An Analysis of Productivity Trends in the Canadian Forest Products Sector, 2000-2012

By de Avillez, Ricardo | International Productivity Monitor, Fall 2014 | Go to article overview

An Analysis of Productivity Trends in the Canadian Forest Products Sector, 2000-2012


de Avillez, Ricardo, International Productivity Monitor


PRODUCTIVITY IMPROVEMENTS ALLOW FIRMS to produce the same quantity of output by using fewer inputs, which reduces costs. (2) However, the sector's competitiveness depends not only on productivity but also on other factors, such as exchange rates and input costs. The competitiveness of Canada's forest products sector has suffered greatly due to a strong Canadian dollar and high labour costs, which make it harder for the sector to compete internationally with low-wage countries such as Russia, China, and Brazil. In fact, even when compared to other developed countries, Canada's labour costs are quite high.

it is unlikely that labour costs in the Canadian forest products sector will experience a significant fall. Aside from nominal (downward) wage rigidities, which are observed in most sectors of the economy, it seems to be a consensus among forest product firms that the sector faces problems related to skill shortages.

Productivity gains can help by reducing the sector's need for labour input, thus reducing production costs. By lowering production costs, productivity gains can help Canadian firms to better compete with international firms, and thus regain some of their lost market share.

Exhibit 1

The Forest Products Sector
(subsectors and industry groups breakdown by NAICS codes)

113 Forestry and Logging

1131 Timber Tract Operations
1132 Forest Nurseries and Gathering of Forest Products
1133 Logging

321 Wood Product Manufacturing

3211 Sawmills and Wood Preservation
3212 Veneer, Plywood and Engineered Wood Product Manufacturing
3219 Other Wood Product Manufacturing

322 Paper Manufacturing

3221 Pulp, Paper and Paperboard Mills
3222 Converted Paper Product Manufacturing

Source: Statistics Canada (2012).

Much more effectively than other manufacturing industries, the Canadian forest products sector has managed to soften the blow of rapidly rising unit labour costs with major productivity gains. In order to increase competitiveness, the Canadian forest products sector must maintain high rates of productivity growth.

The objective of this article is to understand these productivity trends in the Canadian forest products sector, emphasizing recent developments in labour and multifactor productivity. The article builds on and expands previous CSLS research on the subject, in particular Harrison and Sharpe (2009) and Sharpe and Long (2012).

This article is organized into four sections. The first section defines the forest products sector and discusses the output and input trends experienced by that sector. The second section details recent productivity developments in the forest products sector. The third section examines the drivers of productivity growth in the forest products sector. The fourth (and final) section concludes.

An Overview of the Canadian Forest Products Sector (3)

The Forest Products Sector

The forest products sector, as it is defined in this article, is not identified by a single two-digit NAICS sector or by a single three-digit NAICS subsector; rather, it encompasses three NAICS subsectors, each of which includes different activities related to forest products: forestry and logging; wood product manufacturing; and paper manufacturing. A more detailed breakdown of all the activities included in the forest products sector can be seen in Exhibit 1.

Output

Nominal GDP

The Canadian forest products sector generated $18,752 million in nominal value added in 2010, accounting for 1.2 per cent of Canada's GDP. Of its three subsectors, paper manufacturing was the largest, responsible for $8,519 million or 45.4 per cent of the value added of the forest products sector. The subsector with the second largest value-added share was wood product manufacturing ($6,809 million or 36.3 per cent), followed by forestry and logging ($3,424 million or 18.3 per cent).

Three provinces accounted for 80 per cent of the nominal value added generated by the forest products sector in 2009: Quebec (31. …

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