The country briefs prepared by ACPWP members present an excellent compilation of information describing the trends and major business developments of our industry. Based on these reports, Olman Serrano, Secretary of the Advisory Committee, presented a summary of the main emerging issues and business developments that the wood and paper industry is facing around the world.
While the world economy experienced a dynamic growth between 2000 and 2005, some regions experienced a relatively sluggish economy, as in the case of the Euro zone, handicapped by the poor growth of their internal demand. In the United States, paper and paperboard capacity slightly declined, while the wood sector enjoyed strong market conditions as new home construction reached the highest level in decades.
The effects of people reading newspapers on-line were felt in industrialized countries, causing newsprint consumption to drop.
Russia remains primarily a raw material export country, with difficulties in consolidating industry restructuring and attracting new investments. China continues its high average annual growth in GDP of greater than 9 percent. Its share in raw material and fuel imports as well as exports of value added wood products continue to increase dramatically.
The following driving forces affecting industry were highlighted:
Electricity, oil and gas prices increases are hampering overall economic development in most countries, having a significant adverse impact on the wood products and paper industry, particularly those countries with large areas and long transport distances between the resources, the mills and the market place, such as Australia and Canada.
The high energy costs were illustrated by the experiences of Mexico and Italy. Mexico enjoys a fuel supply from a state monopoly, a far cry from international parameters of competitiveness in terms of price and quality. In this country, natural gas is marketed at a price which is around three times above its cost, and fuel oil for exports is sold 30 percent cheaper than that delivered to the domestic industry. Electricity also has a high cost in Mexico and this, coupled with the fact that it has a large variation in terms of quality (i.e. voltage), results in another important source of low competitiveness. In Italy, natural gas costs is one of the main item of the energy bill for the paper industry. This cost increased by 25 percent in 2005 and a further escalation of 40 percent is taking place in 2006, for an average paper mill, due to the indexation with oil prices. The increasing energy costs combines with a structural competitive penalisation for Italian companies, which are paying on average prices 30 percent higher for electricity and 20 percent for natural gas than in other EU Countries.
The focus on renewable energy is increasing, with more incentives being put in place in European countries to develop further the production of “green energy”. Biomass-based energy is considered a promising option that has not yet been fully exploited.
The fall in paper prices slowed down, but difficult competition and increased raw material prices, energy and transport and sometimes illegal or unfair trade, are affecting the competitiveness of the paper and wood products industry. There is a general increase in operational costs, in particular labour and raw material, exacerbated in the case of European countries by the EU Emission Trading System. It was felt that there is an overall reported profit margin deterioration.
New investments in the industry are directed to increasing competitiveness, in particular efficiency and cross-cutting programmes, including cuts in personnel.
Industry restructuring, reflected in mergers and acquisitions, continues with the aim of increasing competitiveness, particularly in Canada, U.S.A., Sweden, Russia, South Africa and India.
Wood supply, recovered paper and fresh fibre flows have become issues of concern in many countries. In Europe, for example, policies supporting the use of biomass for energy generation are perceived as causing market distortions and increasing wood prices. In India, national legislation does not permit private sector participation in industrial forest plantations.
The recently published Biomass Action Plan and the European Union Strategy for bio fuels have been adopted to give a further push to biomass-based energy. The side-effect of such policy developments and national support policies is that the price of wood – and more specifically of some assortments – is increasing and challenges industry’s wood procurement. The issue of wood availability is increasingly sensitive in several countries.
The governments of the U.S.A. and Canada reached a tentative agreement to settle a long-standing dispute on softwood lumber trade.
A few national and regional policies, programmes and regulations have been identified as hampering the paper and wood products development. They vary from environmental regulations – such as the Emission Trading System – to monetary and interest rates policies, increasing the capital costs. Regarding the capital cost, in many cases such as Chile, South Africa, the currency is under-valued against the US$ dollar and this makes investments less secure. It also includes taxation, procurement policies, land use, land use change and water. Water in particular is becoming a critical issue in many countries, with increasingly complex regulations and additional costs. Restrictions are foreseen, including more difficulties in getting licences for the use and the disposal of water, as reported by Portugal and South Africa.
Public procurement policies have been identified as tools to improve environmental performance in the EU, as well as a response to Forest Law Enforcement, Governance and Trade (FLEGT). An increasing number of governments have developed a procurement policy for wood and paper products. These policies rely very much on forest certification and might lead to discrimination vis-à-vis wood compared to other materials.
Further costs derive from the implementation of the EU Emission Trading directive, which is perceived as causing distortions in the markets. These new units may create important distortions on raw material availability for the forest based industries, due to green energy prices, impact of CO2 emission trading schemes on alternative energy sources and local market conditions.
The meeting also stressed the need to continue raising awareness amongst the public sector and civil society about the acceptability of the paper and wood industry based on planted forests and its contribution to sustainable development.
Trade Agreements are coming up, particularly in countries like Chile, Colombia. There is widespread misunderstanding about the acceptability of the profile of the plantations industries.
