explain how is it an economic activity and how profit is made out of this business in lumbering in canada
Answers
Explanation:
Faced with various trade and economic pressures during recent years, Canada’s lumber industry has restructured and remained profitable. As part of its restructuring, the industry lost thousands of jobs which produced substantial gains in productivity. These gains have helped it maintain positive profit margins somewhat comparable, on average, to those reported in the manufacturing sector during the 1999 to 2005 period.
The trade and economic challenges faced by the industry during this period were many and included: the 1996-2001 Canada-United States Softwood Lumber Agreement, the American anti-dumping and countervailing duties slapped on the industry from 2002 to 2006, a rise in energy and raw material prices, a decline in lumber prices and a higher exchange rate for the Canadian dollar.
During the course of the Softwood Lumber Agreement, the general performance of the lumber industry was somewhat comparable to the rest of the manufacturing sector, except for labour productivity. It recorded profit margins similar to those of all manufacturing industries. In addition, its volume of production and the number of jobs kept rising until 2000. However, total hours worked declined resulting in above average labour productivity growth. The end of the Softwood Lumber Agreement in 2001 was followed by the imposition of anti-dumping and countervailing duties in 2002. This was a marked turning point for the industry.
Weakening prices, first seen in 1999, continued until 2006 when they reached their lowest levels since 1992. On average, prices fell 4.4% a year from 1999 to 2006. This was the result of several factors including stiffer competition on international markets, production overcapacity in the industry, the imposition of anti-dumping and countervailing duties on lumber exports to the United States and recent strengthening of the Canadian dollar relative to the US dollar.
Meanwhile, production volumes grew until 2004 due in part to strong demand in domestic and US housing markets, before contracting in 2005 and 2006. As a consequence, the value of lumber industry manufacturing shipments fell 14.9% in 2005 and 17.5% in 2006 to reach $11.9 billion. This was the lowest level in 14 years. However, despite relatively steady production volume during the period, employment fell markedly starting in 2001. This intensified productivity gains which started before 2000. From 2001 to 2005, labour productivity of the sawmills and wood preservation industry, of which the lumber industry represents 89% of shipments, rose by 5.8% per year on average, close to 5 times faster than the 1.2% gain in the manufacturing sector.
From 1999 to 2005, the sawmills and wood preservation industry had an average profit margin ratio of 6.0% compared with 6.4% for all manufacturing industries, thanks in part to an exceptional 2004 profitable year. The return on equity stood at 8.9% on average compared to 8.8% for the manufacturing sector.
In 2006, a new agreement with the United States was reached on wood exports, combined with an agreement to reimburse most of the duties collected since 2002 and the establishment of a new base price over which Canadian exporters will have to pay duties. Time will tell how this new accord and other factors will influence the Canadian lumber industry over the years.
This study examines recent developments in the Canadian lumber industry. It analyzes trends in shipments, prices, production, exports, employment, productivity, innovation, investments and financial results from 1995 to 2006.
Defining the wood industry
The wood industry is primarily engaged in manufacturing products from wood. It comprises establishments engaged in sawing logs into lumber and similar products, or preserving these products; making products that improve the natural characteristics of wood, by making veneers, plywood, reconstituted wood panel products or engineered wood assemblies; and making a diverse range of wood products, such as millwork.
To measure the scope of the wood industry activities, the North American Industry Classification System (NAICS) divides this industry into three main groups, with each one made up of sub-groups:
Sawmills and Wood Preservation (NAICS 3211):
Sawmills (except Shingle and Shake Mills) (NAICS 321111)
Shingle and Shake Mills (NAICS 321112)
Wood Preservation (NAICS 321114)
Veneer, Plywood and Engineered Wood Product Manufacturing (NAICS 3212)
Other Wood Product Manufacturing (NAICS 3219)
For the purposes of this study, the Sawmills (except Shingle and Shake Mills) industry (NAICS 321111) is considered to be the lumber industry. It comprises establishments engaged primarily in manufacturing boards, dimension lumber, timber, poles and ties from logs and