Economic Structure and US Canada Trade Conflict: any connections

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Economic Structure and US Canada Trade
Conflict any connections?

• Lloyd C. Irland
• The Irland Group
• And Yale University
• 207-685-9613
• irland_at_aol.com

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Outline

• Structure Definitions
• Market/Product Delineation
• Seller Concentration
• Integration
• Technological dynamism
• Conclusions

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Structure

• A dimension of an industry, including
• Seller concentration
• Vertical integration
• Buyer concentration
• Diversification
• Spatial structure
• Economists are concerned with any correlates of
  market power
• Today, well discuss first 2

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Geographic Market Delineation

• Basis for determining structural variables
  their impact
• Geogr. Area in which sellers compete
• Or could compete with slight increase in price
• Role of imports in supply
• For SWL it is US and Canada
• Concentration ratios for just US output are
  meaningless

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Relevant Product Market

• Who competes with Whom?
• Not always obvious based on product alone
• An end user demand issue
• Often by application, E.g. headers
• Glulam
• 2X12
• LVL

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Commodity

• Limited processing
• Uniformity sold by accepted grades
• Competition primarily on price
• Bulk shipment customers usually volume
  users/wholesalers
• Primary buying influence price

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Softwood Lumber is NOT one

• It is a quasi-commodity
• Technical Species differences
• Fragmented by grades within species
• Species preferences by users

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quasi-commodity

• Segmented Markets
• Structural framing
• Nonstructural interior
• Nonstructural exterior
• Decking
• Heavy structural
• Low grade pkg and other

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Product Market Delineationis more difficult now

• Plywood demolished Billions of bd ft of 1 lumber
  markets
• is plywood lumber?
• I-joists demolished Billions of bd ft
• of wide framing lumber markets
• Is an I lumber?
• Steel studs market impact small so far
• Is a steel stud lumber?

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Answers not always simple

• Many less extreme comparisons exist.
• 4/4 Eastern white pine not usually used for
  decking or framing
• So. Pine not usually for framing
• (exc. trusses)
• Cedar not used for framing
• All same product? Arguably not.
• (even if talking identical size/grade)

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So what?

• Product Market Delineation affects
• Import share
• For soft pines Canada share 5
• Below radiata
• For SPF Canada share probably 80
• For cedar (white red) Canada share
• probably 80
• For decking Canada share 0.
• Structural traits, as in concentration
• Identity of competitors

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Seller Concentration
Total companies 1963 11,931 1997 4,372
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56 Years of Structural Change
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Western US mills 1972, 2003
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Supply Responsivess has Fallen
(Irland Popkin for AFPA, 1993)
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Price Volatility has Increased
SPF
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Effect on Trade Conflict?

• 40s 50s fringe of in out small mills
• 60,000 total in late 40s
• This fringe increased supply responsiveness
• Lost it by 80s, price volatility increased
• Low points in Market pressure for trade actions
• Do Giant producers have more incentives to
• Pursue trade actions? Not clear

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Integration Landownership

• Largely driven by Paper industry mergers.
• Receding in aggregate
• Microdata needed to measure integr.of SWL
  industry
• Canada Highly integr. via Crown limits

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Theory

• Trade actions driven by big US timberland owners
  to drive up land values
• Hard to disprove
• Lumber prices drive stumpage, and stumpage drives
  timberland prices.
• But, I find the theory unpersuasive

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Integration with Paper Industry

• Can view as a horizontal diversification at
  product end
• Or, at resource end, as a vertical integration
  residual chips to pulp
• Studmill chip plant!
• Integration very high in Quebec and US South --
  good numbers elusive
• Probably reduces supply responsiveness in lumber,
  esp. to weak markets

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Crossborder Investment

• Most large producers mills in both nations
• Mystery Why are US firms seeking protection
  against themselves?

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Technological Dynamism

• Highly competitive structure fosters
• Technological dynamism
• Higher conversion ratios
• Lumber from pulpwood previously unused species
• Composites
• Reinforces tendency to overcapacity

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Lumber Displaced by EWPs
Bill. Bd. ft.
Al Schuler, Mar. 2005 based on Russ Taylor data
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Example

• From 1995 to 2002
• 200 mills closed
• Capacity up by 16.
• Spelter Alderman, 2003 p. 7

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Conclusion

• Product Market Delineation
• More difficult due to market/technology changes
• Actual impact of imports likely understated by
  current approach
• Loss of small mills likely one cause of
• Higher price volatility
• Also lower elasticity of labor, log supplies
• Large size of dominant producers incentive for
  trade actions? Possibly

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Concl

• Landownership probably not a motive for trade
  actions
• Integration with paper is believed to be cause of
  overproduction in weak lumber markets
• So, certain aspects of structure play a role
• probably not a determining one.

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Attachments Details for 1973, 2003
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