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Thanks to all of you for inviting us. I know that after a long hard session, and with Christmas being, what, 20 to 30 minutes away...? Holding an extra special meeting at the end of the day is an act of generosity on your part, so we really appreciate it.
Canada's forest industry, especially all the workers across the country and the communities that depend upon the industry, appreciates it when parliamentarians show their concern for the industry. Certainly when I travel around the country and meet with the various communities, that's one of the questions I'm almost always asked: does anyone in Ottawa care about us?
Wherever I go, I can very happily say yes, there are many MPs, on both sides of the House, who really care about the industry. The opposition is asking questions and the government is trying to present initiatives to help us, so the industry is on the mind of parliamentarians, and that means a lot to the industry.
As many of you will know, we are now 2% of Canada's GDP. We account for 240,000 direct jobs. You can at least double that, maybe more, if you count the indirect jobs. It's employment for an awful lot of people. We sustain the economic backbone of 200 communities across the country. This is good news, but it's also difficult, because when the industry takes a downturn, those 200 communities suffer very deeply.
Many of you who represent forest industry communities will know that when a mill closes, it's not just a loss of a few jobs. It's the loss of the economic foundation, the economic backbone, of a whole community. The taxi driver has no business. The lunch counter has no business. The cleaning service has no business. The grocery store finds that no one's coming in. You can't go and work for your cousin because he doesn't have a job.
These one-industry towns suffer very, very deeply when a mill closes, and over the last several years the industry has had a difficult time. We've lost many jobs. Many mills have closed. During this time we were tempted to think that we were suffering through a perfect storm: a high Canadian dollar, the collapse of the U.S. housing market, a low demand for paper, and high competition from elsewhere. But as we began to go through these very difficult waters, it became obvious that maybe this is not a storm; maybe this is a changed climate. If you're sailing through a terrible storm, the right thing to do is to batten the hatches, hold on tight, have great fortitude and patience, and clear sailing is going to come. But if it's a changed climate, if it's a structural rather than a cyclical change, then holding on tight just isn't enough; holding on tight just means you're going to sink.
So what you have to do is gird your loins, look through the storm, and ask, “How has the world changed and how do we have to change what we're doing to be able to survive?”
Now, it's true that some things will get better. The demand for wood will return and the Americans will eventually start building houses again. I'd like to say that I know when the global economy will find its feet again, but apparently none of us knows that.
But it's also true that some things are going to stay difficult for us. We are going to have competitors growing trees in South America, where the conditions are better. The global demand for paper may go up, but the North American demand is going to continue to fall. As well, the Canadian dollar is likely to stay high.
Also, as in many industries, the conditions for success are hugely demanding. Pretending that we're suffering from a cycle or a bad time, as opposed to understanding that we have to respond to a changed circumstance that will be permanent.... That is absolutely necessary. When I was sitting in on these meetings trying to discuss what to do, it was very hard for many of the CEOs leading the companies to get beyond the tough times and the survival strategies, but the industry pulled itself together, both at the company level and all the way across.
We set ourselves four objectives for restructuring, transforming, and setting new sales levels so that the industry would be able to survive past these times.
The first challenge that we set for ourselves was to increase productivity. Of course, this is nothing new. In a commodity business you have to become more productive. For us, it was do or die. Those companies that could not quickly improve productivity simply shut down. We now have labour productivity that is 20% higher than the Canadian average. Our wood sector is one of the only sectors that is outperforming its U.S. counterparts.
The second thing we said we had to do was to become more diversified in our markets. We knocked on China's door and we knocked on India's door—we even went to our competitors—and we started selling newsprint into Brazil, lumber into China, and pulp into India. We've become Canada's most successful exporter. No one exports more to India or China than Canada's forest industry does. Since 2000, our exports to China have gone up 46 times. I was almost about to say 46%, but it's 4,600%. This was not a casual thing. This was a huge effort.
In addition to becoming more productive and learning how to export more aggressively outside the U.S., we also realized that we had to extract more value from every tree. If the Brazilians could go into their backyard and harvest a tree that they had just grown in seven years, and we had to lumber halfway across the wilderness—to harvest a tree and take it across Canada's muskeg and then process it—we needed to extract more value from every tree. We started to experiment with the extraction of bioenergy, bioplastics, and biofuels so there would be zero waste. Every single bit of the tree would be used, whether it's the chips, lumber, sawdust, or bark. We have, through R and D work and through experiments and new innovations, begun to become not just the pulp, paper, and lumber industry, but the pulp, paper, lumber, energy, bioplastics, and biopharmaceuticals industry. In other words, we have joined the bioeconomy.
