0638-A2
Lauri Hetemäki 1
The paper discusses some of the challenges that the rapid development of information and communication technology (IT) is likely to present to world forest sector. The focus is on the impacts of IT on the consumption of communication paper products in industrialized countries. However, the implications for the global forest sector are also analysed. Furthermore, the paper presents a case study of the impact of IT on the USA newsprint consumption and its long-term outlook. The results have direct implications, e.g. for the methodologies applied in forest sector outlook studies. The paper concludes by discussing the possible impacts that information technology may have on the forest sector in general, and the challenges to forest research and policy.
The emergence of new information and communications technologies (IT), in particular the Internet and mobile communication, has in the last decade changed in many ways our every day life. These changes have direct impacts on the way people interact with each others, do business, organize institutions - in general how our societies work (Castells 2001, Shapiro and Varian 1999). Also, it is evident that the impact of IT will be ever more stronger in the future. The forest sector is no exception to this trend. It is not immune to information technology itself, nor to the changes that it is causing in our societies.
The purpose of this paper is to discuss the challenges that IT is bringing to the forest sector. The impacts of IT on forest sector is mainly generated outside the sector itself, i.e. forest sector is adjusting to changes that IT is having on our societies. Therefore, we have to first analyse the underlying driving forces that determine the development and adaptation of IT in our societies. Here, the focus is on the four major driving forces: (i) economics, (ii) consumer preferences, (iii) environment; and (iv) institutions and policy.
The paper focuses on the impacts of IT on the consumption of communication paper products in industrialized countries, particularly the newsprint market in USA. Naturally, IT will also have direct impact to other markets and countries, but due to space limitations these are not considered here. However, as will be pointed out, the case of USA newsprint market has significant implications to forest sector in general and particularly to forest sector outlook studies.
The paper's objective is to increase awareness of the many ways that information technology is affecting the global forest sector already today, and increasingly so tomorrow. Moreover, hopefully the framework presented helps to clarify the diverse and complex issues involved. Finally, the paper concludes by pointing out some implications to future forest research and policy.
The topic of information technology and its impacts to forest sector is a large and complex one. Consequently, it is useful to approach the subject by focusing on some of the essential driving forces which determine the development. Following Hetemäki (1999), the driving forces are identified to be: (i) economic factors; (ii) consumer preferences; (iii) environmental concerns; and (iv) institutional and policy issues. In order to make the presentation more concrete, the paper considers these driving forces in the context of communication paper products.
The rapid spread of information technology is to a significant degree the result of economies of information. The costs of computer power has fallen by an average of around 30 percent a year over the past couple of decades, and there appears to be no end to this development. Besides the hardware, the costs of information transmission and receiving, such as broadband services, are also decreasing rapidly. Rationally behaving consumers and producers respond to these changes by substituting IT equipment, software and services for other goods and services.
Clearly, the economic incentives and market advantages will work towards increasing electronic publishing. The contents of many of the intangible goods, whose value does not rely on a physical form (e.g. newspaper and magazine articles, airline tickets, bank transfers, letters), are increasingly transferred in digital form over the Internet and mobile phones. For example, it has been estimated that paper, printing and distribution costs account roughly for 30 to 40% of the cost of newspaper and magazine publishing. These costs can be significantly reduced, or they do not exist, in online or electronic format. To name one example, the costs of distributing online newspapers for one or 100 000 customers are insignificant, i.e. the marginal costs are close to zero. Moreover, publishers suffer the costs of unsold newspapers, magazines and books at newsstands and bookshops. This is the result of the fact that actual demand is difficult to project. For electronic online publishing, it is possible to print documents only when they are needed and in the quantity needed (print-on-demand). Therefore, publishers have economic incentive to adapt new information technology. Similar tendencies work also for consumers of information.
On the revenue side, the advertising expenditures are of central importance to newspaper and magazine publishers. For example, in U.S. 85-90% of a newspaper's revenues are generated by advertising and only 10-15% comes from sales. In Germany, UK and Japan advertising revenues play smaller role, but still account 40 - 70% of the income. Electronic media (TV, Radio, Internet) is increasingly competing for these revenues. The less advertising, the less pages there are in newspapers and magazines, and the more fragile the economic viability of the publications.
