The impact of operating scale and exchange rate
on the profitability of some major wood processing options - analysis using the WoodScape model

Authors: Peter Hall
Publication: New Zealand Journal of Forestry, Volume N.Z.J.For. 2016, Issue N.Z.J.For. 61(1) 2016, pp 11-19, May 2016
Publisher: New Zealand Institute of Forestry

---

Abstract: The WoodScape model was used to analyse the effect of changes in exchange rate and operating scale on the profitability of a range of conventional primary and secondary wood processing options. Exchange rate volatility is a significant factor affecting profitability of wood processors involved in the export market, with some processes being more heavily impacted than others. The amount of variation in Return on Capital Employed (ROCE) due to forex changes was found to be related to a factor derived from the capital cost of the plant, the production volume and product price. The original WoodScape study found that plants processing larger volumes were more profitable than smaller operations. This topic was re-examined with fixed feedstock costs, and with feedstock costs adjusted upwards for larger plant to account for greater transport costs (associated with larger point volume demand and longer average transport distances for feedstock). Economies of scale gave advantages to larger volume operations, which were generally sufficient to overcome the increasing cost of longer transport distances. However this issue is complex and site-specific, as it is related to the size of the resource and its density around a specific processing location.

---