We are not sure how 2012 and coming years will be for the Indian paper industry. But we are trying to understand various issues from the industry for which we took views from various experts specializing in different fields. The issues covered includes a wide array i.e. raw material procurement, waste paper collection, image makeover, demand, over capacity, imports, human resource, electronic media etc and other similar issues.
Fibrous Raw Material
This is the most important and crucial issue of the industry. Whenever we talk of the demand growth and create matching supply end, deliberations invariably end up with the focus on raw material availability, be it woods, agro residues or recycled fiber. So far as wood is concerned, prospects of its availability has been at the forefront of the discussions at any forum and all concluding that the best possible economic solution lies in the decades old proposals of the industry to harness the degraded forest lands which will result in multiple advantages apart from the raw material need of the industry. Lot of stress is now being given on an organized system of collection of waste paper too. This is an area for which a concerted move from the Government, particularly the civic bodies, with involvement of local civil societies supported by an initiative and drive from the Industry will get some results.
Thus, the best way to secure raw material for the Industry lie in immediate decision by the Government to allow use of degraded forestlands by the industry for captive plantation with necessary safeguards and due control of regulatory authorities, and the need to develop moves to socially and culturally change the mind-sets of people to help improve collection of waste paper for recycling it back to paper making.
Indian Paper Mills Wood Requirement & Generation
India has a total forest area of about 75 million ha which forms only 22.8% of the total geographical area (328 million ha) of the country. Forests in India are fast disappearing. At the time of independence more than 22% of India’s geographical area was covered by dense forests. Recent satellite surveys show that hardly 11% of the area now supports closed forests, i.e. forest with 40% crown cover even though the national forest policy enunciated soon after independence in 1952 that at least 33% of geographical area of the country should be under forest cover. Further, the per capita forest area in India is only 0.064 ha against the world average of 0.64 ha. Out of 69.09 million ha of the forest cover recorded, nearly 28.84 million ha are degraded forestlands. The productivity of Indian forest is only 1.34 m3/ha/yr against the world average of 2.1 m3/ha/yr. Earlier forests were the main resource for wood and bamboo based raw material for paper industry. Depletion of forest areas and reduction in volume of extraction has hit badly supply of raw material to the wood based industry.
In recent times, the demand for the fire wood, timber and industrial wood in the country continues to grow because of increasing population and the growth of economy. The Indian Forest Act-1927, The Forest Conservation Act-1980, The National Forest Policy-1988 and The National Forest Commission 2003 are the umbrella legislation and framework for forest protection and conservation. Under these acts, rules and policy, the supply of raw material to wood based industries is phased out from forests. Participation of the private sector, even in reforestation of 28.84 million ha degraded forestlands and Joint Forest Management is not allowed as per the policy guidelines. In the National Forest Policy 1988, the wood based industries have been advised to encourage agro forestry for raising plantation to meet the raw material demand. Agriculture sector in the country covers about 143 million ha out of which 40 million ha is classified as degraded. Hence, non-forestlands such as private lands are explored for raising tree crops to augment the available wood resources. In the course of time social and farm forestry emerged for meeting the wood demand of the paper industry.
The wood based paper mills in India continue to face challenges with forest-based raw material. Pulp and paper industry consumes 3% of total national requirement of wood while, the major consumption being fuel wood (89.5%) and timber (7.5%). Presently the annual pulp production is 2.71 million tonnes from 9.83 million tonnes of wood. Nearly 20% of wood is procured from government sources while, 80% is from agro farm forestry sources. The bamboo and wood requirement is 0.82 and 9.01 million tonnes per annum respectively. The strategy adopted by the industry to meet the ever-growing demand of wood on a sustainable basis is to obtain wood from social and farm forestry plantations. Over a period of 22 years the paper industry has promoted nearly 642,208 ha plantations, which is estimated to produce 38.53 million tonnes of wood at 60 tonnes per ha yield. However, if we consider last 11 years plantations of Eucalyptus, Casuarina, Leucaena and Acacia as standing crop, it is to the tune of 321,104 ha which can produce 19.26 million tonnes of wood. At the felling cycle of 4 years, the wood production annually is 4.8 million tonnes. The current level of planting by the paper mills is 50,000 ha per annum. Apart from the industrial efforts, farmers on their own are raising plantations. In the recent years several private eucalyptus clonal nurseries have sprang up and an additional 20,000 ha area every year is planted. This is adding to the general availability of wood to the industry. Hence, the industries wood demand of 9.83 million tonnes annually is met through farm forestry plantations only. Paper companies are aggressively looking at farm forestry to cut down on the landed cost of wood. With transportation cost accounting for nearly 30 to 50% of the wood cost, developing farm forestry plantations near the manufacturing units are being pursued vigorously by the mills. Considering the future demand of paper of 24 million tonnes by 2025, an additional 12 million tonnes of wood is required from 1.2 million ha of pulpwood plantations. To meet its ever-growing demand of wood on continuous and sustainable basis the industry has to enlarge its social and farm forestry plantation programme following agro-forestry models for wood and food security in addition explore plantation programme with forest development corporations. ITC promoted 125,000 ha farm forestry plantations using R&D to increase productivity to 20-58 t/ha/yr compared to 4 to 6 t/ha/yr from seedling plantations which goes in favour of fast wood forestry. Hence, strengthening Private-Private partnership appears to be the answer to meet its fiber requirement.
