by Jean Francois Larue, Chief Economist
As readers of this blog know, the Canadian forest products industry is working hard to meet its Vision2020 goals . How hard? Well, this week FPAC released its “Productivity Report Card: Canada’s Forest Industry Gets Top Grade” a summary report of a larger study written by the Centre for the Study of Living Standards (CSLS), which concludes that the industry’s labour productivity increased at an annual compound growth rate of 2.5% over the last decade, while Canada’s business sector only grew a total of 0.7%. In fact, the forest products industry had the second-highest labour productivity growth rate out of all Canadian sectors (see chart). In short, we got a silver medal on the productivity podium. This is even more impressive when one considers the challenges the industry has faced over the course of the last decade: everything from a high Canadian dollar, to the proliferation of electronic media which put a downward pressure on the paper manufacturing sector, the collapse of the U.S. housing market, and of course, the financial crisis of 2008 to 2009.
So what’s the big deal about higher productivity? It matters because it’s a key measure of how efficiently goods and services are produced. It is also an indicator as to how nimble and innovative a company is at ensuring it stays competitive in a changing global market place. The better the productivity performance, the better the company is at transforming to meet the needs and demands of the global market. Physical capital such as machinery and equipment, human capital, and research and innovation have the most impact on company-level productivity, and of course outside forces can affect the company’s ability to invest in, or improve upon, these elements of their operations. Industries that are innovative and able to adapt boast high productivity.
The CSLS productivity study demonstrates that the rapid labour productivity growth in the forest products industry is attributable to something called “Multifactor Productivity” growth. MFP growth measures how well an industry uses improvements in technology and how well it makes the right business decisions that drive a business without simply adding more cash or labour into their business. It measures how “street smart” they are. And on that account, they are the “keeners”. The forest products sector’s MFP grew at a rate of 1.7%, easily outpacing the business sector whose growth was
-0.6% over the last decade.
A commitment to research and development and adopting technology continue to help drive productivity growth in the Canadian forest products industry. Canada had high research and development (R&D) intensity — the measure of a company’s R&D spending to increase productivity and output — in wood product and paper manufacturing. Canada placed well above the international average and in line with the R&D intensity of countries such as Norway, Sweden and Finland, all of which have major forest products industries.
With this in mind, it’s exciting to see the forest products industry fare so well. In fact, the latest figure available shows that, of eight OECD countries, Canada had by far the fastest labour productivity growth (6.8%) in the wood product manufacturing sector. This is the double of the US performance!
All this being said there is still work to be done. As an example, falling levels of investment in physical capital within the paper manufacturing sector suggest that a number of firms in the Canadian forest products industry are using outdated capital assets that do not embody the latest technological innovations. In this respect, FPAC is recommending a renewed focus on investing in both human and physical capital as well as strong spending on research and development to drive even more innovation to ensure that the Canadian forest products industry meets its Vision2020 goals by the end of the decade.