NRGO Committee Meeting

STANDING COMMITTEE ON NATURAL RESOURCES AND GOVERNMENT OPERATIONS

COMITÉ PERMANENT DES RESSOURCES NATURELLES ET DES OPÉRATIONS GOUVERNEMENTALES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, March 23, 2000

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[English]

The Chair (Mr. Joseph Volpe (Eglinton—Lawrence, Lib.)): Let me call the meeting to order.

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Pursuant to Standing Order 108(2), we are conducting a study of Canadian forest management practices as an international trade issue. We've recently had a couple of very good interventions and interveners, so we look forward to the same today.

Even though I haven't come and introduced myself to you, gentlemen, I want to bid you a welcome on behalf of all colleagues on the committee.

We have with us Mr. Peter deMarsh, president of the Canadian Federation of Woodlot Owners. We also have Jean-Claude Nadeau, president of the Fédération des producteurs de bois du Québec, and Monsieur Victor Brunette, who is the secretary-treasurer and director general of the same association or fédération.

[Translation]

I do not know which one of you three wants to begin, but if you wish, Mr. deMarsh, we can begin with your presentation. Usually, we give 10 minutes for the presentation and then we proceed with questions from the members. Are you making a joint presentation?

Mr. Peter deMarsh (President, Canadian Federation of Woodlot Owners): Yes. There is only one presentation.

The Chairman: There is only one presentation. All right. Thank you.

[English]

Mr. Peter deMarsh: Thank you very much, Mr. Chairman. We're very pleased to have been invited to appear before you.

We have submitted a written presentation, so certainly we don't want to take your time up by reading it. We'll just summarize and highlight the key points. I'll get the presentation started, and about halfway through I'll turn things over to Mr. Brunette to do the second half.

Really, as the introduction indicates, Canada is not alone in the world in attempting to raise the standard of forest practices. We have some very serious international commitments, and I guess the pressure from outside the country is part of the reason why this committee has chosen to look at forestry practices.

We are here because we want to make you aware of some particular circumstances that affect small private forest ownership in the country. We have presented sort of a profile of woodlot owners across the country. This is a national question. It's not restricted to eastern Canada, as is sometimes suggested, although certainly groups such as the one represented by my colleagues from Quebec are among the oldest and the strongest in the country.

As wood supplies become tighter and tighter in many parts of Canada, and as the environmental pressures to take better care of our forests increase, both from international concerns and especially from—we think—people in the big cities, we feel our place in the overall solution to Canada's forestry challenges is going to be more and more important. We are therefore very pleased to have this opportunity to make you aware of both the strengths and the lackings that we have as a part of the forestry community.

The contribution that we're making now is very important, especially in some regions. You will note the statistic that says we supply collectively 17% of forest industry wood supply requirements from 8% of the forest. That gives you a sense quite dramatically that woodlots are now doing more than our share, if I may say it that way, in contributing to the national forest economy.

There's another thing that we think is really important to keep in mind as Canada struggles to develop a more workable consensus within the country about how we want to look after our forests. Most of the time, when they see forests, most Canadians are looking at woodlots. This is not some virtue of ours; it's simply the fact of where we are located geographically. We can be, will be, and are committed to playing a stronger role in developing that stronger consensus. The challenges that we face have to do with the fact that our forests are owned by 425,000 families. This is a strength, but it's also a weakness in some cases.

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There is a tremendous need to improve the level of management on many woodlots. Wood supply requirements in the country are becoming critical in some areas, as we have noted in the presentation.

I'm from New Brunswick. I think it's increasingly accepted that New Brunswick, as one jurisdiction, is faced with a real and immediate crisis in wood supply. It has growing dependence on sources outside the province for fibre for industry, including other provinces, but also the state of Maine. It's something that's growing as a problem almost as you watch.

We can play a much stronger role in meeting the challenge of wood supply. We've indicated that our contribution to fibre requirements by industry can be doubled, and in some cases tripled, with the proper investments. What we need is stronger supportive policies, and some of those fall within the competence of the federal government. That's why we're so pleased to have the opportunity to meet you today.

The first policy we want to underline is income tax policy as it affects woodlot owners. As a Canadian, if I want to start a small business, a corner convenience store or whatever, tax policy in this country allows me to deduct expenses during the early years of starting up that business. If I can demonstrate to Revenue Canada that I'm carrying out this business, that I'm developing this new business with a reasonable expectation of profit, that's a fundamental principle in our tax policy as a country. If I'm a woodlot owner, in most cases I am not free to do that.

A second key priority that we want to raise in connection with tax policy is what happens when land passes from one generation to the next. If I'm a family farmer and land is moving between generations, the capital gains tax on that land can be deferred indefinitely, as long as the land remains within the family and is actively farmed. We believe the same policy should apply to woodlots. We believe the same principles apply very clearly, so that same policy should be available to us. It's partly a question of fairness.

In tax policy, we're told that the concept of fairness has to do with treating groups of taxpayers in a similar way to other groups of taxpayers that they resemble or are generally similar to. We are quite closely attuned to the farming community. Many of us are farmers, so in that sense fairness would apply here.

The other aspect of this issue of tax policy is what makes sense for Canadian society, and never mind our self-interested stake in this issue. I'll tell you what happens now when a woodlot passes from one generation to another in a family that doesn't have money sitting in the bank to pay the capital gains tax bill that comes with the property. In eastern Canada especially, we have many cases where that land is cleared off, which is the only way the family is able to afford to keep it. No one likes this. It's not good forestry and it's not good for future wood supplies. It is a consequence of existing tax policy, and we think it should be fixed.

