

To give you an idea, conservative estimates are that it is giving them the ability to lower their pulp price by $125-175 per tonne, and pulp sells in the range of $400-$500 per tonne. This is a significant advantage that the Americans have, and we are witnessing many companies having a difficult time competing, asking why we should produce the pulp in Canada when we can buy it cheaper just across the border. It is an issue of mathematics. It is difficult for us to compete. This is one of the greatest threats to the industry. Again, the pulp mills are our anchors, and losing a pulp mill has a chain reaction on the other industries as well.

We have had multiple talks with the federal government now. We have made presentations to various cabinet ministers, and we made a presentation to the parliamentary committee just last month on the subject. There seems to be some movement and at least an understanding that this needs to be addressed, but I have to emphasize the importance of speed on this. We have pulp mills that are watching the clock, and we want to make sure we do not lose them because we have not moved fast enough on this. I would encourage this committee to make recommendations that would encourage the federal government to move on this in a very significant way.

We think several things could be done. First and foremost, convince the U.S. that this is really unfair and they need to cease as quickly as possible. Perhaps that is through making it a trade issue. One way or another. if we cannot do that or it takes too long, we will have to find some way of levelling the playing field. I would not suggest we do the same subsidy, because it requires adding diesel to the fuel and we would not recommend that in Canada. However, some form of subsidy that would allow a level playing field and allow our mills to compete will be essential if you cannot reverse the American stance on this.

Silviculture, for us in New Brunswick, is an important topic. We invest more than $26 million annually in planting trees and thinning our forests to the increase the yield and quality of the wood. New Brunswick has a long history of tree planting, and today New Brunswick forests are absorbing millions of tonnes of carbon dioxide and providing a sustainable wood supply that supports more than 15,000 direct jobs in the province. We have been planting trees for more than 50 years. However, we would like to do more, and there is an opportunity for the federal government to partner with us, with the province, with the private woodlot owners and with industry. Just recently, the Honourable Keith Ashfield announced through ACOA some assistance and partnering with us, and we are thankful for that. We are hoping that we can do more. There is room to grow in that area.

We would like to invest more in hardwood silviculture and expand that science and improve the quality and quantity of wood available over the time. If you look at the future and where we are headed, wood supply is critically important, and this is an investment that benefits the short term and the long-term. If you are looking for an infrastructure project that is shovel-ready, there is none more so than silviculture. There is an immediate benefit from putting people in the field and working right away. The vast majority of the funds go into human resources. It goes right into the people. Unlike roads where you have asphalt, equipment and other things to pay for, the investments that take place in silviculture are basically paycheques as well as people working in the fields.

In the short term, you have an immediate economic benefit for forestry communities, and in the long term it is like an RRSP; you plant it, it grows and over time you have the long-term benefit of it as well. It is an ongoing process; it is not only planting the trees but also thinning the forest and following the science of keeping it growing at the best rate possible.

We would strongly encourage this committee to make recommendations to partner on silviculture, certainly in New Brunswick but across Canada as well. It is essential. It will help us meet any carbon targets in the future as well, and we think there is a real growth potential.

That leads into how things look in the future. I think we are very encouraged in looking at this. There is a great opportunity for this committee and for the government to not only look at how to fix the problems right now but look to the future. In hockey, you do not skate to the puck; you skate to where the puck is going. This is a good opportunity for the government to ascertain what the industry will look like and how we help the industry get there. One key component is looking at beginning to work through the cogeneration and the energy process by using biomass and wood products to generate energy. That will spur on a whole world of new technology. Along with that comes biorefineries, biotechnology firms and all the other elements and spinoffs from those.

Currently, there is a lot of research and development being done on black liquor and how you can break down the components to various chemicals and create a whole world of products. At one time your toothbrush was built with a petroleum product, but now it will be built with a bioproduct, which is a renewable resource versus a non-renewable resource.

That is where the future lies. We can invest now in the fibre that will be needed through silviculture. Any type of assistance that could be put forward for research and development and helping companies make that transition over to the new economy would be well received.

To conclude, I know that this committee will be going on a national tour. Certainly when you come to New Brunswick, we would like to extend an invitation. The association would be more than pleased to help coordinate any tours of facilities. We have some great silviculture grounds and land where we have beautiful examples of treated versus non-treated sites. We would be pleased to organize tours for you and take the committee around to show you all the good work we do; we are very proud of it. Hopefully, you will agree to be our guests.

The Chair: Thank you, Mr. Arsenault. Now we will move to the question part of our committee.

