This study uses a translog cost function to specify the production structures of the softwood lumber industry in three U.S. regions (the West Coast, the Inland, and the South), and four Canadian regions (Ontario, the British Columbia Coast, the British Columbia Interior and Quebec), from 1988 to 2005. First, two separate production models are specified and analyzed, one is a “U.S. model” for the U.S. regions, and the other is a “Canada model” for the Canadian regions. Second, all seven regions are included in one production model, a “U.S.-Canada model”. In the U.S.-Canada model, purchasing power parity over the Gross Domestic Product is used to convert cost and price data of Canada from Canadian into U.S. dollars. The Allen and Morishima elasticities of substitution, price elasticiteis of demand, rate of technical change, and total factor productivity growth are estimated in each model, and the results are presented and compared.

This study uses a translog cost function to specify the production structures of the softwood lumber industry in three U.S. regions (the West Coast, the Inland, and the South), and four Canadian regions (Ontario, the British Columbia Coast, the British Columbia Interior and Quebec), from 1988 to 2005. First, two separate production models are specified and analyzed, one is a “U.S. model” for the U.S. regions, and the other is a “Canada model” for the Canadian regions. Second, all seven regions are included in one production model, a “U.S.-Canada model”. In the U.S.-Canada model, purchasing power parity over the Gross Domestic Product is used to convert cost and price data of Canada from Canadian into U.S. dollars. The Allen and Morishima elasticities of substitution, price elasticiteis of demand, rate of technical change, and total factor productivity growth are estimated in each model, and the results are presented and compared.

The softwood lumber trade dispute between Canada and the United States has centered on the debate over the existence of a stumpage subsidy in Canada and recently on dumping by the Canadian softwood lumber producers in the U.S. markets. This thesis contains three essays that investigate the subsidy and dumping issues in this dispute. The results of these analyses indicate the economic performance of Ontario’s stumpage system. The first essay investigates the market performance of Ontario’s stumpage system by examining the long-run equilibrium and Granger-causality relationships between the stumpage prices and the market prices of various end products (lumber, pulp and wood composites) from June 1995 to February 2005 using Johansen’s multivariate co-integration approach and the Granger-causality test. Test results indicate that in terms of SPF (spruce, pine, fir) for lumber and pulp, Ontario’s stumpage system can establish stumpage prices that have the potential to reflect the market values of timber. However, there is a need to modify the system for the other products. In the second essay, an Enhanced Parity Bounds Model (EPBM) is developed and used to examine the discrepancy between the stumpage price of SPF timber for producing lumber and its market value from June 1995 to January 2007. The results show that in the short run, the stumpage prices were below or above the market values. However, in the long run, the underpayment and overpayment will even each other out. The results, therefore, imply that Ontario’s stumpage system has the ability to capture the full economic rents in the long run and thus does not confer a subsidy to Ontario’s softwood lumber producers. The third paper examines the issue of whether Ontario’s softwood lumber industry had dumped softwood lumber into a major US market from April 1996 to September 2006 using the EPBM. This is a critical issue for Ontario’s stumpage system because dumping could lead to lower stumpage prices under the current stumpage system. This analysis indicates that the industry gained considerably more profit from the U.S market than from the home market and did not dump lumber in the US market during this period.

The softwood lumber trade dispute between Canada and the United States has centered on the debate over the existence of a stumpage subsidy in Canada and recently on dumping by the Canadian softwood lumber producers in the U.S. markets. This thesis contains three essays that investigate the subsidy and dumping issues in this dispute. The results of these analyses indicate the economic performance of Ontario’s stumpage system. The first essay investigates the market performance of Ontario’s stumpage system by examining the long-run equilibrium and Granger-causality relationships between the stumpage prices and the market prices of various end products (lumber, pulp and wood composites) from June 1995 to February 2005 using Johansen’s multivariate co-integration approach and the Granger-causality test. Test results indicate that in terms of SPF (spruce, pine, fir) for lumber and pulp, Ontario’s stumpage system can establish stumpage prices that have the potential to reflect the market values of timber. However, there is a need to modify the system for the other products. In the second essay, an Enhanced Parity Bounds Model (EPBM) is developed and used to examine the discrepancy between the stumpage price of SPF timber for producing lumber and its market value from June 1995 to January 2007. The results show that in the short run, the stumpage prices were below or above the market values. However, in the long run, the underpayment and overpayment will even each other out. The results, therefore, imply that Ontario’s stumpage system has the ability to capture the full economic rents in the long run and thus does not confer a subsidy to Ontario’s softwood lumber producers. The third paper examines the issue of whether Ontario’s softwood lumber industry had dumped softwood lumber into a major US market from April 1996 to September 2006 using the EPBM. This is a critical issue for Ontario’s stumpage system because dumping could lead to lower stumpage prices under the current stumpage system. This analysis indicates that the industry gained considerably more profit from the U.S market than from the home market and did not dump lumber in the US market during this period.