The good news here, sir, is that Mr. Martin has written us recently to say he has directed the Department of Finance to examine these concerns and to seek solutions to them. We're very encouraged that the issue is moving toward a resolution, and we would urge the committee to encourage the department to move quickly to determine what the solutions are and to put them in place.

Our second policy area we want to bring to your attention is the whole area of technology transfer. For many years the federal government was a partner with the provinces in federal-provincial forestry agreements. Those days are gone, and we understand that. We also understand the issues of provincial jurisdiction that are part of that situation. But we want to simply point out that as responsibilities for services such as technology transfer to woodlot owners have become an exclusive responsibility of provincial governments, in many cases across the country they have been simply falling through the cracks. Provinces cannot—and we prefer to say “cannot” rather than “will not”, because we believe that in many cases it's strictly a financial issue—afford to replace the services that were provided through the federal-provincial agreements.

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Building a strong educational capacity to serve the needs of woodlot owners to increase our skill levels, our ability to deal with an increasingly complex market and so on, is a key investment that we need as part of contributing our full potential to Canadian society. We're urging that the federal government, through the Department of Natural Resources, be encouraged to develop a budget directed to this purpose.

Having said that, I'd like to turn the presentation over to Mr. Brunette, from Quebec.

[Translation]

Mr. Victor Brunette (Secretary-Treasurer, Canadian Federation of Woodlot Owners; Director General, Fédération des producteurs de bois du Québec): Good day. We would like to address your committee regarding the activities and concerns of woodlot owners in Quebec and elsewhere in Canada, which are very similar, and more specifically about forest management.

We must note that forest management, an activity which often follows harvesting in Canada, was dissociated from harvesting through the manner in which wood allocations are made and forestry activities are carried out, in order to make it into an investment in the future. In this context, both public and private forests have conditions for sale and marketing that are specifically dissociated from management, and there is great competition for private woodlot owners.

Currently, in Quebec, wood tarification is done by the parity method. The tarification of wood is done with samples taken from the private forest and then methods are applied to reduce logging rights in public forests by using the parity method. This is a residual method for wood tarification.

Private forests have thus lost the advantages gained by being close to lumber mills: lesser transportation costs and better access to forests. All over Eastern Canada, private owners are subject to very intense competition. On the other hand, if governments have tried to establish relatively favourable conditions for the industry to get its supply from public forests, sometimes at the expense of certain advantages for private forests, governments should be involved in planning the future of the resource. Hence, we expect governments, both federal and provincial, to give us a hand in setting up a better planning process for future harvests.

In this context, we often have difficulties caused by natural disasters, such as the ice storm that occurred two years ago. We have difficulties with marketing hardwood, and making our forests productive again. We've lost some advantages that existed in previous programs and we found new partners. We hope that the federal government will find a way to become a partner as well.

More specifically, the National Forestry Strategy in which we participated, recommended the reforestation of less productive farmland. There is much of it in Quebec and in Eastern Canada. Due to incentives and well-planned programs, we could better plan the use of private tenure.

For instance, in a poll held by our canadian federation last year, we calculated that in 1998, reforestation only covered some 5,000 hectares of fallow land. Nonetheless, we can potentially step up management and increase the yield of our woodlots and forests.

We could easily reforest 35,000 hectares a year for 10 years for private forests. We mean private forests everywhere in Canada.

The Canadian Federation of Woodlot Owners and its member provincial organizations could manage such programs. Several owners' organizations have, in the past, proven their capacity to face challenges in reforestation and management. Such programs clearly have beneficial results: carbon gathering pools are created, industrial wood supplies are increased by reforesting land that should be returned to its primary use, namely forestry.

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On the other hand, the commitments of the partners in the forest sector, to ensure the perennity of our resources and optimize their use, do lead us to reviewing our management practices. Before, I addressed the matter of stumpage dues. We must determine who is responsible for harvesting, reforestation and development. We must also review our management of public lands. We think that the owners could exploit slightly bigger units and earn enough income to make a living for their families. We've already developed a model, the one from the Quebec Agricultural Producers Union, that combines forestry, beef production, grain production, maple syrup production and the development of the maple sugar bushes. We hope to be able to assemble these activities to produce diversified production units. If we had more access to some lands, that are often public lands, we could create interesting production units. We must both review our management methods and give ourselves the tools that will allow us to set up a long-term planning system.

In order to get Canada's woodlot owners to make a commitment to the sustainable development of their woodlots, we have to make sure we support their long-term development programs in a permanent way as well as with a view to risk situations. When you invest in the maple production, the investments are often made over a 50-year period and we have to be able to count on partners who certainly won't be insurance companies. Governments have a role to play. They play their role relatively well with the public forests. They could play a partnership role and assume certain private woodlot risks. The European countries provide very good examples. France, Germany and the Scandinavian countries have assumed part of the risk and support private owners. Their contribution has led to the stabilization of production on the one hand and investment on the other.

If you want to attract outside partners, whether people who have pension funds in this country, or foreign investors, and encourage them to invest in our private and public forests, you have to give them certain assurances against certain risk factors. Just think about the recent climatological events that will doubtless occur again. Here, north of Ottawa, in the Gatineau valley, we have to deal with a new spruce bud worm plague. To confront these insect infestations or other natural events, we have to be able to count on the presence of partners. The federal government is a choice partner who could support us in this area. It could also provide specific tax measures in case of damages caused by nature.

After the ice storm, the Quebec government allowed producers to increase their harvesting because there was a lot of work to be done and gave them the opportunity of spreading their income over several years: in English that's called income averaging. It's important to be able to have available tax measures that take into account disasters such as an epidemic or an ice storm. Thus, a producer whose wood harvest would give him $60,000 in income this year but who won't be harvesting for eight or ten years into the future does deserve appropriate tax treatment.

