Can’t see the wood for the trees

Lisa Raitt: Thank you for tuning in to The Raitt Stuff. I’m your host Lisa Raitt and in this podcast I’m going to share insights on current hot topics in the areas of public policy, politics and business, with some guests along the way. Welcome back to The Raitt Stuff. We’re going to take a little bit of a pivot and now start talking about sectors that are being impacted by the discussion around tariffs and trade, not only on the world stage, but specifically with respect to the United States. Today I have with me the President and CEO of the Forest Products Association of Canada, Derek Nighbor. Derek’s been with FPAC as we call it since March of 2016. Before that though, he held a number of senior political positions in the government of Ontario, was two years Chief of Staff to Ontario’s Minister of Consumer and Business Services. And globally, he has been appointed as the industry representative and the advisor to the United Nations Forum on Forests. And he’s also involved as a steering committee member on the International Council of Forest Paper and Association. So I can tell you without a single bit of exaggeration, we have the expert with us today who can help us understand what’s going on in Canada and potentially on the global stage as well. Derek, thank you so much for agreeing to come onto the podcast with me today.

Derek Nighbor: Yeah, thanks for having me, Lisa.

Lisa Raitt: Why don’t you start off by telling, I know who Forest Product Association of Canada is because you guys were the first ones to walk through my door to lobby me when I became Natural Resources Minister in 2008, but it was the right thing to do. Why don’t you tell us a little bit about the association and who your members are.

Derek Nighbor: Yeah, so we’re the national voice of the forest products manufacturing sector in Canada. And when I say that, that’s inclusive of the employees in our sector. We’re a heavily unionized sector. So our relationships with Unifor and steel workers are really important. We do a lot of work with them in partnership, especially these days as we deal with the tariff risks. And I like to say to, you my mom who still, I don’t think really understands what I do, you know, we are kind of the go-between the industry and forestry workers and the federal government. So where we want to see policy changes, regulatory changes, we want to bring to government ideas on how we can improve competitiveness, grow jobs, innovate and make new products here in Canada. We do that. And in terms of the two-way street, government will often come to us and say, we’re going to implement a new carbon policy. We’re going to be implementing a new species at risk policy. How can we work with you as the window to the industry and its people to get that done? So, you know, we’re a bit of an intermediary between the forest sector and the federal government.

Lisa Raitt: So if you were to give me the hit list of things that you were asking the federal government prior to the Donald Trump election and the new administration, what were the things that you were focusing on from FPAC’s point of view that were really important for the Canadian economy going forward?

Derek Nighbor: Yeah, well, I’d first start by saying they haven’t changed. I think the thing that’s changing is there’s more receptivity now to being more serious about addressing competitiveness gaps, about addressing regulatory duplication and incoherent policies and programs from one department to the next. We have a bounty of this renewable resource here in Canada about 367 million hectares of forests. That’s 40% of the land base in Canada. And it’s 10% of the world’s forests are right here in Canada. The managed forest, which is the part of the forest that our workers would be operating on, is about half that. And of that managed forest, about half of that managed forest is under some kind of a conservation measure today. So the sustainability fundamentals in our sector where we’re harvesting less than 0.5% and planting two to three trees for everyone that we harvest, we’re a renewable sector and there’s a huge Canadian advantage to that in terms of social, environmental, economic opportunities and making that point to government is critical and it’s been a challenge the last few years, but we are seeing more receptivity on both the left and the right in the face of the Trump tariffs, which it’s unfortunate it’s taken us this to get us here, but here we are and let’s move forward.

Lisa Raitt: Yeah, what do the global markets look like with respect to Canada? Who do we export to? What’s the breakdown?