Markets have an important role to play in advancing an improved understanding of international trading relationships. Two most important economic issues, which contribute to improved national welfare and ensure long-run competitive market equilibrium in international markets, are market integration and market efficiency. To provide softwood lumber markets related information to the policy makers, economic analyses relating market integration and market efficiency of the combined markets of Canada and the US have been conducted. The economic analyses include: (i) testing cointegration of prices among North American softwood lumber markets; (ii) identifying price leading markets in long-run price structure of these cointegrated markets; (iii) examining the degree of market integration among these markets; and (iv) testing the efficiency of spatial arbitrage among these markets. First, the price linkages in the North American softwood lumber markets have been explored over different trade regimes. The results indicate that market integration is affected by product aggregation of data. Further investigations of market integration are, therefore, limited to homogeneous softwood lumber product markets. Second, oligopsonistic pricing behavior of traders is identified as the possible reason for imperfect competition among Douglas Fir product markets, while imperfect competition among the markets of Spruce-Pine-Fir and Hem Fir products can not be explained by this behavior. Third, a comprehensive picture of the adherence to price parity is formulated by evaluating the magnitude and persistence of deviations from equilibrium relation of prices. It is found that large volumes of trade, product substitutability, lower prices, and certainty of trade are the factors which contribute to higher degree of market integration among North American softwood lumber product markets. Finally, the inter-temporal shifts in regime probabilities of competitive market equilibrium are assessed over different trade regimes. It is found that lower transaction costs, large volumes of trade, short distances between markets, and certainty of trade contribute to high market efficiency among softwood lumber product markets of North America.

Markets have an important role to play in advancing an improved understanding of international trading relationships. Two most important economic issues, which contribute to improved national welfare and ensure long-run competitive market equilibrium in international markets, are market integration and market efficiency. To provide softwood lumber markets related information to the policy makers, economic analyses relating market integration and market efficiency of the combined markets of Canada and the US have been conducted. The economic analyses include: (i) testing cointegration of prices among North American softwood lumber markets; (ii) identifying price leading markets in long-run price structure of these cointegrated markets; (iii) examining the degree of market integration among these markets; and (iv) testing the efficiency of spatial arbitrage among these markets. First, the price linkages in the North American softwood lumber markets have been explored over different trade regimes. The results indicate that market integration is affected by product aggregation of data. Further investigations of market integration are, therefore, limited to homogeneous softwood lumber product markets. Second, oligopsonistic pricing behavior of traders is identified as the possible reason for imperfect competition among Douglas Fir product markets, while imperfect competition among the markets of Spruce-Pine-Fir and Hem Fir products can not be explained by this behavior. Third, a comprehensive picture of the adherence to price parity is formulated by evaluating the magnitude and persistence of deviations from equilibrium relation of prices. It is found that large volumes of trade, product substitutability, lower prices, and certainty of trade are the factors which contribute to higher degree of market integration among North American softwood lumber product markets. Finally, the inter-temporal shifts in regime probabilities of competitive market equilibrium are assessed over different trade regimes. It is found that lower transaction costs, large volumes of trade, short distances between markets, and certainty of trade contribute to high market efficiency among softwood lumber product markets of North America.

Manufacturing industries in the United States continue to experience increasing pressure from foreign competition. Through decreasing product lead time, U.S. manufacturers can achieve a sustainable competitive advantage. Southern yellow pine manufacturing is an example of an industry that can benefit from product lead time reduction. This project involved a case study of a southern yellow pine lumber manufacturer. Value stream mapping was used to evaluate the current lead time for the lumber manufacturer as well as design future state systems. Current state evaluation discovered an average lead time of 35.3 days according to six months of inventory data. Four future state systems were developed according to current demand and had lead times ranging from 10.8 to 14.9 days. Lead time reduction was achieved through more closely synchronizing and planing operations with sawmill output. To illustrate the impact of lead time on financial performance, the amount of capital invested in inventory was evaluated for the current state value stream as well as the future state value streams. All of the future state capital inventory requirements were less than 50 percent of the current state capital inventory requirement. Implementation of future state value streams would allow the manufacturer to benefit from having more available capital. This research project also investigated the use of pull production at the softwood lumber manufacturing operation. Effective implementation of pull production would require improving headrig optimization programs, presorting material by grade before drying, little or no drying degrade, and reducing both drying and cooling time. Due to the technological requirements of pull production in lumber manufacturing, the system was not currently feasible for the lumber manufacturer. Future research efforts should be directed towards creating the technology necessary to economically implement pull production in the softwood sawmill industry. / Master of Science