Certainly paper industry will have reasonably bright prospect in India during next 5 to 10 years. It is known that the demand of paper and paper products grow and match with the GDP growth. The rapid change in the lifestyle of both rural and urban Indian, specifically in the strong middle class segment, having high disposal amount, will fuel higher growth in certain product segments. The next generation paper industry will see large new investments in the contemporary technology. However, a parallel growth will also be observed in the investment in the medium size paper units with conventional technology to bridge demand supply gap. As faster growth is also observed in many other new economy segments, young talented Indians will have many carrier options in front of them. This would be a real challenge for the paper industry especially for the integrated pulp & paper companies, who intend to invest large in the high technology area to tackle the competition from global players, who will step in this growing market.
According to the concept of “3 M” (Money, Machine and Men), it is obviously the last “M” is by far the most important one to make any business successful. Thus the question of human resource is very thought provoking. Before addressing the solution, I would like to sum up the challenges in front of the paper industry for their human resources:
- Most of the integrated pulp & paper units in India are located in very remote rural areas. Today’s young talented engineers, having many more options available, do not think paper industry as the preferred option. Unlike the scenario 30 years back, we do not see the students from the premier institutes, are entering the paper industry, especially in the mill operation.
- The spouses being the working members do not get any serious carrier option near the mill site. Hence, force the partners to venture alternative options near the city areas where many options are available today.
- Monotonous post working life in most of the units.
- Very long and unpredictable working hours in many units due to very poor operating crews and lack of “up to date technology and automation”.
- Lack of Education and health facility in many of the units in rural areas.
- No much scope to enhance the academic qualification utilizing the post work time.
- Urban families being nuclear, the parents, most of whom have one or two kids, do not wish to send their talented wards to very remote places.
- Paper industry margins being comparatively low are unable to match the package with other high profitable industries.
The above situation is not going to improve soon rather it may worsen and may create a larger vacuum in the talent pool for the mill operation in the years to come. So we have to think differently to handle this problem. Some tested and tried steps:
- Accept first, that one is not going to get too many trained engineers from the industry that one can hire.
- Prepare a proper two / two matrix for the total manpower. Keep few champions and create a clear roadmap for these champs for their growth path. HR department and the top management should continuously review the people matrix to retain the talent.
- Instead of chasing poor products of a premier institute, recruit top products from the B Class institutes, close to the mill site.
- Develop a robust training programme for the entry-level talent. Make the people development as one of the major KRA of all the senior managers and link with their pay structure.
- Certainly some trained people will leave. Instead of getting annoyed, keep recruiting fresher every year. Would be better, if the locally identified college curriculum can be collaborated to suit the need of the paper industry. Maintain the bench strength.
- Most important is to improve the standard of the operators. The industry will need more qualified operators as the technology is upgraded day by day. All the operators must be ITI or +2 qualified. The closest ITI may be adopted to create a supply bank of the operator category. Good and independent operators will reduce the workload of the engineers and managers from doing the non-value added jobs.
- Remuneration should be linked with performances to avoid the attrition of the champions.
- A transparent talent management process should be in practice.
- Lastly, the quality of life should be improved at all the level of the mill site team, along with the basic facilities such as education of the wards and health of the family members.
Paper industry has typically been viewed in a poor light due to its dependence on natural resources especially wood for making pulp and paper. One of the major challenges the pulp & paper industry faces today is to create a cleaner image in the mind of consumers by adopting environment friendly practices to produce paper and reduce its impact on the environment.
Moving in this direction, in the last few years the pulp & paper industry around the world has in fact done more than many other industries to become environmentally responsible. There are several paper mills globally and in India, which have invested time and money in developing new technologies and adopting environment friendly manufacturing practices.
Use of alternative raw materials has been the biggest shift in this direction. Today high quality paper is being manufactured using raw materials other than wood, which on the contrary have a positive impact on the environment. At Trident we stand true to our tagline “In active Collaboration with Nature” by using wheat straw as a primary source of raw material. With certifications like: FSC, ISO 9001:2008, ISO 14001:2004 & OHSAS 18001:2007, use of ECF technology & state-of-the-art ETP plant to control water pollution, Trident Paper is doing its bit to help protect the environment.
While the industry has taken the initiative to work in this direction there is still a long way to go with innovations in technology and processes.