With increased productivity, diversified exports, and more value extracted from every tree, the last thing we had to do was secure the western front. For us, the western front meant the constant attacks by the environmentalists. We had a bad brand in terms of environmental practices. We've been doing our work. We have more certified forests than any other place in the world does. We've improved our forest practices and reduced our greenhouse gases by more than seven times the Kyoto target—though I guess that target doesn't matter anymore.
We've gone to almost 60% renewable energy in our mills. But we were not getting the credit we deserved. What we did was something totally radical. It has never been done before in Canada or anywhere in the world on this scale. We said to the environmental groups, “Do you guys want to do business?” There are 21 companies—big, multinational companies—and nine radical environmental groups, including Greenpeace and ForestEthics, and the Canadian Parks and Wilderness Society. We all signed the boreal agreement, forming a partnership for preserving the jobs in the forest, and at the same time preserving ecosystem values.
These four paths—making productivity jumps, diversifying our market, extracting more value, and changing the game in terms of environmental reputation—made up our survival strategy. We're not just talking about it; we're well on the way to doing it. We need to continue to do many of these things.
That's about us. What about you? What about government? Faced with the same circumstances, governments have three choices. You have constituents, and you have communities suffering mightily. You'll hear some of my members, some of the unions, and a lot of the mayors saying, “Jump in and save us. We need you, government. You saved the car manufacturers. You have to save us, too.” And the temptation would be to try to subsidize, to support the status quo, to stop the bleeding, to stop the mills from closing. That's a lot of what you will have heard.
A second possible response would be to say this is a free market; the best thing we can do for these businesses, the best thing we can do for these towns, is let the marketplace prevail. The trouble with that response is that other governments aren't doing it. The United States, the South American governments—especially Brazil—Europe, and even China are investing heavily in their industry. So to say this is a free market would be to pretend that other governments are working within a free market. This would doom Canada's forest industry, because we could not compete with foreign governments.
So choice one was to subsidize the status quo; choice two, laissez-faire. The third choice was to develop a creative approach to supporting the industry, an approach grounded in transformation as opposed to the status quo, an approach whose objective is to accelerate the industry's adaptation and change process rather than to support the industry while it holds on tight. If this were a cyclical change, if this were a storm instead of a changed climate, I would have been here lobbying for support to get us through the storm. But because we knew it was a structural shift, that the climate wasn't going to come back nice and friendly but was going to stay fiercely competitive, what we came in and lobbied for was help to change the ship, to change our approach, to transform the industry under the four headings I've just shared with you.
To be fair to the government, that's exactly how they responded—with investments in R and D that helped us extract more value from every tree, investments in exports that helped us export to China and India, investments in bringing new technology to market readiness, and investments in helping us with our environmental reputation.
To be fair to the reality in which we work, the number of investments, while significant, are not as much as many of our competitors have gotten in other countries. So our basic message is that government is doing the right thing, but this is no time to slow it down, especially now when the economy is, let's say, on delicate feet. The question that all parliamentarians have to be wrestling with is whether this is a time to simply control the deficit or whether this is a time for massive stimulus. Where is the balance between these two?
Our advice, our recommendation, is modest stimulus. But make it very smart stimulus. Don't just throw money at problems. Invest it strategically. Our view is that the most strategic investment lies in focusing on those things that transform the industry, things that support the change, such as export development, R and D, environmental reputation, and green transformation.
That's what we're hoping to see from the next budget. More important, this is what we're hoping to see over many years. We're hoping the government will join us in understanding the long-term dynamics of transformation and play its part in supporting the industry's change of process.
I could go on for a very long time, but I won't.
Avrim and Catherine, thank you for joining us again. It's always a pleasure to have you come and update us on the forest industry as your organization sees it. Because you are the major organization in the forest industry in Canada, we appreciate your input.
I want to start out by complimenting you on a couple of things. First, in the deep dark days of the perfect storm, when everyone was asking the government for bailouts and handouts, the forest industry was probably the worst off and never at any time did you come with your hand out looking for funding. As a matter of fact, which so impressed me, you didn't even let the words “depression” or “recession” cross your lips. Instead you coined the phrase—and I think it was you, Avrim—that the forest industry was in a period of transformation. Indeed, you were. You knew a lot more about it than we did at that time when you started with that.
