Technology and the Canadian Forest-Product Industries ... - ArtSites

the corresponding increase for eastern producers was from 0.61 to0.76. 4 With declining demand and profits and increased interest payments,corporate income dropped drastically. The 11 largest publiclyowned producers, for example, enjoyed net incomes of $720.3 millionin 1980 and $411.2 million in 1981 but lost $125.1 million in 1982. 5Clearly, the western-based companies have been hardest hit andhave experienced higher debt-equity ratios, lower profits, and lowernet income. In 1984 and 1985 western firms continued to suffer themost. Greater reliance on solid wood products (as opposed to pulp)and on open market transactions, and emphasis on less processedcommodities and higher debt-equity ratios are important factorsaccounting for the severity of their problems. Eastern firms, in partbecause of their greater share of older plants, had received substantiallymore government assistance during the 1970s and virtually all ofthe $613 million spent in the pulp and paper modernization programthat began in 1979. 6Although the western industry remains stagnant, with a low levelof investment, the eastern industry has been more aggressive in pursuinginvestment, at least in part because of the availability ofsubstantial government subsidies. In principle, however, not manyforest-product firms profess support for these subsidies. The mainconcerns are that they have been awarded for political rather thaneconomic reasons and they have been larger than necessary?Moreover, there are questions about whether the subsidies, whichwere awarded to a large number of firms, enhanced the efficiency ofthe pulp and paper industry.The Role of Imported Machinery and EquipmentTechnology imported in the form of equipment has always beenimportant to the Canadian forest-product industries. During the 1970sand 1980s the value of such imports excluding construction equipmenthas typically been substantially higher than the value of exports(Table 5.5). The forest-product industries have long lobbied for dutyfreeimports of machinery on the basis that access to the lowest pricedand latest technology is essential to their competitiveness. Certainly,imports increased their share of the domestic market from 30 per centin 1965 to over 50 per cent during the 1970s and 1980s (Table 5.5).Admittedly, the export-domestic production ratios of the Canadianforest-product equipment industry has similarly increased (Table 5.5).Nevertheless, Canada has a substantial balance of payments deficit inforest-product equipment trade.87