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Canadas economy relies heavily on our natural resources. The economies of many communities across this vast country rely on one of these resources, our forests (which cover almost half the land area). This article presents a picture of developments in this industry in 1996 and 1997, and gives a brief view of the most recent trends. This analysis has been prepared using results from the Annual Survey of Manufacturing (ASM) for 1996, as well as data from the Canadian Forestry Service.
Logging provides primary material for two large manufacturing industries in this country: the Sawmills, Planing Mills and Shingle Mills Industry, and the Pulp and Paper Industry.
Over the last few years, these two manufacturing industries have developed differently. Because of sustained activity in the housing construction industry(1) both on the domestic market and in the United States, the Wood Industry increased by 6.5% in 1996 and 9.7% in 1997. Conversely, because of decreased demand both in the United States and foreign markets, and particularly because of a drop in prices(2) , the Pulp and Paper Industry saw a decrease of 14.4% in 1996 and 1.5% in 1997.
Nevertheless, the combined effect of these two divergent trends meant a respectable increase in logging industry shipments. Following a 15% increase in 1995, logging industry shipments increased 5.1% in 1996 to 12.3 billion dollars. This was the fifth consecutive increase. In constant dollars, shipments increased by 13.5%, the best performance in the last three years. But in spite of this increase, shipments (in constant dollars) still remain lower than the 18% level reached in 1989. Chart 1 Value of shipments (1992 = 100), Logging, 1982 to 1996 shows, in current and constant dollars, the change in value of shipments in the logging industry since 1982.
The situation was little improved in 1997; the price of logs and bolts and of pulpwood began to drop in mid-year in the trough of the Asian financial crisis. This drop continued into 1998, reflecting weakening demand. In contrast, the demand for lumber on the North American market remained strong due to sustained activity in housing construction.
BUT NOT IN EVERY PROVINCE
In 1996, the value of roundwood(3) shipments did not grow at the same rate in all provinces. Because of the restrictions imposed by the Canada-USA agreement on softwood lumber exports(4) , limits were put on exports of lumber from the four provinces affected by the agreement (British Columbia, Alberta, Ontario and Quebec), to the benefit of the other provinces.
Since there is little interprovincial trade in logs and bolts, the same phenomenon occurred in the logging industry. Thus, although value of shipments increased by 5.1% for all of Canada, British Columbia saw an increase of only 3.5%. Performance in British Columbia was affected not only by the lumber agreement, but also by Japans slowing economy.
While they are minor players in the Canadian logging industry, the Prairie Provinces and New Brunswick had significant increases in the order of 10% to 15%. Because British Columbia accounts for approximately half of the industry, what happens in B.C. affects the entire industry, so that industry progress was slowed in 1996.
British Columbia accounted for 53.6% of logs and bolts and pulpwood in 1996, a decrease of 54.5% compared to 1995, 56.5% compared to 1996. Quebec and Ontario were the other two large producing regions, with respective increases of 16.4% and 13.4% compared to 1995. These three provinces ship close to 84% of this industrys total shipments. Chart 2 shows the breakdown of value of shipments by region in 1990 and 1996.
The prices of logs and bolts dropped by 4.4% in 1996. Pulpwood prices fell by 17.4% due to low demand in the Pulp and Paper Industry because of the drop in prices for newsprint and pulp. Peaking at the end of 1995, prices for newsprint and pulp literally plunged in 1996 and continued to slide in 1997. Over the course of 1995, clients of newsprint manufacturers stockpiled newsprint, which they then used throughout 1996. When this adjustment of stocks came to an end, the crisis in Asia began, which again slowed the demand for pulp and paper.
SLOWER INCREASE IN PRODUCTION COSTS
Total costs for raw materials and supplies in the logging industry increased by 1.7% compared to the previous year, to a figure of 7.5 billion dollars in 1996. This is down from increases of approximately 20% in the two previous years.
STUMPAGE FEES DOWN(5)
Unlike the last few years, stumpage fees paid decreased by 1.2% compared to 1995, to stabilize at 1.1 billion dollars. This is a drastic change from previous years, when stumpage fees rose by 30% a year. In a context that is less favorable for higher lumber prices, the stumpage fee increases the last few years began to weigh more heavily on the cost structure of businesses. Thus, in the spring of 1998, the Government of British Columbia announced a reduction in stumpage fees of approximately 16% to lighten the load on logging industry businesses.