Senator Mercer: Thank you for coming. I have been on this committee for almost six years now, and sometimes I ask myself why. There are always the negative stories, but there is always something that comes out of these meetings that amazes me. Every one of you told a very bad story, but then every one of you has a positive attitude about the future. That is the same with the other side of the committee, which is agriculture.

I want to thank you for your presentation. I want to draw the attention of the researchers and clerk to our report. There is a sentence in Mr. Clark's presentation that I thought was particularly poignant. It said: ``The shortage in product diversity in Canada's forest industry makes it extremely susceptible to the volatility of the commodities that it currently produces.'' That one sentence sums up many things. I do not know if it was you or a different author that wrote it, but whoever it was, they did a good job.

I apologize for my preamble, but I had to say that about how negative everything is but how positive everyone is about going in the right direction.

Mr. Reid, as a deputy minister, you have intimate knowledge of how government works in New Brunswick. I am curious about the property tax rebate for high electricity users. How does that work? I am a resident of a province with high electricity rates. I live in Nova Scotia, and I actually heat my home by electricity and wood, so I am keen on knowing. This is for high electricity users.

How does that get interpreted in New Brunswick to a person like me who heats their home with electricity? How is that viewed? Are you subsidizing big companies who are big users? I am not suggesting that is a bad thing; I am trying to get a handle on how it works and how it plays out.

Mr. Reid: There is no question; it is good for our pulp and paper industry in order to keep them competitive. However, from a social point of view, there is a lot of debate around it in terms of why the government subsidizes the industrial sector. Is it being passed on to the residential user in terms of NB Power actually being a Crown corporation that is supposed to be funding itself? That debate is always there. However, it is a government decision to try to help the pulp and paper industry through this crisis. Socially it is debated very often as to whether it is the right thing to do or the wrong thing to do.

Senator Mercer: Probably every time the power bill arrives at someone's home.

Mr. Reid: That is correct.

Senator Mercer: I guess that is why we only get our bills in Nova Scotia every two months. It cuts the debate in half.

I did not quite understand the problem that a couple of you referred to with respect to the wood supply in New Brunswick. If mills are closing, why do we have a supply problem? Would it not be the opposite, where we have an abundance of supply? In the Miramichi region, for example, and I know New Brunswick well — I live in the province next door and travel through New Brunswick several times a year by car and have visited it many times. I do not understand that. Can someone help me with that?

Mr. Reid: Short term, we probably do not have a supply problem. We are looking to the future. If you look back to 2004-05, we had good supplies from private woodlots. I am talking sustainable supplies because we do manage sustainable in New Brunswick; that is one of our key objectives.

If you look back to in 2004-05, we were a net importer of wood. Today, wood supply is not a problem, but I will come back to your point that we are optimistic that the industry will recover, and when it does, we will have a wood supply problem again. That is why we are looking at investing in silviculture for the future. We are not looking short term; we are looking long term.

Senator Mercer: I have always looked at New Brunswick as one of the models of silviculture in the country, both private and public sector programs, and you do not have to drive very far in New Brunswick to see examples of positive silviculture. I am a little surprised. Has there been a downturn in silviculture? Has the number one producer, Irving, slowed down their program? Or has government at the provincial level cut back on their support for silviculture?

Mr. Reid: With respect to Crown land, this year we increased our silviculture budget by $5 million, and that is part of an economic package to put people to work. They are shovel-ready projects.

Some of the industry and industrial users have cut back in terms of silviculture on industrial freehold land because of available cash, but they are still committed to silviculture. We are spending about $6 million a year on private land woodlots. A couple of years ago we were spending $8 million, so there has been a cutback there but we are still committed to silviculture. The problem with silviculture is that you do not reap the dividends for 30, 40, 50 years. That is one of the challenges. You can invest today but that tree it is not ready for harvest until a rotation, which could be 40 to 50 years.

Senator Mercer: However, the person planting the trees is working today.

Mr. Reid: Yes, no question. We are actually doing more silviculture this year than we did last year.

Senator Mercer: Mr. Arsenault, you talked about access to credit and the fact that the federal government has tried to do some things. I do not want to get into a political debate into it, but it has been done with all good intentions but it has not gotten down to the bottom. Senator Duffy today spoke on a bill regarding farm credits, which will be debated at some other time.

It seems to me that there might be an opportunity, chair, that to take a little side trip here on our study to talk about the access to credit because it has come up several times.

How difficult is it? Is everyone being refused or has it just been a few?

