Assessing the Economic Benefits of Cooperation Among Small Forest Operators

The independent operators (IOs) are small forest operators with timber allocation volumes in Saskatchewan under 20,000 m³. Due to their scale, this group is characterized by above- average industry wood procurement and transaction costs. In the past, IO’s above average costs were compensated by above average market prices for the products they produce and limited competition. In recent years, increased competition confounded by low demand and low prices, as well as rapidly increasing operating costs have made it necessary for IOs to restructure operations to reduce costs and increase competitiveness. This thesis investigates the benefits of restructuring IOs using a cooperative business model to help reduce costs, eliminate competitive inefficiencies within the industry, and create economies of scope in IO fibre procurement activities and fibre utilization. Within the literature review, numerous cooperative models used in the forest and agriculture industries and the advantages and disadvantages associated with each cooperative type are explored. Next, the potential economic benefits of restructuring IOs under the new generation cooperative model are examined using a comparative economic analysis of the business as usual fibre procurement cost model and IO NGC fibre procurement cost model derived within this study. Data obtained from an IO case study and interviews with IO industry representatives is fitted to the models to generate fibre procurement cost data for each model. The resulting fibre procurement cost values for each model are then compared and further examined using sensitivity and breakeven analysis. The results of this analysis reveal that the new generation cooperative model has the potential to provide significant economic benefits to IOs through the creation of economies of scope in harvesting costs, but has little effect on the six other costs that make are included in fibre procurement costs. The analysis also reveals that so long as the NGC consist of IOs that require both large and small diameter fibre, the IO NGC has the potential to provide significant economies of scope in fibre utilization