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.

Read more (Timber iQ, 19 July 2021)