Factors affecting Canadian pulp and paper prices

Abstract

Price equations for the following product groupings of the Canadian pulp and paper industry were estimated using data from 1955 to 1981: (i) woodpulp; (ii) newsprint; (iii) "other paper and paperboard"; and (iv) "aggregate paper and paperboard," which includes (ii) and (iii). Price equations were formed on the assumption that firms markup average costs of production to set prices. These equations show the effects of factor costs, economies of scale, and technological progress on the prices of the products. They also help understand relevant aspects of production processes. Newsprint and "other paper and paperboard" production costs and prices are most responsive to the prices of material (woodpulp), labour, and energy, while woodpulp price responds more to the prices of pulpwood and energy. Substantial economies of scale are experienced by newsprint and woodpulp sectors. Such economies in the "other paper and board" sector are nonexistent. Technological progress has also contributed to reduction in the costs of production: 4.3% in woodpulp, 4.4% in "other paper and board," and 2.6% in newsprint per annum. Reduction in the cost of obtaining pulpwood to woodpulp sector is important in reducing the cost of paper and paperboard production. Substitution of existing capital with low energy and labour using capital is also required to lower the costs. Also, efforts to modernize the whole industry and the use of available economies of scale are indicated to keep the Canadian pulp and paper industry competitive in world markets.