Derek Nighbor: Well, the US is the biggest one. We have about 37 billion in annual exports. About 30 of that would be to the US. More than half of that would be on the solid wood side. And then a little bit less than half would be pulp, paper and other wood products. So the US is an important market. You know, after that China, Japan, but we are seeing, you know, I think the conversation coming out of the tariff risk is about diversification of where can we go and there is much more we can do in Asia, there’s more we can do in the Middle East, but we are an industry and this has been by design. You know, we’ve got this tremendous resource in Canada, we’ve got the people that know how we manage our forests really well in Canada, great international reputation for how we do our work and integrated supply chains. So if there’s a hurricane or a fire in the US, it’s pretty easy to get wood down there from Canada. And this is the covenant that we’ve had, many industries have had for decades. And all of that is kind of out the door right now, which is forcing some really important conversations about the future.

Lisa Raitt: So you bring up something really good that we don’t think about. It’s not just about building houses. It’s about recovery from these climate events that are happening in the United States as well, where they have to do a major rebuild, either forest fires or flooding or hurricanes. I mean, that’s where you’re going to see a lot of exports coming from Canada.

Derek Nighbor: Yeah, well, and also it’s in our interest in Canada to be managing our forests. Our overall harvest levels the last 15, 20 years are down more than 20 percent and it’s more than that in some parts of the country. But fires are getting worse. And I think if we’ve learned anything from leaders in forest management like Sweden and Finland, more intensively and more actively managing and thinning is key to addressing pest outbreak risks, drought, fire, those kinds of things. So there’s a bit of a double benefit here. We can be more active on the land base and avoid some of these natural disturbances and disasters. And at the same time, we can bring these renewable products and more of them to Canada and the world. And the other thing, Lisa, I’d say is the integration in our sector is really important as well. Because if you think of the tree that comes from the forest and it goes to the local sawmill, well, you’ve got wood chips, you’ve got bark, you’ve got sawdust, you’ve got all of these byproducts that then further go downstream to our pulp and paper mills or to bioenergy facilities. So we’re also an industry where, you talk about issues like tariffs or the softwood lumber dispute, our paper and pulp mills are very interested in our saw mills doing well and vice versa. So the integration and the important relationship that exists along our value chain is key to our success and something that a lot of people don’t really think about.

Lisa Raitt: And do you think that the new US administration has impacted how we’re working in Canada?

Derek Nighbor: Yeah, for sure. And we’ve got, I would say, kind of a triple threat in Canada. So we’ve got the, you know, the softwood lumber dispute, which has been going on since 2017. That’s threat one. Threat two is the broad-based tariffs. We were spared, our sector. I take no great relief in that based on the impacts on steel, aluminum and auto, who we share communities with in a number of our operating areas. But who knows what’s next? So broad-based tariffs would be the second kind of threat. And the third threat is this Section 232 order that I know our friends in steel and aluminum know really well, which is the national security threat. And back on March 1st, President Trump did sign an executive order, a Section 232 investigation, which basically calls lumber and wood products as a possible threat to US national security. That’s the third threat and that’s still working its way through the system and what those impacts are going to be in our sector still are unknown.

Lisa Raitt: So the softwood lumber, you said 2017, but in reality, how long have we been dealing with disagreements on softwood lumber between Canada and the United States?

Derek Nighbor: Yeah, in the modern day like probably since the early 80s, some people in the industry who’ve been around longer than me have said, gosh, this goes back, you know, couple hundred years, you know, if that may be a hundred or so years. But I think, you know, we call this in the industry lumber five, which is kind of the fifth dispute since the early 80s. And it’s more of the same. It’s rinse and repeat here in terms of the US claims. And listen, US trade law inherently is protectionist. And this is often more about creative writing than it is law or concern about subsidies. And we’re in the spin cycle here in year eight of this most recent dispute. And like we’re talking about on tariffs more broadly, duties and tariffs on product drives up the costs of building homes and makes life more expensive for Americans. And we also know that the Americans right now, I was looking at the numbers in prep for this conversation. And from 2014 to 2024, on average, the US on softwood lumber was only meeting 69% of its domestic demand. Over those 10 years, they were relying on 26% of their softwood lumber demand being from Canada and then the residual, but likely from the EU. But even if they, you know, there’s talk about harvesting national parks more, you know, where are you going to get the machinery to do that? Where are you going to get the workers to do that? If you want to open a new mill, it’s probably going to take you two to three years to get a drying kiln for that mill. So this idea that the Americans can just turn the tap on and start producing more lumber, we were looking at some of the estimates. Even if they did some modest capacity, increasing capacity in the next five to 10 years, they’re still probably going to need upwards of 20% of lumber from somewhere else. And why not get that from Canada?