Mr. Arsenault: There are very few getting credit. Even getting down to the contractor level, banks are rolling down their line of credits. When I talk to my members, they are saying it is virtually impossible to get reasonably priced credit, even any access at all. In many cases, institutions have made a group decision that forestry is out. In some instances it is just that then investors look ta where to put their money, they find better industries or industries with a slightly higher return. Nonetheless, it still creates the problem we have, unless we can find some way of guaranteeing a certain volume and there are some creative ways that can be considered.

Right now we are talking to the Business Development Bank of Canada about backing loans that would be put out, but not without being the loan guarantee. Our companies would be the loan guarantor to independent contractors, but the government, through the BDBC, could secure a pool of say $25 million to $50 million that would allow independent contractors to seek out those dollars.

The larger companies would ultimately be the loan guarantee, but the government would back it. There is very little risk to government, and maybe by doing something like that you could reduce your risk premiums and make it reasonable.

Senator Mercer: Mr. Reid, I will address this question to you but I encourage the other two gentlemen to comment on the matter, if they will. One of the main concerns in the forestry sector is how to buoy economic viability while sustaining the forest's long-term health. In the past we have heard witnesses talk about value-added products, avoiding such a primary focus on raw materials and getting into the value-added side. This could greatly expand employment opportunities, increase economic prosperity and help in the back country throughout Canada in the rural parts of the country.

One of the main difficulties though is harnessing this potential. It seems obvious that there needs to be better collaboration between governments. You are the deputy minister in the Department of Natural Resources in New Brunswick. How can the federal government assist in creating these jobs specifically in New Brunswick, and obviously in the rest of Atlantic Canada and perhaps the rest of the country? When we write our report, how do we say to the federal government: If you do this it will create jobs in New Brunswick if you work with the government of New Brunswick, and we can do the same in Nova Scotia, Quebec and British Columbia and it will work as well?

Mr. Reid: I talking about how to create new jobs because we are losing jobs in the traditional industry, we have to move to a value-added. There are a number of things that need to be done for that to happen. One is research and development in terms of development of new products, but there are some simple things we can do.

For example, two by fours, two by sixes, two by eights, that is what we export into the U.S. It is all related to housing. I am recommending that you go on our DNR website in New Brunswick and you look at the CIBC Woodbridge Report, the competitive industry report. They give some really good suggestions how we take those primary products and start building components to houses. We can put them into containers. We need to educate our industry to do that, and take our industry on tours and start to meet the big housing manufacturers in the U.S. We can try to find out what the customer really wants and then deliver what that customer wants.

A housing manufacturer in the U.S. does not want individual pieces of two by four. They would like to have components that they assemble on site.

Senator Mercer: Trusses.

Mr. Reid: They want walls, floors, all in sections that you can put together, like putting a puzzle together. It is a lot faster and cheaper. They can send their blueprints to us. Our industry creates the container full of lumber and sends it down, drops it on the site where the house will be built and they erect it. My understanding is there is a lot less theft when do you that, because there is tremendous theft with people stealing building supplies but if you have a container you can shut the door when you go home at night.

This is one area where the federal government can assist in organizing the tours into the U.S. with the manufacturers, perhaps helping finance some of those tours into the U.S., help us educate our traditional commodity producers to transform and get into new value-added opportunities and form partnerships.

That is one example of how we must start doing business differently.

Senator Mercer: I am not sure that is different though. Senator Duffy referred to my living in the north end of Halifax. There is an entire section in the north end of Halifax that is referred to by Haligonians as a section of prefabricated houses built post-war. They came in a box and were thrown up pretty quickly. We called them prefabs because they were prefabricated somewhere else and built in the west end of Halifax.

Mr. Reid: I am not sure if you are talking about modular homes, because there is a difference. Modular homes you can only transport within a certain radius in terms of cost. I am talking about someone sending a blueprint to a manufacturer, and them cutting the lumber and putting it together in sections. Then it is sent in a container to big housing developers and they assemble it on site. It is a bit different and it is sort of prefab but a different type of prefab. That is where you get the jobs in New Brunswick: You create those assembly jobs, the prefabrication of the product in New Brunswick and then the assembly jobs are wherever the site of the house will be constructed.

[Translation]

Senator Rivard: We heard other witnesses before you say the same thing about new products. I think it is a very good idea, because as far as two-by-fours and two-by-sixes go, demand is not as strong, and I encourage you to move forward. If you can get government incentives, all the better. That is what I think.

As for product development, have you considered the wood pellet market, as in Sweden? Is that a good idea for your province?

