Graduate Thesis Or Dissertation
 

Economies of scale in sawmilling in British Columbia

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  • The number of sawmills in the coastal lumber-producing area of British Columbia diminished from 364 In 1955 to 162 in 1968. In the interior of the province the reduction in plant numbers was from 2125 to 740. Over the same period lumber production in the province increased from 4.9 billion to 7.8 billion board feet, so the trend was to fewer plants of larger capacity per plant. When sawmills were grouped into eight-hour capacity classes, an application of the survivor principle, and the Kolmogorov-Smirnov, two-sample statistical test, indicated that there was a significant (p = .05) difference in the distribution of sawmills on the coast for the years 1955 and 1968. In the interior of the province the difference in the distribution of sawmills for those two years was highly significant (p = .01). The inference is that in both regions some plants were more economically viable than others over that period of time. The greatest reduction in plant numbers on the coast occurred in capacities of 50 thousand board feet and less per eight hours, whereas the number of sawmills over 90 thousand board feet per eight hours increased, despite a drop of over 200 in total number of mills on the coast. In the interior, the greatest reduction in plant numbers was in the 20 thousand board feet and less per eight hours class. The most efficient plant sizes in the interior, on the basis of survival criteria, encompassed a wide range of capacities in excess of 40 thousand board feet per eight hours. In 25 of 27 sawmills studied there was a statistically significant relationship between productivity and log size. The relationship was variable, but, in most cases, productivity increased as log size increased. Therefore sawmill capacity, when defined as lumber output per unit time, is a function of log size. Because of this, and the fact that not all sawmills can process all log sizes, the sawmills studied were divided into three groups, with a distinct log population for each group, for analysis of short-- and long-run cost curves. The available evidence on costs of labour, power and materials and supplies indicates that the short-run cost curves for these plants diminish to plant capacity, if log costs are constant and decreases in power costs per unit for two-and-three shift operations are greater than increases in labour costs per unit. Evidence on costs of management and fixed plant further indicates that the long-run cost curve diminishes with Increasing plant scale over the range of scale studied in each group of plants. Although increasing economies of production occurred with increasing plant scale for the groups of mills studied, factors affecting the sawmill investment decision may be associated with some uncertainty. The theory of decision-making under uncertainty provides a framework for analysing such investment problems. The application of this theory to the small-log mill group studied indicated that the optimum strategy, based on return on investment criteria, depended on the probable supply of small logs to be expected over the life of the investment. The methodology of modern decision-making theory facilitates investment analysis where there are several chance events which may affect the decision; thus it is suggested that this methodology he more widely used in sawmill investment analysis.
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