Those are the different tools that could be insured by a kind of group fund that we call a national forestry fund. That could be one way of joining with the provinces and the other partners in developing private wood lots.

I'll now address long-term funding. The Canadian Federation of Wood Lot Owners recommends that Natural Resources Canada, in cooperation with provincial forestry ministers, establish a national forestry fund to ensure the availability of funding for intensive management of wood lots and to ensure a permanent risk management program for owners whose wood lots suffer damage from natural disasters.

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Another matter, forestry certification, brings together everything that has been said to date. Certification serves to show that what you do on the development side is well done but it also serves another purpose. It applies to multipurpose use; it has to do with fauna and also the diversity of decisions made on private woodlots. It often confirms the judicious use of machinery that is well adapted to the conditions of the forest.

Certification should allow us to demonstrate all this publicly as well as internationally. The avenues that are presently being proposed by the major certification systems, that you have already studied, are not consistent and do not constitute interesting avenues for small private woodlots.

We believe the federal government and the provincial governments have an important role to play to ensure us that we will be able to demonstrate, in step with the industrial sector and the public forest sector that we apply good management methods. We think that certification of private woodlots must be established rapidly. In some areas, some 50% of owners have simple management plans for their property, but that is not the case in general.

How are we, either as a company or individually, going to give the opportunity to the small owners to get certification? The woodlots must be evaluated to show that we are already engaged in sustainable management. The owners are confident in what they are already doing. However, they do have a major fear which is that people from the outside will come and tell them what to do, how to do it, how to change their practices and that they will also have to pay to have this told to them.

They are afraid they will have to change their management methods, especially if the market isn't ready to pay more for wood from private woodlots and often without even being sure that people won't continue buying wood wherever they can without having woodlot certification become a prerequisite.

As these assurances still don't exist, the producers have not ventured into the certification process to date. Our partners must help us define the best indicators for sustainable management. Major efforts have already been made in the area of model forests, for example. There must also be some undertaken for the current situation of private woodlots.

That must also be done in comparison with methods from elsewhere, the methods of our European counterparts, for example. The private owners set up an important certification method on their own, the Pan European Forest Certification Scheme. That system deserves to be examined to compare the method there to ours with a view to establishing equivalencies.

In the opinion of the Canadian Federation of WoodLot Owners, the methods used to date by the Canadian industry can be applied only with difficulty. Therefore we must try to find adequate methods. Since 1993, we have participated in setting the CSA standard. We're quite satisfied with it, but it can only apply to vast territories.

We're particularly worried about the competition that exists between the different certification systems. CSA, ISO 14000 and FSC are the major systems. We are worried that the only beneficiaries of the rivalry between those major systems that only serve to defend other interests, steel, plastic, aluminium or concrete which are being promoted by vigorous promotional campaigns.

We are satisfied with some campaigns such as Wood is good, which we are going to support, but we want more. Because of the place and nature of their activities, the owners of private woodlots are visible to all Canadians. We are located in the countryside near the cities. The private woodlot owners are very visible and our members are called on to play an important role in getting a consensus on best practices.

Our Federation therefore recommends that the government of Canada encourage the establishment of sustainable management systems that are better adapted to private woodlots and more likely to provide market access for their fibre.

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I will let Mr. deMarsh conclude.

The Chairman: Do you have anything to add, Mr. deMarsh, or shall we go on to questions by members?

Mr. Peter deMarsh: We look forward to answering your questions.

[English]

We've covered the material.

The Chair: Thank you very much.

I'll go to Mr. Schmidt first.

Mr. Werner Schmidt (Kelowna, Ref.): Thank you, Mr. Chairman.

Thank you very much, gentlemen, for appearing here this morning. I'm very impressed with the very clear and concise way in which you made your presentations here this morning.

I would like to ask you a couple of questions. One of them has to do with your relationship with various environmental groups, like Greenpeace, the Sierra Club, and people like that. Do you have a relationship with these people, and what is it?

Mr. Peter deMarsh: We have the same relationship with them as we would have with any other participant in multi-stakeholder consultations, which are becoming more and more fashionable these days. That would be the extent of our relationship, at least directly.

I suppose our members as a whole would reflect the views of Canadians as a whole. We would have some people who have strong green views and other people who would have strong views at the other end of the spectrum. Many of us are probably somewhere in the middle. But as an organization, there is no formal relationship.

Mr. Werner Schmidt: The reason I'm asking the question is, as you're probably aware, there's a boycott of certain wood products from Canada, harvested in certain parts of Canada. Does this concern you? Some of this is motivated by Greenpeace and other environmental groups. It has to do with sustainable management of forests.

Mr. Peter deMarsh: I'd like to emphasize the final point in Victor's part of the presentation. We think the environmental groups need to be seriously taken to task for apparently failing to realize that by attacking forestry they're handing, on a silver platter, market share to the industries that produce substitutes for wood.

We've all seen the “new steel” ads on TV in the last six months or so. If you didn't know anything about how steel was recycled, you'd think somehow these materials are sort of a gift from heaven, that they're free from an environmental point of view.

Mr. Werner Schmidt: We all know better than that.

Mr. Peter deMarsh: The one that strikes us, of course, is the picture from Oregon or some place like that, I suppose, perhaps British Columbia, of a second-growth plantation of Douglas fir. An acre has been cut out of the middle of this forest. This is how much wood it takes to build a house, says the ad from the “new steel”.

The alternatives are not free. In fact, we believe, and many sensible environmentalists would agree, they're far more damaging to the environment. Somehow this has to be connected with our shared concern that forestry practices improve and continue to improve.

Mr. Werner Schmidt: I think that's precisely a major part of the issue and the reason I posed the question the way I did. It really ties right into this certification business directly.