[English]

Mr. Reid: That pellet industry is in the CIBC report that I talked about. I will be honest with you; the report is not recommending that the New Brunswick government support a pellet industry in New Brunswick. One reason is it does not create a lot of jobs; second, they are not high-paying jobs.

They believe it is just a matter of time before that market gets flooded. Once the market gets flooded, many producers will experience financial challenges.

The report that we had commissioned is not recommending government support of the pellet industry, but we do have pellet plants in New Brunswick. We have had some private entrepreneurs who have gotten into the pellet business.

As a matter of fact, we have even helped them a little bit by giving them some temporary assignments of Crown wood, but we will not give permanent assignments. We want to hold that wood for some of the new opportunities that will be coming along.

[Translation]

Senator Rivard: As for forest health, we know that the spruce bud moth has affected British Columbia, Alberta and Quebec, and now we have the ash tree disease. I do not think that you have those problems in New Brunswick. How healthy are your forests?

[English]

Mr. Reid: The health of our forests in New Brunswick is good. We have a very strong insect and disease detection program that my department operates every year. We monitor the presence and the intensity of these insects and diseases. We do not currently — and maybe I should knock on wood — have any insect and disease problems in New Brunswick. We know that in the Gaspé there are some spruce budworm problems and we are hoping they stay in the Gaspé and do not come to New Brunswick.

We have an active insect and disease program. We have Forest Protection Limited, which is 90 per cent owned by government, which is prepared to take action against insects and disease if we need to. We also have another group working with with viruses and pheromones. If we have a problem, we will have some tools to fight insect and disease.

[Translation]

Senator Rivard: According to the table of global forest product exports, the United States is your biggest customer, with nearly 75 per cent of exports.

Clearly, you are dependent on the exchange rate. What would be a good exchange rate for you? I imagine you would say $0.60, what the rate was some 20 years ago. In your opinion, what rate would allow you to be more competitive? Would it be in the neighbourhood of $0.80 or $0.85?

Mr. Arsenault: Usually, the lower the dollar, the better it is for us. Since the market is mostly based in the United States, the lower the dollar, the better. When the Canadian dollar was virtually at par with the U.S. dollar, that was when our sales started dropping.

Today, the dollar is sitting at around $0.92, but the difference this time is that our exports have dropped by 70 per cent, so we are not feeling it as much. You would think that a weaker dollar would have helped us, but when sales are at their lowest point, it makes very little difference.

Senator Rivard: Your table shows the list of all the countries that are your customers, but I do not see Canada on that list. There is Africa, South America, Central America, China, Korea, but not Canada.

Is it because Canada is not a large enough market, and you export all of your products?

[English]

Mr. Reid: Over 90 per cent of our products in New Brunswick are exported. It is difficult for us to export our products into Ontario or Quebec, just because of distance. Almost every Canadian jurisdiction has a forest industry, so it is difficult for us to compete with other jurisdictions just because of distance.

There is no question that we have been totally dependent on the U.S. market, which is not a good thing. That is another area where the federal government can help us, by finding offshore markets, whether it is Germany, China or India. We have been totally dependent on the U.S. market and it has really hurt us. We are experiencing that now.

As we go forward, we need to look for some other markets.

Canada is not a big user of wood. We only have 30 million people. When you look at the populations in the U.S., China and India, that is where the demand for products will be in the future. We need to find some alternative markets.

Mr. Arsenault: I would add to that as well. There was a little bit of a hiccup when we looked at new markets. We are primarily commodity-based, with the shipping challenges posed by the lower-value product. It would be much different if we had a higher-end value-added product, which absorbs a lot of the shipping costs. There is a lot of that taken into consideration.

As the market rolls, we are accustomed to such a good market in the United States that we think it is a downturn that will be a year or two years, and when we look at that we do not think about changing the sizing, quality controls and product dimensions so we can hit another market, when we have such a great market on our doorstep.

It would have been different if, at the outset, we had thought five or six years out. We probably would have taken a different approach, but at the time we thought it was a year away from getting back to our main market.

Senator Cordy: You are all great representatives for the forest industry in New Brunswick, and Canada, for that matter. You have said that the industry must be ready when the market recovers and talked about what we must do to ensure that happens. I would like to go back to the challenge you have with accessing credit and capital because if you do not access credit and capital now, how will you be building the industry so that you are ready to take off once the economy changes?

I was concerned when Mr. Arsenault talked about not being able to trace the cash to the credit because the federal government did put a substantial amount of money into the lending institutions so that there would be money available. Now I am hearing that various parts of the forest industry cannot access it. I have heard from developers in my province of Nova Scotia that they are not able to access capital, which again will affect the forest industry.