The lower costs of producing and retrieving information exponentially increase the amount of information available for consumers. A lot of this information will also be printed and copied on paper. Therefore, it is likely that the consumption of high quality printing and copying paper will increase in the near future. However, the further we look, and the more user-friendly the ways to retrieve and save digital information are, the less likely we are to print the information.
The total amount of time (and capacity) consumers can spend on information or entertainment is finite - 24 hours/day. As Nobel laureate economist Herbert A. Simon puts it: ``What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention, and a need to allocate that attention efficiently among the overabundance of information sources that might consume it" (cited in Varian 1995). The growth of a new information medium, such as the Internet and the wireless communication, will inevitably result in choices between different information sources and ways to receive information. It is a zero-sum-game between the different media.
Each consumer's willingness to use a particular piece of technology---such as the Internet---depends strongly on the number of other users. This is the so called bandwagon effect (Shapiro and Varian 1999). Internet surveys show exponential growth of the number of people using Internet. According to the NUA (2002) Internet Survey, the number of people with online access to Internet in the world was about 10% (606 million). However, the number is regionally unequally distributed: North America 58%, Europe 26%, Latin-America 9%, Asia-Pacific 6%, Africa 1%.
With new technologies, new modes of consumption will evolve. A document is no longer a piece of paper, but includes images, spreadsheet and presentation files, electronic mail, video, etc. The advantages of digital medium comes from the way it allows diverse, productive and innovative uses, many of which remain to be invented. Reference CDs-dictionaries, encyclopaedia, directories, databases, etc. proliferated simply because CDs offer better methods of searching, indexing, clipping and cross-referencing, a lesson well learned by Encyclopaedia Britannica. With new developments, such as UMTS mobile phones, these trends will accelerate.
The above development is pushing information from paper to electronic media. For example, media studies and statistics indicate that in USA increasing consumption of electronic media already decrease the time spent on printed media, such as newspapers (NAA 2001, U.S. Census Bureau 2001). This tendency is likely to increase in the future and also in other countries. An important cause behind this tendency is the generation factor. The younger generations are using increasingly the Internet and computers as their primary source of information and entertainment, rather than books, newspapers and magazines. As time goes by, these new habits start to replace the older ones with ever increasing force.
The essential question concerning the use of printed information from the environmental perspective is: how can the services provided by paper be delivered to consumers with minimal resource use? Environmental pressure groups and researchers have started to question whether the environmental impact of electronic versions of the newspapers, magazines and books could have smaller burden on environment than printed versions (Romm et al. 1999, Paper Project 2001, Strigel and Meine 2001). This discussion is a natural evolution of the debate that started decades a go concerning the recycling of newspapers.
How this debate will affect paper products is to some extent unclear. Indeed, the life-cycle environmental impacts of electronics are also significant, as e.g. the recent study by Williams et al. (2002) indicates. Depending on which of the information format - printed or digital - turns out to be environmentally more friendly, the pressures of producing and consuming the environmentally more friendly format increases. Moreover, independent of this result, the environmental pressures to decrease the wastage of unsold magazines, newspapers and books will increase. By printing newspapers, magazines, and other documents when needed, and only the contents required, and at sites geographically close to the point of distribution, the environmental side effects of paper products can be reduced significantly.
Also, the more clearly consumers accept electronic media as a relevant substitute for printed media, the easier it is for politicians and environmental authorities to regulate the environmental side effects of paper products. For example, in USA a new law was passed in 1998, the Government Paperwork Elimination Act, which imposes measures to reduce the use of paper and increase the use of online information in government offices (http://www.whitehouse.gov/omb/fedreg/gpea.html). In summary, the development of information technology is likely to impose an increasingly important environmental challenge to the paper industry in the future.
