The importance of size and scale in forestry and the forest industries.

Authors: W. R. J. Sutton
Publication: New Zealand Journal of Forestry, Volume N.Z.J.For. 1973, Issue N.Z.J.For. 18(1) 1973, pp 63-80, May 1973
Publisher: New Zealand Institute of Forestry

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Abstract: Increase in forest size results in marginally lower direct costs, considerably lower overhead and administration costs (farm forests are an exception), no potentially greater risk of pathological attack and probably fire, but possibly greater social problems. As economic studies have shown that forest profitability depends more on tree management than on the actual growing costs, the forests with the greatest managerial flexibility should be the most profitable. In practice this is most likely to be the small, independent forest.
With sawmilling there appear to be few economies of scale, the higher direct operating costs of small sawmills being offset by lower capital, depreciation and transport costs. In the use of residues and in marketing, larger sawmills have an advantage.
The pulp and paper industry has clear economies of scale; companies tend to expand existing mills rather than build new ones.
Although now a reality in New Zealand, integration in the wood processing industry has not resulted in some of the expected advantages — especially the ability to pay high stumpages. Indeed the total profits of the major companies when expressed as a price per unit volume are not much higher than current stumpages being paid in the log export trade.

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