I think it was Mr. Arsenault who said we should have other pools of money for people to draw on. Perhaps he could further explain that. Also I would like to know how we follow the cash to ensure that people who need credit get it in economic times such as these, not necessarily the boom times. I am also concerned that the interest rates charged by financial institutions are so high, when the Bank of Canada's lending rate is less than one per cent. We are hearing that the rates being charged are as in days gone by, of huge interest rates being charged when, in fact, people are getting the money for less than one per cent.

Mr. Clark: One of the things that I have thought of is that we have a history of a Farm Credit Corporation in Canada, which was put in place specifically to provide credit where banks did not want to provide credit, to a sector that they did not have much trust in. It has been particularly useful for farmers to run and build their businesses. Maybe we need a Canadian forest credit corporation that will help us to rebuild the industry here. If you want to trace the pool of capital, we will put it there in a specific place so that forest companies, contractors and people have somewhere to go, where there is someone who understands their business. I have done some business with the Farm Credit Corporation personally and I found them to be very helpful compared to the banks, because they were specifically keyed in on that business we are in.

That idea is a suggestion I would make on how we can create capital that is accessible to this industry, and you can trace it.

Mr. Arsenault: We do have to think outside the box, and I do not think there has to be a direct loan guarantee from the government to industry or for individuals. It could be, but it could also be the federal balance sheet securing a large pool of money for various institutions that could feed into that, and that would alleviate their concerns so they could lower the risk premiums, for example. Or it would ensure that there is a certain volume that is available because it is backed up or secured by the government at a higher level. There is some creative thinking that could be done on that level, and something could come out of that.

The model that Mr. Clark speaks of is good. We have been speaking with the BDC. What we proposed to them is that our licensees, who are basically our large companies in the province, would be willing to secure or back or co-sign a loan for independent contractors so they could buy a piece of machinery to do harvesting, for example. The company would be on the hook for it in case the contractor defaulted on the loan. They are large companies; they could absorb some losses and generally would not expect many losses.

In order to make this palatable for the banks and make it desirable, if the government balance sheet backed a certain pool of money that was available, you could probably convince the banks that there is no risk for them and therefore you should be able to eliminate some of the risk. Those are some of the things we have put forward.

There is interest in the program; we are still talking to them and we hope that it will go through, maybe even as a pilot project, in the next couple of weeks.

Senator Cordy: You are talking about the federal government with this?

Mr. Arsenault: We are talking to the BDBC.

Mr. Reid: I am not sure why the money is not funnelling down to the forestry sector. I sit on the New Brunswick Industrial Development Board for the province of New Brunswick, and it is unbelievable the number of applications that we have received in the last six months asking for financial assistance. It is not just capital but it is the cash flow of their operation to keep them alive until the markets recover. The province is trying to do what it can, but it is challenging. The industry out there is hurting. I do not have the solution, but they need access to credit or a lot more of them will die.

Senator Cordy: It will be interesting to know what happened to this money that was put in the budget — what has happened to it, who is able to obtain loans and at what interest rate, aside from just the forestry industry but the other industries; who in fact are having access to it. I think you talked about the macro level. Is it just the biggest of the big who are able to access it? It is interesting to think about.

Mr. Arsenault: Yeah, I am not sure.

Senator Cordy: Mr. Clark, you said one of the things the federal government could do would be programs for citizens who switch to renewable resource heating and providing rebates for infrastructure. I assume you meant the federal government when you talked about that. Could you explain how a program like that would work?

Mr. Clark: We were thinking of things like refundable tax credits that would encourage people to move that way and help them to finance putting in new furnaces or use outside heating now that could be used to heat several buildings, or use steam to heat underneath.

Senator Cordy: So you are talking about residential and business?

Mr. Clark: Yes. We have a concept different than perhaps industry and government might have. We would like to see smaller-scale projects that would generate electricity, one or two megawatt levels, and locate the projects in the towns and villages where the energy does not need to go on the high lines, the big grids, but is just locally distributed, which lowers distribution cost.

Part of the concept behind this is that the wood you would use to generate electricity and steam and heat houses will generally be the lowest value product, so you need to greatly reduce the transportation costs and not take it very far. The electric lines, if you will, can carry wood much cheaper than trucks can. If we can convert it into electricity and have the electric lines carry it instead of trucks, it will lower our overall production costs and help us to be competitive in producing this.