Lisa Raitt: Agree. Agree. Who are our competitors?

Derek Nighbor: So on wood, on solid wood and lumber, it would be the Europeans, the Scandinavians. Again, let’s talk about the carbon footprint of shipping lumber from Sweden versus from Canada, right on rail south. So on lumber, would be mainly the Europeans. And when it comes to pulp products, tissue, the pulp goes into making tissue, feminine hygiene products, paper towels, those kinds of things. Brazil is a big competitor. And early when we were dealing with the tariffs on Canada and Mexico, one of our concerns was, so you’re not only going to hammer us, but you’re going to put us at competitive disadvantage to some of our international competitors, right? Again, I take no comfort that these broad-based tariffs are now applied to everybody, but at the same time, that’s better than the alternative of Canada and Mexico being singled out.

Lisa Raitt: So last question. When you run an association, you’ve got a multitude of voices and a whole bunch of different companies. And I know it’s hard to get a single path forward because you’re representing everybody. But what is the Forest Products response to the tariffs? What’s the advice that you’re giving to a new government, whoever that may be, on April 28th?

Derek Nighbor: Yeah, so it’s two tracks. I would say there’s the domestic track and then there’s the diplomacy track. You know, I’ve been in Washington twice the last few weeks and the second visit was better than the first. Especially talk with Republicans there. You know, the first visit was kind of a little bit more sheepish. We don’t really like this and we love Canada and but you know, give us some time here and the second time around and I think we saw it with the Senate vote last week where four Republican senators joined Democrats, I think we’re starting to see some MAGA supporters getting an earful back home in their districts. So I think we have to continue those conversations. And I know a lot of Canadians are being strategic about where they’re spending their money and spending more in Canada. And I’m doing the same. But having the occasional work trip to Washington to continue to talk to Americans is really, really important. So we’re going to continue to do that. And our biggest allies in the US is the National Association of Home Builders. Because the home builders in the United States, they want to keep homes affordable for their customers. But even more importantly, they want to build more with Canadian wood because of the high quality. And this is the other piece, Lisa, that people seem surprised. Because of our longer, colder growing cycles in Canada, the properties of the fibre in our trees, it’s much sturdier to build with. It’s much better to build with, it’s more resilient material. So U.S. home builders want to build with Canadian lumber because it’s quality. This is how you want to build homes that are going to last for decades. That’s the international kind of diplomacy side. It’s multi-pronged, I would say, on the domestic asks. And the first thing we want to do, and again, listen, we don’t want handouts. We’re not going to survive as an economy with handouts into perpetuity here. But we have been working with our partners in organized labor on stopgap measures, almost like huge COVID related measures to keep employees connected to their places of business or their places of work. And that would be kind of a short term piece if we really get into it to protect the people who work in our sector and their families. You can’t do that forever. But if we need to buy some time here, if we need a few months to protect people as we work through this stuff, let’s do that. And we’ll continue to talk to our union partners and to government about that. We talked a bit about trade diversification. That’s a longer burn. That’s not going to happen overnight. We can on the pulp and paper side get more middle-class Chinese people are starting to look at tissue and toilet paper in their homes. You know, this is not something that’s traditional there, but that’s changing. We’re seeing opportunities in the Middle East as well. On the wood side, definitely, you know, China is kind of the new China, given the size of that market. Japan for higher value, Korea, Vietnam, India, again, not overnight, but that’s something we need to. But I will say this, in 2023, we have a Canada wood program that’s funded by provincial, federal and governments and industry. And the federal government in the budget 2023 cut our Canada wood funding. So it’s down about five million bucks to $70,000. We need government to be reinvesting back in that with us, with people in industry, with provincial governments to grow those markets. So there’s that play. Then there’s a whole host of things we can do domestically. Affordable housing programs, modular home building, which the government has started to do a little bit of. How can we use more Canadian wood in federal government procurement? How can we use more Canadian toilet paper tissue products, you know, in our facilities? There’s no silver bullet here. Not one of those things is going to offset the potential loss of significant business in the US if it comes to that. But these are a few of the levers that we can pull at the same time to mitigate the damage and the risk here.