I noticed you talked about the pan-European certification system as perhaps being more applicable than the ISO or the CSA or the FSC systems. There are apparently a lot of other systems out there as well. Whatever certification process it is, surely there's some kind of science somewhere that indicates this is scientifically accurate and can be shown to be sustainable forest management practice.

Mr. Peter deMarsh: I'll say a word on this, and then invite Victor to complete the answer.

I don't think there's much dispute about the science between FSC and CSA, which is based on the Canadian Council of Forest Ministers' principles and criteria. I don't think there's any major disagreement about the science, nor is there in Europe between PEFC, which represents the woodlot owner associations, and FSC. They use the Helsinki principles and criteria, but they're equivalent to the ones we have here in Canada. There's no big argument.

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What we see, and it may be a bit too cynical, is a certification industry being created with competition among various brand names. We can't afford to be part of that game as woodlot owners. We don't think it's good for the industry or the country as a whole, and we're urging the committee to encourage that serious leadership be brought to bear in knocking some heads together and saying, “Look, this is not good for forestry nor for the environment. We have to put an end to this rivalry. Sure, we all agree that we have to improve forest practices, but let's do it in a less damaging way.”

Mr. Werner Schmidt: That's most interesting. I think that's the clearest statement I've heard on the certification thing ever since we started this.

The Chair: You should come here more often.

Mr. Werner Schmidt: It's good that these gentlemen are here.

The point I'd like to make on this further, though, is how are we going to get consensus? We've had presentations from a variety of people, and if the science is not in dispute, then what is it? Is the issue now a political one? Could government just say, well, we're going to go for the ISO, or we're going to go for the FSC, and it really doesn't matter which one of these we choose, because the science is not in dispute, so throw a dart and pick one, and it will be okay—is that what you're telling us?

Mr. Victor Brunette: There are shared responsibilities at each and every level. The representatives of woodlot owners have to take their responsibilities, as do the provincial governments and the municipalities. Responsibility being shared by different levels of government and individuals usually makes it altogether a good system, if everybody does his thing appropriately.

We are not being a target right now as woodlot owners. Because there are 425,000 woodlot owners, there are 425,000 ways to decide how to manage individual woodlots. It creates a lot of diversity. It creates a lot of decisions that are not all made in relation to changes in the market or demand for wood. Some people might need more revenue one year and less the other year. Some people might save the woodlot for other uses than fibre production. All that makes it a very good general environment for sustainability.

We need to have the proper responsibility shared to ask whether we have a proper inventory on private land. Do we have good indicators that sustainability is being achieved on tracts of land that are relatively large? They could be watersheds, or they could be large enough municipal entities. We also need to cover the blind spots, be it multiple use programs or reforestation. One of the reasons we are here today is to encourage the edges there.

Mr. Werner Schmidt: We're dealing with—

Mr. Victor Brunette: This brings us to certification, in a way.

Mr. Werner Schmidt: I appreciate that. But take, for example, Home Depot, which has accepted that anything that is certified under FSC is A-OK. Why shouldn't we just take that one?

Mr. Victor Brunette: Certainly not, and other countries—

Mr. Werner Schmidt: Why shouldn't we?

Mr. Victor Brunette: Other countries are not going to do that either.

Mr. Werner Schmidt: Why not? What's wrong with it?

Mr. Victor Brunette: Consumers want choices. They want choices in how much they will pay for different products, and they want choices on the shelf. Most distributors will find out eventually that they have to put on their shelves many different products. Some of them can be identified as to where they come from. They can come from public land or private land, or from managed or unmanaged forests, but usually in this particular system it's based on market issues, and the consumer will make decisions. Of course, we should go in the right direction to encourage consumers to help us sustain the forests.

Mr. Werner Schmidt: I have only one final question at this point—but lots of other questions. I'd like to ask you, then, what are the criteria that we as government should apply in selecting the certification system that would satisfy you and the larger producers?

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Mr. Victor Brunette: The criteria are already accepted by the Canadian government, criteria and indicators of sustainability. In terms of—

Mr. Werner Schmidt: No, no. I'm sorry, I'm not asking my question right. The question is this. Which of these certification systems ought the government to endorse as being the one they want to accept? What are the guidelines in selecting that system? That's my question.

Mr. Victor Brunette: It should be based on multi-stakeholder criteria where people together take responsibility for good forest management. If they develop a system, be it a European system or a system in the United States, they should be evaluated on the grounds that they represent a lot of people, a lot of stakeholders: industry, governments, private land owners, and environmental groups. If everybody is satisfied with the system and the terms of defining a system and applying it, the government should follow suit.

The next steps are more in terms of gaining equivalency of those different systems. Why should we be restricted to only feeding our wood to one mill that is certified in one system? The woodlot owner, to live in a competitive system, needs to have access to many mills, even if they operate with different certification systems. That would be a fair system to us.

Mr. Werner Schmidt: So you want competition on all levels, at the certification level as well as the production level as well as the management level?

Mr. Victor Brunette: Yes.

Mr. Werner Schmidt: Okay. I just wanted to clarify exactly where you were going with this.

Mr. Peter deMarsh: I would just like to quickly add that in principle there should be nothing wrong with a number of systems being present in the marketplace. If one has the opportunity to visit Europe and do some shopping, you see the store advertising which credit cards it takes. I don't know if that's a good analogy or not, but there's nothing wrong with a plurality of systems.

The issue we're trying to stress is twofold. One is that it's not good for the environment, which many who are behind this claim to be primarily concerned about, to consider this intense rivalry, each one trying to stake out a monopoly position in the market. That is bad for the environment and it has to be stressed.