Today and tomorrow, information technology industries and services are strategic sectors in the policy of international organizations and national governments. In recent years, this has been documented in the numerous publications by organizations such as OECD, EU, UN, World Bank, and by national governments in various countries. The future success seems to require increasing financial and human investments for the enhancing of rapid spread of information technology in our societies.
Instead of discussing the number of different documents and declarations published, it is probably sufficient to point to documents that represents the general tone of the all. Such are e.g. the European Union eEurope-initiative outlined in 1999 and the Action Plan 2005 approved by EU leaders in Seville 2002. The content of these documents and the EU information society policy is described e.g. in European Commission (2002). The Action Plan 2005 gives top priority to e-government, e-learning, e-health and e-business. In order to accomplish these priorities the Plan proposes, among other things: 1) to ensure widespread broadband access and a secure information structure; and 2) services, applications and content, covering online public services and e-business. Similar statements have been voiced recently by many other international organizations and national governments.
What does all this mean from the forest sector perspective? First, the above policies will accelerate the spread of digital information technology in the world, and therefore, the possible impacts that IT will have on the forest sector. Secondly, the research and development resources in the IT sector will probably increase relative to some other sectors, such as the forest sector. Naturally, in the policy arena IT sector will also play an increasingly important role.
The impacts of IT on paper products will depend on the particular end-use of the paper grade (there are several hundred different paper grades in the world). Here, we will look how the above driving forces and the development of IT has affected the USA newsprint market. USA is interesting case study due to its advance in information technology usage, and its role in world newsprint markets - USA share of world consumption is one third.
In figure 1, the actual consumption of USA newsprint during 1976 to 2002 is shown along with the recent FAO (Zhu et al. 1999) and Hetemäki & Obersteiner (2001) projections.2 FAO forecasts that USA newsprint consumption will increase from 11.9 million tonnes in 1994 to 16.4 million tonnes in 2010. However, actual consumption during 1995 - 2002 has been declining instead of increasing. The difference between FAO projection and actual consumption in 2002 is 4 million tons. Viewing this "projection error" from the policy perspective, it equals the production of 27 newsprint mills in North America (total is 53). Moreover, this would approximately imply 5.6 million cubic meters less pulpwood consumption in newsprint production relative to FAO projection. Finally, the 4 million tons represent over 10% of the world annual production of newsprint, thus having important implications also for the world newsprint, recycled paper and roundwood markets. What are the reasons behind the erroneous FAO projection?
The FAO projection is based on the assumption that the demand for newsprint reacts to changes in economic growth, population growth, and prices of forest products as they have in the past. FAO assumes that real GDP will grow at an annual rate of 2.4 per cent, and that newsprint consumption will increase due to this GDP growth. However, the consumption has been stagnating since 1987, i.e. for 15 years, despite the average annual GDP growth rate of 2.9 per cent. Neither does newsprint price explain decline in consumption - the real price has been declining at the average annual rate of -3.2 % since 1987.
One reason behind the structural change is the decline in newspaper readers. Statistics from the Newspaper Association of America (NAA) show that in 1980 daily newspapers were read regularly by about 70 per cent of all Americans, bout only by 55 per cent in 2000. Similarly, the circulation of daily newspapers has been declining since 1987. What explains these trends? NAA (2001) surveyed the media behavior of a nationally representative sample of 4003 adults. According to the study "The first and perhaps most significant finding of the study is the decline in penetration of traditional media including newspapers, TV and radio and the concurrent rise in the use of the Internet as a source of news and information" (p. 4). The study also reports evidence that the two phenomenon are connected, i.e. the increasing usage of the Internet accelerates the decline in newspaper readership.
The above considerations point to a need for a new interpretation of the relationship between newsprint consumption and GDP in USA. One possible interpretation is the following. The increasing prosperity (GDP) has enabled consumers to acquire more electronic communications equipment, Internet connections, etc (see Kiiski and Pohjola 2002). This, in turn, allowed better possibilities to substitute electronic media for reading newspapers. Consequently, the GDP-elasticity of demand for newspapers and newsprint is negative. However, very large and sudden changes in GDP growth may nevertheless continue to be reflected in newsprint consumption in the way predicted by the conventional models.
