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.
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.
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.
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
The Chair: The committee is continuing its study on the current state
and future of Canada's forest sector.
Today, we have with us representatives from groups in New Brunswick, who will
share with us their concerns and suggestions regarding our study.
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
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
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
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
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
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
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
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
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
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
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.
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
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
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
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
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
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
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
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
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
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
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?
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
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.
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?
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.
Senator Rivard: According to the table of global forest product
exports, the United States is your biggest customer, with nearly 75 per cent of
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
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
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
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
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
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
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
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
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
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
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
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
On that note, I want to thank you for making the trip to meet with us and
share your experience.
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
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.)