Those who are defending existing practice as though all improvements that are needed have now been made have to be reminded that surely to goodness the fact that many ordinary Canadians are concerned about the health and future of forests is not a bad thing. We may be very cynical about how some groups exploit that concern, but the fact that the concern is there to be exploited surely is not a bad thing. It's something that has to be given an opportunity for positive expression.

Our issue with certification is that none of the systems do a good job of dealing with multiple small ownership. What we'd like, I think, is a system something like PEFC in Europe, which was designed by woodlot owner associations, that would be in turn recognized by the various major rival systems. The issue we're bringing to your attention here is that in Europe, that system was supported in a substantial one by a number of national governments. We certainly see the need for a similar contribution or a similar partnership here.

The Chair: Thank you, Mr. deMarsh.

I'll go to Mr. Reed.

Mr. Julian Reed (Halton, Lib.): Thank you, Mr. Chairman.

You're exposing one of the great ironies we're faced with, where a well-managed woodlot is generally far more productive than a wild forest and has been for generations, if those farms and small holders manage their woodlots properly. I would be very concerned that you don't get caught up in the certification thing. It would be incredibly costly on an individual basis, or it could be incredibly costly, and it could present a lot of dichotomy, if you like, in terms of management practices because what is suitable on your farm may not be suitable on someone else's farm.

We've gone through some reforesting of land that probably should never have been cleared on my farm. It's in a watershed and so on. The management of that is different from the management somewhere else, away from the watershed area. So I have great sympathy for what you're facing.

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I was rather astounded by this question of capital gains tax. In the case of farmland per se, if I have a dairy farm, for instance, and if I have 50 acres of woodlot, I always thought the whole thing went together as the farm.

Mr. Peter deMarsh: That's correct.

Mr. Julian Reed: Okay, that's still correct. So where you're pointing out this problem is where there is a whole tree farm, if you like, that's causing this to happen.

Mr. Peter deMarsh: Yes.

Mr. Julian Reed: So here we are, in spite of ourselves, creating a situation that... I'm very glad the Minister of Finance is undertaking to look at it, and I think we should follow up with him to make sure that does happen.

This is just out of the blue, but on the question of the reforesting of agricultural lands, I'm wondering if any thought has been given to utilizing the emerging emissions trading process as part of the income base, if you like, part of the revenue base. It shouldn't take a rocket scientist to figure out how many tonnes of carbon dioxide a new plantation will absorb on a continuing basis. It seems to me that this may be one element you might give consideration to.

Emissions trading is not a general thing in Canada. It's being done on an experimental basis in Ontario and so on, but it is coming. It's a major issue in the United States now, the trading of carbon dioxide. One of our power companies here in Ontario just bought many thousands of tonnes of carbon dioxide at $14.85 a tonne, but I think that's only the beginning. I think you're going to see trading prices rise as time goes on.

I haven't read all of the forestry table report on the Kyoto issue yet, but I'm just wondering if this might help. I realize that when you do reforest, say a block of farmland or land that had been farmed, you have to wait. It takes some years for that to become productive. That's just a thought.

The Chair: I don't know whether you're asking for a response.

Mr. Julian Reed: Well, yes. I just wondered if any thought had been given to that future possibility.

The Chair: Mr. deMarsh.

Mr. Peter deMarsh: As Mr. Brunette explained earlier, in a number of provinces there are programs already underway that in part focus on returning abandoned marginal farmland to forest. In my own province of New Brunswick, we spent about $1 million last year on that aspect of our silviculture program.

From last year to this year, we could double the size of that part of our program. The organizations that are administering the program are in place and can do it more effectively and efficiently than anybody else. The missing element is additional money, if that can come from emissions trading programs or from wherever else. The key thing from our point of view is that the federal government accept a role, at least as a broker or a coordinator of diverse funds, perhaps even if none of those are directly from the federal government itself.

There is discussion about trying to link up private investors with individual landowners. That can work in certain exceptional cases. We could probably, over ten years, establish a number of examples of that across the country. That might number in the hundreds or so. It would take an enormous amount of work to arrange each of these individual deals and it would produce a few thousand hectares a year of replanted, abandoned farmland or something in that order of magnitude.

We're saying that if you want to do a serious job and address the real potential that's there now... We use the figure of 35,000 hectares a year, for a minimum of ten years. If you want to work at that level, we can tell you how to do it. The infrastructure is in place in the organizations to produce that level of activity. It's unfortunately an expensive activity. It costs a minimum of $1,000 a hectare. Owners cannot afford that. We can afford a percentage of it, but we can't afford the whole shot.

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Other than the money, identifying where it's going to come from and how it's going to be coordinated, the elements are there to do this. If it's carbon sink that is the prime objective, it will contribute. For those who are not yet convinced about climate change as the key priority, there are other reasons to do the same thing, wood supply being the obvious one. General environmental benefits, returning land that perhaps should never have been taken out of forest, are a third one.

Mr. Julian Reed: Thank you, Mr. Chairman.

The Chair: Thank you.

Mr. Canuel.

[Translation]

Mr. René Canuel (Matapédia—Matane, BQ): Thank you for being here today, and congratulations. On the whole, I quite agree with you. I would like my colleagues around the table to come back to your remarks. You talked about taxation, and I quite agree with you that governments must come to some decision and do something.

I also agree with the establishment of partnerships; it is important for governments to help occasionally. There are certainly ways of providing such help that we could discuss.

As for your views on the distribution of revenue, I congratulate you on the tax angle. I hope that all my colleagues around this table—and particularly those on the government side—took note of your remarks so that we can take action as quickly as possible.

I have two or three short questions. Around this table, I often hear that our forests our the best in the world, yet I believe we have some serious problems. Some say that groups trying to protect the forest sometimes go too far, but the industry often goes beyond the boundaries established just to make money. So I am quite comfortable with the groups on the other side, because otherwise no one would have alerted us to the problems.