This class of wood is one of those things in that schematic I referred to earlier. It is one of the intermittent links and would help fill that void where we have lost pulp mills. It would have a use for some of the wood that is not up there in the stud wood or sawlog category.

We are thinking about how to use our wood to our best economic advantage as close as possible to the stump, developing those smaller scale projects. One positive thing has happened in New Brunswick, recently. About two months ago there was announcement by New Brunswick Power that they have created a 9.44-cent per kilowatt hour rate for green-generated energy, which we did not have before. We can use that to calculate what revenue we can generate from these projects. Before, they were only willing to give you 5 cents per kilowatt and they did not have a green rate. So those policy things are about things like giving incentives for green rates to encourage that type of development. I do not have all the answers other than I know that there is a concept here that good policy thinkers and tax thinkers can use.

I bought a brand new pulp truck in 1986. I do not know why the government was doing it at the time, but I received an investment tax credit from the federal government. I did not need all of my tax credits and so they sent me a cheque for $4,500. That helped me with that truck, to use that truck to work within the industry. That influenced my thinking about making that purchase, to know that benefit was there. That is what I am getting at here. It is trying to create a mindset of optimism and hope: How can I do this? How can I get this done? I think that would help.

Senator Cordy: Cheques from the government are good.

Mr. Clark: When we earn them that way by doing something that is positive for the economy, yes. For example, an owner may buy a brand new furnace for his home that is more efficient or uses wood over existing baseboard heaters, which are very inefficient. Hopefully, if we create the right tax incentives, someone in Canada will manufacture that stove and Canadian people will install that stove and Canadian people will cut wood to fill that stove. It will create economic activity in this country.

Senator Duffy: In talking about this access to credit, and Senator Cordy raised the whole question of where did the macro billions go, it is my understanding that the Minister of Industry, Mr. Clement, had a very vigorous discussion with the directors of the Business Development Bank. Have you found them to be interested in your ideas?

Mr. Arsenault: Yes. We presented to them about a month ago, and at the time, there was not an umbrella that it would fall under. They found there was not a policy that they could do this under. There was a lot of public debate taking place, and I believe it went to Treasury Board at some senior level. Shortly afterwards, they came back and said that there was some areas they thought they could investigate and would seem to make sense. We are continuing our discussions with them, but there seems to have been some progress on that front.

Senator Duffy: Senator Mercer mentioned Bill C-29 that is in second reading in the Senate today. It is an act to increase the availability — I am reading it off my notes here — of agricultural loans and to repeal the Farm Improvement Loans Act. It is to provide capital and loan guarantees to young farmers who want to buy out the family farm, that sort of thing. I would urge you to have a look at that and see if there might be some ways that bill could be adapted to woodlots and to those of you involved in the smaller wood operations. Bill C-29 might be one of those more creative things.

On the subject of exports, Mr. Reid, I was impressed by your suggestions about the house-in-a-box concept. As you know, we in the Maritimes have a big problem now with an oversupply of lobster. I have been talking to marketing people who tell me that you can track, with a sophisticated marketing campaign, an increase in sales. They say that these campaigns really do work.

It seems to me that Americans want Canadian wood because it is stronger, straighter, has fewer flaws and does not warp or twist. It seems to me that in looking to expand into other markets around the world, you can say that if you build a house using Canadian lumber, it will be a better house.

Mr. Reid: There is no question about that. In Canada we have quality lumber, including in terms of strength. The manufacturer can demonstrate quality in terms of production of these components. They must visit the buyers of these products. They have to build a relationship and be flexible and adjust, based on what their customer requires.

There is no question but that we have some of the best forest products in the world. We have a slow growing climate, which means that the growth rings are narrower, giving the wood strength, and most of it will not have warp or wane in it. There is no question that we have quality.

Senator Duffy: I know of a small machine shop in the Ottawa Valley that makes parts for Boeing aircraft on the West Coast. They get the CAD/CAM drawings by email, put them in their machine and produce specialized one-off or two-off items for Boeing.

Forming relationships with people who are building thousands of houses might be a tremendous way of adding value. We are already making prefabricated homes. This would be going in a slightly different direction, but with a top quality product.

Mr. Reid: In addition, you can move these products long distances by containers. With modular homes, distance is an issue.

Mr. Arsenault: One of the great things about that idea is that in addition to moving wood products you are creating a new industry. You have to do the educational upgrades, and you will generate as many engineers as you do plant workers. You have to include that in your schooling system, and that is a role for the federal government. Engineering and architectural departments will have to change their philosophy about how you build a house. Significant skills upgrading is required, so it creates a whole new sector.