In Figure 1, the Hetemäki and Obersteiner (2001) projection for USA newsprint consumption is based on a model, in which newspaper circulation is used to explain newsprint consumption. According to the projection, the newsprint consumption is declining rather steadily up to 2010, after which the speed of decline increases. The model forecast that in 2020 newsprint consumption would be 7.6 million tons, which is a equivalent to the level last experienced in the mid-1960's.
Stagnating newsprint consumption is also evident in some other OECD countries. Figure 2 shows, that the newsprint consumption in Japan started to stagnate after 1990 and in United Kingdom after 1994. USA, Japan and UK together accounted for almost half of world newsprint consumption in 2001. Thus, it is of significant practical importance to try to analyse the possible impact of information technology to the recent pattern of newsprint consumption in these countries.
It has been widely accepted that consumption of forest products are directly and positively related to change in income (GDP) and population, and negatively to price of the product (Zhu et al. 1998). The previous chapter indicated that these historical "laws" do not seem to hold anymore for the case of newsprint consumption in USA, and to a lesser extent in Japan and UK. These structural changes in the newsprint markets is a challenge to the forest economics research and the forest sector outlook studies, e.g. such as FAO periodically undertakes. Traditional approaches that are essentially based on the extrapolation of past or current processes are inadequate - research methods need updating (Hetemäki and Obersteiner 2001). New approaches should take into account the possible impacts of information technology to changing media usage.
Clearly newsprint is only one of the many paper products, and the impacts of IT depend on the particular end-use of the paper grade. For example, in the near future the development of IT is likely to increase the consumption of office papers, particularly paper grades suitable for digital colour printing (see Hetemäki 1999). But this is yet an other reason to try to incorporate the impact of IT on the forest products outlook studies. Whether the impacts are positive or negative, they should be included in order to give accurate information for the investment and forest policy decisions.
Although there are geographical differences in the way IT affects forest sector, the issue is essentially a global and interlinked one. It is evident that the Internet and electronic media is causing more immediate impacts in USA, Japan and Western Europe than in developing countries. However, the changes caused by IT in industrialized countries may result the demand and production pattern to shift more rapidly to developing countries than would be the case otherwise. Finally, for those countries, whose economies rely heavily on forest industry and forestry (e.g. Austria, Brazil, Canada, Finland, New Zeeland, and Sweden), the development of IT will also have large economical and societal impacts. Indeed, IT development may be perhaps the single most important challenge for the forest sectors in these countries in the future.
While the discussion so far has centered on paper industry, information technology will also play an important role in the whole forest sector. Analogously to paper industry, paperboard, sawmilling and plywood industries will also benefit from increasing adaptation of IT e.g. in e-commerce, logistics and production processes. Furthermore, changes in forest industries are likely to have important implications to forestry. For example, they may result to structural and locational changes in roundwood demand, which in turn may be reflected in changes in forest usage. Also, IT influences forestry directly, e.g. through more efficient inventories, planning and control (Päivinen et al. 2001).
Considering the long term nature of forest industry and forestry investments, and the significant impacts that IT is likely to present for the world forest sector, the rather modest interest in forest policy arena on the topic so far must give cause for concern. There is clearly a need for policy dialogue on the topic. Within this context, it is important to stress that IT does not necessarily imply a less significant role for the forest sector in the future. The importance of forests in our societies do not disappear with the development of IT, but it will result to many structural changes and new priorities within the sector. For example, at least in the OECD countries, the recent trend of increasing importance of environmental and ecosystem benefits and tourism related services of forests will probably strengthen even more, while that of industrial wood production activities will decrease (Di Castri 2001). The policies and institutions should reflect on this development.
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Figure 1. USA Newsprint Consumption 1971-2002 and Projections up to 2020
Figure 2. Newsprint Consumption in Japan and UK, 1975-2001
1 Research Specialist, Finnish Forest Research Institute, Unioninkatu 40A, 00170 Helsinki, Finland. [email protected]
2 The data for 2002 is a preliminary estimate based on the information for the first 9 months.