Although stumpage fees paid by British Columbia businesses decreased by 6.9% in 1996, this province still accounted for close to 70% of all stumpage fees. Five years ago, stumpage fees made up 10% of total costs of raw material and supplies; this percentage increased gradually to stabilize at 15% since 1995.
PRINCIPAL PRODUCTS SHIPPED
The two principal commodities shipped by the logging industry are logs and bolts and pulpwood. In 1996, logs and bolts represented approximately 71% of the value of shipments, pulpwood for approximately 12% (compared to 15% in 1995 and 17% in 1994). In 1994, shipments of pulpwood saw their proportion decrease because of increased use of woodchips. However, in 1996, shipments of woodchips remained almost constant, but demand for pulpwood dropped significantly. Small establishments not reporting detail(6) accounted for more than 45% of all shipments, or 5.6 billion dollars, most of which was revenue of independent contractors.
CANADA PRODUCES A QUARTER OF ROUNDWOOD IN NORTH AMERICA
The majority, (more than 85%) of roundwood harvested in Canada is composed of softwood species such as spruce, pine and fir. While these species are harvested in almost all provinces, hardwood species are mostly harvested in the East; very little is harvested in British Columbia. The Sawmills, Planing Mills and Shingle Mills Industry is the main user of logs and bolts, while the Pulp and Paper Industry is the main user of pulpwood.
In 1996, logging on provincial Crown lands(7) accounted for almost 80 % of production; the remainder was supplied from private land. Canada is one of the rare countries in the world where the majority of forests are publicly owned. Canada has 10% of the worlds forests, provides 5% of roundwood production worldwide and 25% of North American production.
Roundwood production was estimated at 182,923 thousand cubic metres in 1996, a drop of 2.8% from the previous year. This is the first decrease in five years. Production of logs and bolts decreased by 1.9%, while pulpwood production fell by 9.9%. Chart 3 shows estimates of roundwood production since 1982.
Total employment in the logging industry decreased by 1.4% in 1996 to 44,014 workers, in contrast to the substantial increase in 1995. Total employment in the logging industry still remains 10.5% below the peak of 49,190 workers reached in 1989. Wages dropped by 0.1% and production by workers increased by 3.2% compared to 1995.
Capital expenditures(8) decreased for the second consecutive year in 1996, from 734 million dollars to 703 million.
Logging in Canadas forests is still a cyclical activity, dependent on demand for new housing and pulp and paper on the domestic market, but increasingly on foreign markets. Several external factors are having an increasing effect on these industries: the growing influence of Asia and Russia on worldwide demand for natural resources, the requirements of the Canadian Pulp and Paper Industrys clients in terms of recycled fibres and environmental protection, and the demand for products with greater value added. This means that even this traditional industry in the Canadian economy will feel the effects of globalization and must develop and change.
(1) Cansim, matrix # 80, Housing Starts and Completions, Canada and Cansim, matrix # 2541, Private Housing Starts, USA
(2) Catalogue No. 62-001-XPB, Industry Price Indexes
(3) Includes logs and bolts, pulpwood, fuelwood and other industrial roundwood
(4) Agreement between Canada and USA on softwood lumber. Effective for 5 years from April 1, 1996
(5) In Canada, fees paid by businesses and individuals to harvest roundwood on Crown lands
(6) Those establishments are not surveyed. Summary data are extracted from administrative databases
(7) Public lands held under long-term licences
(8) Catalogue No. 61-205-XPB, Private and Public Investment in Canada, intentions, 1998
This article was written by Gilles Simard. Gilles is a Statistics Canada economist in the Manufacturing, Construction and Energy Division.
Further information on Canadian manufacturing can be found in the publications Manufacturing Industries of Canada: National and Provincial Areas (Catalogue 31-203-XPB), available annually for $68 per issue in Canada and for $68 U.S. outside Canada, and Products Shipped by Canadian Manufacturers (Catalogue 31-211-XPB), available annually for $67 per issue in Canada and for $67 U.S. outside Canada. Order this publication and other Statistics Canada publications by telephone, dial 1-800-267-6677, by fax: 1-800-889-9734, or by Internet.
For more information about manufacturing data or time-series, call the Disclosure and Dissemination Unit, Manufacturing, Construction and Energy Division at (613) 951-9497 or by Internet: email@example.com. For information from International Trade Division telephone 1-800-294-5583 or by Internet:firstname.lastname@example.org.