Senator Duffy: All of these aspects are very good, but the question becomes how we help your industry survive the next couple of years until the next upturn in the economy. I hope you will be able to send us more ideas on interim financing. The government guarantees mortgages through the Canada Mortgage and Housing Corporation. You put a certain amount down and the government becomes a partner in ensuring that you get into the house. We would like to see how we can help your industry, and in particular your families. You are the biggest employer in Canada, and in many small communities you are the only game in town. We are aware of that and we want to do what we can to help.

Mr. Reid: I am glad to hear that you want to help. We need to look at access to credit. You are right; we need to keep our industry alive for the next few years. The markets will recover; it is just a matter of when. We must have our industry ready when the markets recover, and we have to be on the leading edge, not following other industries. I am glad to hear what you have said, and we will give more consideration to how we can work out the financing.

Mr. Arsenault: I would like to comment on something that we have not talked about today, but perhaps the committee could keep this in the back of your minds. We are somewhat limited in what we can do because of the softwood lumber agreement. This is of particular importance to Atlantic Canada. Because we are deemed to pay fair market value for our wood rather than having highly subsidized wood, we benefit from not paying countervailing duties. The only reason we have been able to survive as long as we have paying higher rates for wood is because we offset that by not having to pay the countervailing the duties to the U.S.

If we lost the softwood lumber agreement and New Brunswick suddenly had to start paying those countervailing duties, it would be much more detrimental than it would be to the other provinces, because we would lose the high percentage advantage that we have. There are intricate details involved in that deal. Direct subsidies are shunned and there are many pitfalls of which the committee should be aware when you are making recommendations. We would be happy to do a quick disaster check of any recommendations you propose to make.

Senator Duffy: There is an upside to having private enterprise own those forests.

Mr. Arsenault: That is right.

Mr. Clark: Mr. Reid said that the New Brunswick government does not support pellet projects, but that some private individuals do. I represent a couple of private woodlot owners who have tried to get these going. I know of one small plant that will be built and will produce pellets in spite of not receiving the help it should have. It could have been producing pellets last year if it had received help when it should have.

If it can be shown that these plants can be built and run for three years, after which the capital cost would be retired, they would provide bridge work to keep people working in the woods and keep the industry going. If they had to be dismantled at the end of that time for lack of a market, at least they would have served the very useful purpose of keeping the industry alive. I do not believe that they will have to be dismantled at the end of three years, but we are in a desperate situation. If we can encourage people to get their plants running in order to make some money and create some work in their area, I would love to see some level of government support them.

Senator Fairbairn: I want to follow up on what you said about farm credit. I come from an area in southwestern Alberta where, if it is not mad cow disease, it is pine beetles or something else. What you said with regard to farm credit has worked many times there when the situation has been very tough.

The situation would be a little different for you, but in a time of pressure and anxiety it does work. I encourage you to keep your eye on it.

I keep meeting young fellows from New Brunswick on the plane going to Alberta.

Even before we started having these discussions around this table, I was having the discussions on the plane. They looked to head out to the province of Alberta because it might be an opening. In each case where I was sitting and talking with them for all those hours, they were not happy about things like pine beetles, but they were going into the mountains, into the Rockies and that southwest corner. They had been working for quite a while in the forestry industry and were comfortable that they would have a good shot. Maybe it is my age, but these fellows seemed awfully young.

In the system within the province in which the younger generation has been making its way into the industry, some of the options are obvious. For the younger ones, are there any particular different directions in which they can go so they can stay within their own province until the many things discussed tonight come together and things are open and running again? Are you vigorously trying to keep them there?

Mr. Clark: The silviculture programs do play a role in that. It allows them to work. We are particularly grateful for the $1.75 million added to our $6 million that we will be able to spend in New Brunswick this year, and that will help keep some of those people there. We talked about that and the benefits of silviculture. That is one of the keys.

What I just said before, we need to look at some of these options. If it is a pellet mill or something else, even if it is a temporary fix, if it can bridge us until the U.S. market starts to demand lumber again to the point where prices increase and these mills become viable, we need those options.

I am personally acquainted with a number of the mills that Mr. Arsenault represents, and I know that a lot of those mills have modernized and are good operations run by good people. All they need is the price and the market and they will be okay. They are good managers, good people and smart people. They need a market.

In the meantime, if ideas like what I suggested about the pellet mills can get them to stay, we should do that quickly before we lose any more of this generation.

Mr. Reid: Senator, it is a real challenge for New Brunswick in terms of competing with other jurisdictions. Many of these young people have post-secondary education debt. They look at where they can go to make the most money.

