Competitiveness in sawmill

1
Competitiveness in sawmill wood preservation
industry in the U.S. and Canada

• Daowei Zhang
• Rao V. Nagubadi
• School of Forestry Wildlife Sciences
• Auburn University

2
Background

• Increasing share of Canadian imports in the U.S.
  softwood lumber consumption
• Softwood lumber - a major product of the sawmill
  wood preservation industry
• Apparent competitiveness of Canadian products?
• - Productivity levels (efficiency)
• - Lower material costs (possible subsidy)
• - Lower prices (exchange rate induced)
• - Consumer preferences (substitution
  complementarities)

3
Competitiveness

• Definition
• The degree to which a country can, under free
  and fair market conditions, produce goods and
  services that meet the test of international
  markets.
• - Presidential Commission on Industrial
  Competitiveness (1985), Washington, D.C.
• - Michael Porter (1990).

4
Competitiveness

• Sources of lower cost
• Lower cost of inputs
• Increased technical efficiency of transforming
  inputs into outputs
• Lower product prices (exchange rates)
• More valued outputs
• We assess competitiveness by
• 1. Relative prices of inputs and outputs
• 2. Relative productivity levels

5
Relative prices
This Relative Price is a measure of
competitiveness
6
Relative productivity levels

• Tornqvist-Theil (TT) Index is exactly equal to
  Translog production function under constant
  returns to scale and competitive conditions
  (Diewert 1976)
• So we use TT Index to derive relative
  productivity levels

7
Data

• North American Industry Classification System
  (NAICS) Code 3211
• Period 1958 to 2001
• Output price value of shipments / output
  quantity
• Input price input expenditure / input quantity
• Capital service price is derived by adding
• Depreciation
• Bond interest rate
• Domestic prices does not include transport costs

8
Data

• Composition of industry outputs in 2001
• (as of Value of Shipments)
• U.S. Canada
• Softwood lumber 46 70
• Hardwood lumber 17 2
• Wood chips 11 12
• Wood preservation 16 4
• Shingles, shakes, ties 1 2
• Other products 8 10

9
Results

• PPP-based relative output prices
• Weighted output
• Softwood lumber
• Hardwood lumber
• Wood-chips
• Wood preservation products
• Wood-ties, shingles, shakes
• PPP-based relative input prices
• Labor
• Capital
• Energy
• Materials

10
Relative weighted output price
11
Relative softwood lumber price
12
Relative hardwood lumber price
13
Relative wood-chips price
14
Relative wood pres. products price
15
Relative wood-ties shingles shakes price
16
Relative labor input price
17
Relative capital service price
18
Relative energy input price
19
Relative material input price
20
Relative productivity levels
21
Logarithmic differences in output
22
contributions due to differences in technology
and inputs
23
Summary

• Canadian industry is more competitive
• Canadian industry is less productive since 1994
• Competitiveness of Canadian industry is
  facilitated exchange rate depreciation of
  Canadian
• Relative material prices were mostly higher in
  Canada till 1991

24
Summary

• US relative productivity level was lower than
  Canada before 1994, but was higher afterwards.
• Differences in capital intensity and human
  capital might have contributed to increasing gap
  in productivity growth.
• Need further research to understand more on
  relative productivity levels and factors behind
  the differences between US Canada.