As I have often said, my friend Richard Desjardins may wax a little poetic on some issues, but on others he is right. People who are familiar with the Dunière Wildlife Reserve in the Gaspé can easily see that some cuts around certain lakes on the reserve should never have been made.

Now, as Secretary-Treasurer and Director General of your Federation, do you have any recommendations to make on the situation I'm about the describe? On some plateaux in a private woodlot located in my riding of Matapédia—Matane, I have seen people from New Brunswick buying up lots and clear-cutting them.

You will tell me that municipalities are responsible for establishing by-laws. Fortunately, some municipalities have done just that. Does your Federation have any authority to denounce such pillaging? Can you make recommendations? This is happening in private woodlots, and it is something I deplore even though I defend owners of private property.

So that is my first question. Do you have any moral authority in such matters? Do you denounce such cases when you encounter them? Perhaps you do and I am not aware of it.

I also have another question.

The Chairman: Mr. Canuel, could you wait for the answer to this question before asking another one?

Mr. René Canuel: Yes, I will wait for the answer. I will let the witness answer.

Mr. Jean-Claude Nadeau (President, Fédération des producteurs de bois du Québec): You are talking about denunciation. In my view, a federation or producers' union should not be responsible for denouncing its members. But that said, I would willingly concede that abuses are occasionally committed in private wood lots.

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But let us ask yourselves this question: why, in a given situation, would producers sell their lot to jobbers? To get money. They do not operate the forest rationally themselves. Why not? Perhaps because they are competing with the government, which does not leave enough room for producers to sell their fibre.

If producers find that their major competitor is their own government, they will sell the lots to a jobber for a price that in some cases they do not even need to disclose. So they get more for them. Now should we, the representatives of these producers, denounce our own members for trying to live off their forest? That is the question we are asking ourselves. That is the problem.

Mr. René Canuel: Do you educate your members, at least?

Mr. Jean-Claude Nadeau: Yes, to some extent we do.

Mr. Victor Brunette: Mr. Canuel's question is of course focussed on specific instances of abusive cutting in one part of Quebec. We have to see how significant this is in the context of an overall plan that could apply across Canada.

With certain partners, we have chosen to apply some procedures in private woodlots, which do have an economic significance. We have decentralized some responsibilities. Local governments are responsible for providing minimal protection for such areas. Normally, RCMs are responsible for establishing by-laws and ensuring they have the human resources to apply them.

This approach is extremely respectful of the residents of any given province or country, because one set of rules is applied where forests are developed intensively, and other sets of rules apply in areas closer to towns and villages. In other words, the rules are suppose to be fairly well adapted and find easier acceptance among local communities.

However, as an owners' federation, we have a principal mission. Our Federation brings together unions and boards that are involved in marketing and try to obtain good market conditions. We therefore have our own by-laws. One very important rule is to share the market among producers. Just like in agriculture, we divide a given market among a number of producers. This is of course good for the environment. By sharing out a large volume among several small producers, we should prevent situations where some lots will be completely clear-cut.

There is also something else we have noticed: though our marketing by-laws, which are included in our organizational structures, were established for social reasons, they now have an environmental impact. Twenty-five years ago, we established that a producer located 100 kilometres away from the mill should also have market access. At the outset, we wanted to divide the market among thousands of producers and make possible for them all to have market access, regardless of their geographical location. As a result, there was less cutting pressure directly around mills, and we avoided the concentric circles of harvesting around some mills on private land.

Thus, our own by-laws are already good for sustainable forest development.

The Chairman: Mr. Canuel.

Mr. René Canuel: There are tree farms in the Lower St. Lawrence. In my riding, such farms are doing very well in Nicolas- Rioux, and in Métis.

Obviously, if governments do not transfer part—and I do say part—of the public forest, we will not have too many of these model tree farms. You are involved with producers, so I will ask you the following question: could we ask governments—I am speaking for Quebec, but this could also apply to New Brunswick—to transfer 10 or 12 hectares of public forest for use as tree farms?

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Municipalities can be a little touchy. They often end up with financial responsibility, and they do not have a large taxpayer base. If they could get something out of such an arrangement, while remaining in compliance with forest management regulations... Generally, I believe they do comply with such regulations. That is not where the problem lies. I'm talking about public forests, which are all too often massacred.

How would this work? That is something I will ask the government of Quebec myself. Would it be abusive to ask for a 15- hectare strip of public forest running along several villages?

That strip would enable its owners, who would live off the forests, or sugar bush, or hunting and fishing, to make a decent living. I have looked at the issue very closely, and find the model very good. We should institute it in many places. Yet governments—even the government of Quebec—hesitate to go ahead.

Would this be so damaging to companies and industries? The fibre will have to go to the mill, after all. We know full well that every small-scale owner cannot have his own mill. There is no way he can do that.

I would like your views on how far one could go with this. Some people think that 10 or 15 hectares is too much, and they hesitate. But I would like to turn this into an official request at some point, as soon as possible, so I would like to hear your views.

[English]

The Chair: Okay. Who wants to do this one?

[Translation]

Mr. Brunette.

Mr. Victor Brunette: I should point out that we are reviewing the forest regulations in Quebec. Our federation has several well- established positions. One of these is to promote privatization forestry sources or forest land around towns and villages whenever possible. One popular notion seems to be establishing an economic and social radius 40 kilometres around towns and villages.

When that cannot be done, we suggest promoting the collective management of resources, either by the municipality or through cooperatives, forestry groups or owners' organizations. Their co- operation would extent further than fibre production alone. We have even suggested that 75,000 hectares of Quebec forest be set aside for increased maple syrup production. We could double Quebec's maple syrup production by providing greater access to public forests. Producing maple syrup does not mean that we cannot produce fibre at the same time.