Lisa Raitt: Yeah, and lots of good examples, even going back to 08, 09 in the government that I was with when we were dealing with the mountain pine beetle, right? Communities were wiped out. You had to come in. You had to help the underlying economy in order to bring back resilience to the community so that when they did have fiber available, they were able to keep going.

Derek Nighbor: Exactly. One of the things the government had committed to and didn’t implement before government was prorogued in January is investment tax credits on the use of biomass for heat and electricity generation. Our pulp mills are like power plants. A lot of our pulp mills sell power, sell green energy into their provincial grids. And with growing demand and the want to decarbonize the energy supply, we can use what would otherwise be wood waste to create power and feed that into provincial grids across the country. So why wouldn’t we be accelerating investment tax credits to get more businesses to be doing that? And, you know, Lisa, you’ll remember from your time as natural resources minister, the green transformation program, the black liquor program that was implemented. People in our industry still talk about that program because of how transformational it was and how it incentivized investment in mill modernization. Our mills are older, the pulp and paper mills in this country are that much older and the opportunities to decarbonize lime kilns, which is where the biggest energy suck is in these operations to generate more power, you know, as we think about the industry of the future and what the mills could look like in the future. Investment tax credits can unlock a lot of that potential.

Lisa Raitt: Yep. And what we did on the transformation, the green transformation, it was a billion dollars, which today sounds so small, but back in 08, that was a that was a big deal. But the reason why we did it was because the Obama administration had included black liquor as part of their biofuel subsidy. So we had to figure out how to deal with the challenge of the competitiveness of our own black liquor, of our own pulp and paper industries. So therefore we came up with it doing this way. So you need to have that same kind of lever in order to do what’s right, you know, in terms of moving towards green. But at the same time, it’s a competitive world.

Derek Nighbor: And, you know, akin to that is, you know, we were dealing, we’ve been dealing the last couple of years with the US Inflation Reduction Act, which under President Biden was a massive subsidy tax credit type program to incentivize private sector investment in decarbonization, green, improving productivity innovations. And that’s why we had said to the government, on these ITCs for biomass, you know, for heat and electricity generation, let’s get moving. Capital is fleeing this country looking. And you know, capital wants certainty. And the US, the IRA was providing that certainty. I think given the chaos in the US, Canada has an opportunity to start providing that certainty for capital that investors and business owners and unions want to see. And so the ITC, the investment tax credit piece for us is critically important and whoever wins in three weeks, I hope they move on that pretty quickly. It’s low hanging fruit.

Lisa Raitt: I think that’s a great pitch and I hope they’re listening out there because I agree with you on that topic. Derek, thank you so much for joining me today. And I know our listeners definitely have a better view and picture of the forest products industry and what we need to do in order to remain competitive and to really thrive.

Derek Nighbor: Yeah, and just a shout out to those who support our sector, whether you’re buying our products, investing in our companies or working in our mills or in our woodlands operations. I’m on the road in northern Alberta this week and people are nervous. I owe it, we owe it to them to do everything possible to push through this and we’re no strangers in forestry to change. We’ve been through a number of types of challenges and we’ve come out the other end looking a bit different, but we’re still here, 200,000 people strong, $90 billion a year in economic activity. So we’re going to keep pushing forward.

Lisa Raitt: Much appreciated. You’re doing great work for the country. Thank you, Derek.

Derek Nighbor: Thanks, Lisa.

Lisa Raitt: Thanks so much for tuning in. Now, if you have any questions or comments or even requests on topics to discuss, drop me a line at [email protected]. Your interactions actually will make this better. I’m your host, Lisa Raitt, and this has been The Raitt Stuff.

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