Imports: A Challenge for Indian Paper Mills
It is needless to say that “Import” either of raw material / spares / plant & machinery / technical know-how, will play a great role in the Indian paper industry. As we all know that due to US crises our INR is getting weaker & weaker everyday and we all has to digest this bitter truth that our currency has weakened by 20 – 25% in a short span of last 4-5 Months & it seems that situation will remain the same in the near future because our Government is not showing any hardcore interest to cope with the situation. So we all have to be ready for the challenges and fight with the current economical scenario.
For this we at Dev Priya Industries have already invested 45-50 millions rupees in our PM-I and now again we have planned to invest further 50-60 million rupees, all this will be for optimized development and treatment of fibres in stock preparation and paper machine. We have given order to Voith for upgradation and automation of complete stock preparation of PM1 like PM2, and we think that one cannot run away from imports instead we have to fight to make our all systems optimized. All this will not only help us to be competitive with global market but also to fight against the finish paper coming into the country.
For most of the Indian paper industry the challenge of input import is greater than the challenge of paper imports. Costs of local producers have been impacted by the strong Dollar as many Indian mills have large dependence on import of fiber, energy and chemicals.
On most paper grades the domestic mills are well equipped not just to meet the challenge from imports, but also to step up exports to neutralize higher import costs of inputs.
The dynamics of each grade of paper are very different and the opportunities and challenges will vary widely by grade and region. The only area where we expect major challenge from import of paper is in containerboard driven by:
• Global over capacity
• Higher automation and consolidation of the Indian industry
• Limited supply of domestic quality product
• Local production challenges due to fiber shortage, low quality fiber and small scale.
The future of paper industry is linked to the future of Indian economy. Although at present we are all passing through a turbulent period, we can foresee a better and brighter prospect in 2012. The inflation is coming under control and after a gap of two years, for the first time RBI has loosened its tight monetary regulation. A favorable GDP growth will result in higher demand for paper and paperboards. No doubt like most of the industries, paper industry is also facing pressure on selling price coupled with increase in input prices of all raw materials it consumes. However with a population of 1.2 billion with higher young population having large disposable income the demand for consumer products is bound to be increase. Packaging industry is growing at 14% CAGR. The high growth industries, viz pharma, food & FMCG will sustain growth of packaging boards. In last two years several new duplex board manufacturing units have been set up all over the country. As a result an additional capacity of over 200,000 MT has been created and there is at present an oversupply of duplex boards. There is a rising customer expectation. Those mills, which can offer quality product at competitive price combined with faster delivery and better service to clients will overcome the problem of excess capacity.
The year 2011 was a highly challenging year for Indian paper industry. Excess supplies of paper into the market and slow-down in demand caused severe setback to the industry. Increase in raw material, energy and financing cost have put enormous pressure on the cost of production. These adversities have hit the bottom line of the mills very badly.
With good monsoon and the anticipated improvement in economic growth, demand for paper and paper products is expected to improve significantly in 2012.
The bitter experience of 2011 has made the paper industry to focus on innovative measures in the entire supply-chain management to bring down the cost pressure and keep export as a regular channel to neutralize market volatility.
The Indian paper industry is expected to be positive in 2012.
Threat from Electronic Media
“International Paper has selectively and strategically invested in markets where demand for paper is growing and cost structures are good. India is a perfect example of our investment strategy, with its rapidly growing economy and robust business environment, which creates a need for more printing and writing paper. While electronic media is growing and has many uses, paper is fundamental to the economy and always will be. Paper is truly sustainable, with fully recoverable waste, ready for recycling into new paper. When people use more paper, tree farmers plant more trees, which benefits everyone.”
The Indian paper industry is a thriving industry and is expected to grow in 2012 as well. The usage of paper cannot be ignored and this awareness is bound to bring about changes in the paper industry for the better. Inspite of advance technology, like: advent of I Pad’s, Galaxy Tabs and Smart Phones we can expect a consistent demand for paper at least in next few years.
Electronic media require the user to bear a substantial fixed cost, by buying a computer, smart phone or tablet and by paying for connectivity. On the other hand, for print, all of the fixed costs are born by the publisher, with advertisers and readers splitting the variable costs.
In terms of consumption of paper, India consumes 9 kg paper as compared to world average of 58 kg. However, with more disposable income in the hands of the people (especially the younger lot), the scene is fast changing. People now prefer branded products. Similar is the case with paper too. Consumers are now buying more of branded notebooks and files as compared to the non-branded ones. Indians are becoming more environment friendly thereby replacing plastic with paper. India Inc. has been doing well and requires more of copier paper, paper for print outs, marketing etc. All these factors will ensure that paper industry continues to grow in line with the growth in GDP over the next year.
Current market scenario for W&P segment is indeed gloomy with most of the mills & distributors carrying huge stocks. This situation is likely to continue in 2012. However, we believe somewhere in February end the demand will be back to its normal.