The other thing I want to say is that of all the industries in Canada—and I might be a little biased, considering where my riding is—that have worked with the government to develop new technologies and new ways of becoming more productive, etc., I don't think any industry has demonstrated a more visible success than the forest industry over the last five or six years. Everywhere we look we see leading-edge technology in our pulp mills, our sawmills, and our fibreboard mills. It's working, and when you talk about government investing, I think we've done really well. So congrats on that.
You talked earlier about the western front when you were describing the environmental activists. This is always challenging. I want to talk about the southern front and the constant challenges we've had from the lumber folks south of the border, the coalition of lumber producers. Over the years, despite having a softwood lumber agreement with the U.S., there have been so many attempts to try to confound our exports to the U.S. For the most part we've successfully fought them.
But we have another softwood lumber agreement coming up in the near future. I want to go back to the one we signed just a few years ago. Our friends across from us in Parliament are very quick to condemn that agreement and blame that agreement for the hard time the forest industry went through. We of course don't agree with that.
I wonder if I could have your view of the benefits of that softwood lumber agreement, and also maybe just a bit about what you see we should be looking for in the one that's coming up.
I'll stop there.
I want to come back to the softwood lumber agreement. I agree with you that it was not the ideal solution. Companies ended up accepting it. Those companies, however, did not have much choice given their situation—they were already down. They accepted it reluctantly. I think we can agree on that. That was what you said more or less.
As I see it, there are three negative consequences. You talked about stability, which is indeed a more positive one. But I can see three negative consequences.
First off, I want to point out that, eventually, we usually won against the Coalition for Fair Lumber Imports. I think we had won 20 cases in a row before international courts. We were about to win another the day after the agreement was signed. We will have given the U.S. $1 billion, a portion of which has gone to the Coalition for Fair Lumber Imports. So there have been negative consequences as well, by virtue of the fact that we have conceded quite a bit.
The first consequence is that, whereas we used to win before international trade courts, we have lost two cases so far, and we may lose a third, involving the mountain pine beetle. So now we are losing our cases when we go before the courts, as opposed to the past, when we used to win them.
The second consequence is this. This year, the Estey Centre Journal of International Law and Trade Policy published a study in which it examined a variety of conditions including the economic downturn and the drop-off in housing starts in the U.S. According to the study, the softwood lumber agreement alone was responsible for about 9% of the decrease in Canadian exports to the U.S.
The third consequence of the softwood lumber agreement that can be categorized as more negative is that it convinced a number of companies, including those in British Columbia, to export raw lumber to Asian markets especially, and even to the U.S.
Would you agree that these are three negative consequences that have affected the industry rather significantly?
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I'll answer from two perspectives, one from the forest industry's perspective. We can't speak for others, but I will talk more largely as a nation.
From a forest industry perspective, our good name is very important to us. Conducting ourselves in a way that tells the world they can trust us to take care of the environment when they're buying our products is very important. We've put our actions where our mouth is. Our actions embody that.
Canada, as a nation, makes a living by exporting natural resources. Whether that's energy or wood, it's the backbone of our economic story. If you look around the world, we're not going to make a living by out-innovating the Chinese. We have to be innovative. They're just as smart and work harder than we do, as do many other countries. So our competitive advantage as a nation is natural resources.
To achieve that competitive advantage, to sustain our ability to translate natural resources into quality of life for Canadians, we need to (a) be brilliant at extracting them and (b) be demonstrably responsible in extracting them. The efforts we are putting into the forest industry, and I know are being put into the energy industry—there have been huge improvements in environmental performance—are all part of sustaining and enhancing Canada's basic economic advantage, which is being the world's most sophisticated and, I hope eventually, the most environmentally responsible promulgator of natural resources. That's how we're going to maintain our health care, our salaries, and our quality of life. That's what we've got, and we've got to do it right.
I could go on forever on international treaties and Durban and all that. My views on what's wrong with the international or public or last four or five speeches that have been posted by the association on YouTube are pretty clear. I can summarize it by saying somehow or other those international negotiations have demonstrated more tribalism and self-interest by all parties than global problem-solving, which is what's needed. We've got a global commons that we have to take care of. Instead of behaving like a global community, we come to those meetings with our self-interest. The Europeans do it, and so do the Americans, the Chinese, and the South Africans. We Canadians do it too. Everybody comes to those meetings thinking of their national self-interest, so we have no forum to deal with the global interest. That's a real shame, but I don't know what the solution is.