By Schalk Grobbelaar
Sawmillers with a value strategy have proven to be more resilient against market fluctuations, writes Schalk Grobbelaar.
South African sawmills primarily produce structural lumber for roof trusses. Very little of the local production is exported, and imports are also limited. For this reason, the local market supply and demand is in equilibrium and directly related to the local building industry.
Thus, a decrease in building activity causes a demand reduction. Therefore, sawmillers with a value strategy has proven to be more resilient against market fluctuations.
A recent study evaluated the relative competitiveness of South African sawmills (Grobbelaar & Visser, 2021). The study assessed the impact market fluctuations have on the sawmilling industry and what differentiates competitive sawmills from their competition. The Crickmay Intermill Comparison (Allpass, 2018) was used to evaluate sawmilling competitiveness.
The Crickmay Intermill Comparison is a benchmarking report that is published every quarter. Approximately thirty sawmills take part in this benchmarking exercise that performs a relative comparison of production costs and other productivity measures. The study also reviewed similar research conducted in different countries and concluded that value strategies are significantly associated with competitiveness.
Value strategy more successful
Mills with a higher net value recovery (ratio of product sold against raw material cost) were more likely to survive during periods of market decline and prosper when the economic conditions improved.
Neither labour productivity nor unit costs were associated with competitiveness. This indicates that a lowest cost producer strategy is generally less successful than a value strategy. A value strategy doesn’t purely focus on increasing the price of the final product, but it rather entails optimising the cost of raw material against the total value of sales generated.
It is a combination of getting good raw material at a competitive price, getting the most products out of the raw material, and producing valuable products.
The study considered that less than 10% of the local production is exported, and less than 10% of the local demand is imported.
This ratio remained consistent during economic cycles and illustrates that the local supply and demand is in equilibrium. The consequence is that when there is a decrease in local demand, competition between local sawmills increase.
The increased competition leads to a reduction in price and eventually profitability of sawmills. The Great Financial Crisis of 2007-2008 caused such an event. This resulted in the closure of about 30 sawmills or 30% of the number of sawmills at the time.
SA produces less than 0.6% of softwood
South Africa produces approximately 2,0 million cubic metres of softwood lumber per annum. This constitutes less than 0.6% of the world’s production. To put it into perspective, the two largest sawmills in the world, Klausner Holz Thüringen (Germany) and Wismar Sawmill (Germany), produce 2,4 million cubic metres of sawn wood between them per annum. The local sawn wood production in 1990 was 1,7 million cubic metres. The local sawmilling industry only grew 0,05% per annum from 1990 to 2019. During the same period, Chile’s production grew from 2,9 million to 8 million cubic metres per annum, and Brazil’s production increased from 2,8 million to 7,8 million cubic metres per annum.
Landholdings for softwood sawlogs is almost at the same level as the 1980s and have reduced substantially since the mid-1990s. Policies promoting the development of new plantations should be considered, but this should not be regarded as the primary constraint of the industry.
The lack of growth in the industry can be attributed to many aspects, but a specific concern is that South Africans only use 0,0319m3 of wood per person per year. Many developed countries use more than twenty times as much. To-date, the local building culture has not been favourable to wood.
The primary constraints have been product development and marketing. The local industry has suffered from marketing myopia, as described in Theodore Levitt’s 1960 Harvard Business Review article. It’s been short-sighted in terms of the local market’s needs and has not developed new products that could have increased local demand, manufacturing capacity, and competitiveness.
International building material of choice
Internationally, wood has become the building material of choice. As part of the natural wood forming process, trees absorb carbon dioxide. For every cubic metre of wood grown, approximately 1 ton of carbon dioxide is absorbed. Brick and mortar, on the other hand, produce carbon dioxide during the manufacturing process.
From a renewable building material point of view, wood is clearly the preferred option. Mass timber has made it possible to develop multi-storey buildings. Examples include the Mjøsa Tower (Norway), completed in March 2019, and is primarily a glulam structure.
The tower is 85.4m high and contains 18 floors. Various forms of mass timber exist including, glue-laminated timber (glulam), laminated veneer lumber (LVL), cross-laminated timber (CLT), parallam and mass plywood.
These products are value-added and use small pieces of wood that are combined in a way to provide optimal strength and fire protection. Mass timber also promotes modular construction that has a lower impact on the building site, requires fewer builders and are significantly faster than traditional construction methods.
The South African sawmilling industry faces many challenges, but it also has many opportunities. In the long term, South Africa should increase the amount of land available for plantations and improve breeding practices through research and development.
An attractive option would be to consider rehabilitating old mines by planting trees. Wattle plantations that are primarily used to produce chips for foreign pulp mills can be repurposed for local softwood sawmilling.
In the short term, sawmills can increase their volume recovery and install technologies suited for small log processing. In the medium term, wood manufacturers should develop mass timber and new wood products. Wood products that increase the efficiency of wood utilisation, the value-added and that meets local needs should be prioritised.
South Africa’s sawmills are not immune to international competition. For local sawmills to survive, they must remain competitive. A lowest-cost producer strategy is unlikely to ensure that this will happen. A value strategy that aims to satisfy the needs of local users is more likely to pay off in the long term.
About the author
Schalk Grobbelaar is a senior lecturer at the University of Pretoria’s department of Engineering & Technology Management, Graduate School of Technology Management.
- Allpass, M., 2018. Intermill Comparison – Fourth Quarter 2017, Pietermaritzburg: Crickmay Supply Chain Evolution.
- Grobbelaar, S. & Visser, J. K., 2021. An analysis of South African sawmilling competitiveness. Southern Forests: a Journal of Forest Science, 83(1), pp. 28-37.