Investigating Value-Added Production in the Canadian Forest Industry

Industry analysts have indicated that there is a trend toward more value-added production in the Canadian forest industry. This suggests that the value of output has increased relative to the primary resource costs of production, leaving increased returns available for other production costs. If, however, these other costs out-pace value-added growth, the industry may be in jeopardy as profit levels are diminished. In this paper, I investigate the manner in which economic scale, technological shifts, and price fluctuations affect value-added and variable costs across regions of the Canadian forest industry. By dividing the industry into five producing regions, and assessing the 1965-95 data through regression analysis, I find unique variable relationships. Value-added production tends to exhibit varying degrees scale economies in all forestry sectors and regions. Additionally, significant technological degradation tends to predominate over time. Variable costs tend to be quite sensitive to changes in operational scale and also tend to marginally decline with technological advances. These circumstances, coupled with the variable influences of price changes, may cause variable costs to limit future value-added development in some Canadian regions.