We should therefore be looking at modes of ownership and management that are somewhat different from those in place for the past 20 years. This is why we have established positions on reviewing the existing system. However, this is something you should take to our provincial government.

Mr. René Canuel: But why would forestry companies have a problem with this?

Mr. Victor Brunette: Mr. Nadeau.

Mr. Jean-Claude Nadeau: As you know, these companies find it much easier to deal with the government. In Quebec, they get the wood so cheap it is almost free.

Mr. René Canuel: I see. Thank you.

The Chairman: Ms. Parrish.

[English]

Ms. Carolyn Parrish (Mississauga Centre, Lib.): Thank you, Mr. Chairman.

I am very interested in the concept of the capital gains problem, and I'm glad the Minister of Finance is looking at that.

I'd like to go back to the other two tax questions. One is the income tax policies. I assume I've interpreted correctly when you say if someone has a woodlot as part of a working farm and they want to get equipment to start harvesting trees, planting, or whatever, they can't write that equipment off now.

Mr. Peter deMarsh: As part of a working farm, they are able to do what we believe tax policy should allow them to do. The problem is that 90% plus of woodlot owners are not recognized farmers, and it's in this large majority of woodlot owners where the problem exists.

Ms. Carolyn Parrish: So you're telling me that right now, if I owned an exclusively woodlot area, I could not use the regular write-offs that someone who's running a farm could use.

Mr. Peter deMarsh: As we've learned—we've gone through a long process with Revenue Canada—in tax cases you must say that it depends on the individual case. That's the way they preface every statement. But generally speaking, what we're concerned about is the ability to deduct money we spend in silviculture against outside income. That's where it's both a question of fairness for us and also good business for Canadian society. The number of situations where you're simply unable to do that is the vast bulk of cases.

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There are a couple of specific reasons. One of them is that the most common silviculture practice is what we call pre-commercial thinning—that is, thinning young stands so they're spaced for maximum growth. That is currently considered by Revenue Canada a capital investment, not a production expense, and it therefore can't be deducted.

We've been through a long ten years of working with Revenue Canada and the Department of Finance to get people in both to the point where they now understand the issues. It's not a case of them not understanding—

Ms. Carolyn Parrish: You're doing very well. It only took ten years.

Mr. Peter deMarsh: It's not a case of not understanding that there's no conceptual difference between thinning carrots and thinning trees. They understand that now. The act is written in such a way that it simply is blind to production that does not require annual activity.

Ms. Carolyn Parrish: Okay. Can I go on to this idea of income averaging? You used the example of ice storms. Are there any other industries that allow this that you could compare yourselves to?

Mr. Victor Brunette: Well, there certainly are other businesses that compare themselves to that—if you're a hockey player, I suppose.

Ms. Carolyn Parrish: Don't talk about hockey players.

Mr. Victor Brunette: That's something different.

In terms of revenue that needs to be secured rapidly in those conditions—after an infestation or an ice storm—it would make business sense that the best possible treatment would be made rapidly, whatever the income has to be. Usually it is less than what it would have been in any case if preferable conditions had been maintained. So usually the gains are very high for governments in the short term. They get the same income tax revenue, but the loss is kind of targeted by the owner of the land for those reasons.

There could be some partnerships there to make the machine not too heavy. For example, usually when there is a disaster area, the municipal government can declare itself in a disaster. And it doesn't have to be as big as what we saw with the ice storm. It could be windthrows. During last summer there were quite a few windthrows in the upper Gatineau Valley, for example.

Some municipalities have declared themselves disaster areas. At the same time, there are some consultants and technical advisers, in terms of forestry, in the field who do damage assessment. If you have those two conditions—the municipality declares itself a disaster area and the professionals make a report—that should be sufficient to put in the income tax report what is necessary to declare income averaging for that particular property.

Ms. Carolyn Parrish: Do I presume you're working very hard to have all these tax issues constantly before the Minister of Finance and looked at?

Mr. Victor Brunette: Some of them should be solved easily. The example is that Quebec already has accepted that following the ice storm. So we only have to compare notes, in a way, and even it out, harmonize our taxation, in that particular case.

Ms. Carolyn Parrish: With your permission, Mr. Chairman, I'd like to switch a bit.

I was fascinated by the example you gave—and I don't know if I followed it—that to produce the new steel, you would have to harvest an acre of trees for the energy required. Is that what you said?

Mr. Peter deMarsh: No. I believe the ad—it was a magazine ad, and perhaps it was on television as well—showed roughly an acre of forest completely removed in the middle of a plantation, and it said this is how much forest is required to build a house, the average house.

Ms. Carolyn Parrish: And what's happening with Douglas fir? I have a bit of personal experience. My father subcontracted to build our house, and we just had the kitchen renovated. We had about four layers of floor in the kitchen, and each one had trapped moisture under it. As they were going down they said “Boy, oh boy, your floor underneath is going to have to be replaced”. It was Douglas fir, and it was like brand new. Apparently they don't use Douglas fir plywood in houses any more. It's more like steel than anything else, and it saves you a lot of money in the long run. But I keep hearing from builders that they can't get it any more. What's happening with that?

Mr. Peter deMarsh: I don't know if any of us can answer that. Perhaps some of your colleagues from British Columbia could, but this is not something we're very familiar with in the east, I'm afraid.

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Ms. Carolyn Parrish: I was very impressed. When they went down all those layers, you could see the moisture from leaky dishwashers and everything else that happens in a kitchen. It had been sitting there trapped for 25 years, and as soon as it dried it was perfect. They just laid the floor in on top of it. So I think it's more like steel than steel is. It's fabulous wood. Do they still produce it?

The Chair: John could probably answer that question. Are you finished, Carolyn?