Senator Fairbairn: That is exactly what they said, and some of them had little children.

Mr. Reid: They need to pay down debt. Where do they look? They look at the province of Alberta to work and pay down their debt. Unfortunately, a lot of times when they get out there, the next thing you know their family joins them and we lose them, which is not what we want. The Province of New Brunswick has established a population growth secretariat where we are trying to retain New Brunswickers as well as recruit others. Our population in New Brunswick has levelled off. It is not growing, which is a problem too.

Senator Fairbairn: That was sort of why I was asking the question.

Mr. Reid: We have a challenge trying to compete with some other jurisdictions in terms of the wage scale. It is not just foresters but nurses, doctors and engineers as well.

Senator Fairbairn: Probably even teachers.

Mr. Reid: Yes, all professions. That is a real challenge for us in New Brunswick. We are starting to come up with ways and incentives. One is, if you work three years, for every year you work, one year of university gets paid down by the government and that type of thing. That costs government money as well. There is no question that we need to come up with incentives and ways to retain our young people.

Senator Fairbairn: I am sure you will.

Senator Mercer: I wanted to follow up on something else.

Mr. Clark, in the third recommendation in your presentation you said: We envisage a future where communities could produce their own heat and power from locally grown wood to provide heat and power to local schools, government buildings and residences.

Mr. Reid talked about what he sees as the possible glut of the pellet business. I come from a province that everywhere you went over this past winter you could not get enough pellets, and some of my colleagues driving home were asked to stop in New Brunswick to buy pellets because they had them.

I live in a rural community and a guy down the road sells an exterior wood furnace. I must stop and take a look when I get the chance. The furnace is outside the house and wood is the fuel. It heats the house, and I am not sure of the technology.

Is there a future or an opportunity to link the industry of developing exterior wood furnaces with the supply of wood? I heat my home partially with wood. I use about four cords of wood through the winter, and it has not gotten cheaper even though the supply is supposed to be up.

Mr. Clark: The technology you are talking about, you are basically running steam underground into your house.

Senator Mercer: I think it depends on what your house is already using. If you are using hot air, it would tie into hot air. I would be out of luck because I have electric heat so it would not help me, but it could help someone with hot air or hot water.

Mr. Clark: With heat and power, it is taking that one step further and saying when you develop the heat, you use it first to drive a steam turbine and then you use the steam to heat the buildings, so you get two uses of it to create better value out of burning the wood.

I saw a documentary recently where villages in Scandinavia have one single heating plant with steam pipes running through their town like you would have natural gas pipelines running. Instead of a natural gas pipeline going into your house, you have a steam pipe going into your house and you heat a whole district that way. When you get to that one or two megawatt electricity scale, you have enough volume to heat a number of buildings.

We recently asked for and got some help from the New Brunswick government. Energy Minister Jack Keir granted us $75,000 to help develop the engineering around different technological configurations that we can look at to try and get that going. That is one of these things we need to do a hurry-up on.

The technology on generating electricity we know; steam-generated electricity we know. What we need to do is put this down to scale and decide where the best places to place it are and get them functioning because they have the potential of really helping the communities in a lot of ways. People can get a stable source of heat for their homes from their local area and not depend on the whim of someone else. It helps in greenhouse gas reductions. I heard figures in an article in a newspaper recently that if you heat with imported oil, 10 per cent of the dollars remain in the community. If you do it with wood, 70 per cent of the dollars remain in the community. That is quite a difference. That is the idea behind this. We need to take these technologies we already know and decide the best ways to configure and join them together to give us the biggest benefit we can.

The Chair: Mr. Clark, Mr. Arsenault and Mr. Reid, thank you very much for being here and having accepted our invitation. No doubt, it was enlightening.

[Translation]

On that note, I want to thank you for making the trip to meet with us and share your experience.

[English]

Before we close, if you have comments to add, please do so.

As chair, meeting groups in the industry and communities, that I am sure that 10 or 15 years ago the presentation that we have heard from leaders like you would not have been in the proper place. Today, because of the challenges that we have in industry, it is an opportunity that I see and that the committee sees. We will visit Atlantic Canada, and thank you for the invitation to New Brunswick.

Thank you very much. As we pursue this study it will be on the net, if you want to link and share additional information. The information that you have shared will be very fruitful and no doubt it will enable the committee to influence the decisions of governments, meaning communities, provincial and federal governments, even though we do not want to embark on a constitutional responsibility of forestry.

(The committee adjourned.)