Ms. Carolyn Parrish: Yes.

The Chair: John Duncan.

Mr. John Duncan (Vancouver Island North, Ref.): Peeler-grade Douglas fir is worth so much as a sawable component that it drove the price up on the plywood. There is virtually no Douglas fir plywood production left. I think Richply still does some, but it's very difficult to get.

A voice: I can come to your woodlot.

Mr. John Duncan: Right, I wish.

Just so I can get clarification here, I might have missed something, but you're saying that 90% of woodlots in the country are not recognized as farms. So for all of that 90% plus, does the $500,000 capital gains exemption apply to them or not?

Mr. Peter deMarsh: It does not apply to non-farmers.

Mr. John Duncan: So in other words, for more than 90% of woodlots. Okay.

I've been following this income tax issue, and it appears that an awful lot of the problem hinges on how you define a woodlot. I recognize that you talked about that in your presentation. Has your organization attempted to write an income tax definition of a farm woodlot or a forest woodlot? If so, could we get whatever you prepared?

Mr. Peter deMarsh: We have some written proposals as to what's required by way of definition in the Income Tax Act to solve the problems that have been identified. We are no longer simply saying we think these problems exist. They have been recognized by Revenue Canada and the Department of Finance. It's a question of what's the best way to solve the problem.

The new interpretation bulletin that was released last summer was a disappointment, in that it revealed these problems cannot be solved simply by education of Revenue Canada about the realities of growing trees. This had been the original hope: that if they understood that thinning trees was in principle no different from thinning carrots, it should solve the problem. Their conclusion after the bulletin was completed was “We understand the issues, and we agree there's a problem that needs to be solved. Unfortunately, the way the act is written prevents us from carrying the interpretation that we apply to farm crops to trees. We simply can't do it the way the act is written.”

That's where the issue is now, to figure out the best and most efficient way to either change the act or some other way to solve the problem.

Mr. John Duncan: I understand the interpretation bulletin is not amending the legislation, and amending the legislation is what is required.

This letter from the Minister of Finance is readily available to the committee, is it?

Mr. Peter deMarsh: Sure.

Mr. John Duncan: Does your organization have a position on the softwood lumber agreement?

Mr. Peter deMarsh: We've never been nationally, or in most provinces, directly involved in those discussions or negotiations. Perhaps I'll ask my colleagues from Quebec to comment, but just in general, our interest is in maintaining the free flow of exports. We certainly depend on the ultimate market to sell our products to the sawmills and other users.

Mr. John Duncan: I'm going to be in Washington in a week or so on this issue, and anyone who is genuinely a stakeholder and is promoting free trade should be on the record, because the more people on the record the more that cause will be advanced.

Go ahead.

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Mr. Victor Brunette: We in Quebec are ambivalent about the free trade agreement, and I'll explain to you why. We are being impeded by our provincial government with stumpage fees that are not in line with what they should be. We are trying to negotiate with our partners, be it industry or government, to get some changes to that.

The revision of the forestry regime in place could bring about those changes. For us, this is the best way to solve our in-province problems about the right and fair pricing for wood from crown land. We hope we will be able to bring about some resolutions to those issues.

On the other hand, we have been approached by the United States Lumber Coalition for Fair Lumber Imports, saying “If you want to see the price of wood from crown land go up a bit in Quebec, we want the same. Why don't we work together?” I don't think we have the same reasons. We don't have the same motivation, and we have not even met the coalition at this point in time.

We are for fair pricing and we are against countervailing duties because it affects woodlot owners too. It doesn't matter if a sawmill in our province takes the wood from crown land or private land, when it achieves a certain quota it gets charged a surplus for exporting wood, and very often it happens to be wood from private land. So the sawmiller turns around at a certain time of year when he has achieved his quota and says “I'll offer you $200 a thousand board feet less than I used to”, or whatever. In those situations, the woodlot owner is being penalized for countervailing duties. He is part of the ones who have to absorb the duty. In those cases we say all the time we will be for free trade and we will support both industry and government to be for free trade.

On the other hand, we have some in-province problems to solve, and it affects both softwoods and hardwoods. The present situation in Quebec is that woodlot owners are losing $100 million a year because of unfair stumpage pricing. We hope we can improve stumpage conditions on crown land with our discussions with our provincial government.

Mr. John Duncan: But you're also losing revenue because of the softwood lumber quota?

Mr. Victor Brunette: Some of it—

Mr. John Duncan: Probably you can't define it or quantify it, and the distortions will grow greater with time.

Mr. Victor Brunette: Yes. We're also losing revenue because of our inability to put some private wood on the market because of the competition. That is a more serious problem for us. But presently the woodlot owners' problems are not so related to softwood; we have a hardwood problem in all of eastern Canada, and this has been amplified with the ice storm.

Mr. John Duncan: Right. An internal problem should be solved internally, would be my speculation.

On this whole question of marginal agricultural land and turning it back into forest land, I have a quick question. Do you have any estimates of how that would break down regionally across Canada on private land?

Mr. Peter deMarsh: We can give you figures. We'll provide them to the committee. We have an estimate for each province as to what the potential is.

The Chair: You can just send it to the clerk and she'll see to it that we all receive it.

Mr. John Duncan: Thank you very much.

The Chair: Mr. Reed, did you want to close off with something?

Mr. Julian Reed: No, thank you, Mr. Chairman.

The Chair: I'm glad you took the hint.

Gentlemen, thank you very much. I think your responses were very informative for the committee. It certainly addresses a couple of the issues we'd been considering. I thank you for your patience. Committee members had a little bit of extra time so that they could follow their theme through to the end. It's been very worth while for us. We thank you for coming.

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The meeting is adjourned to the call of the chair.