THAILAND
The fast-growing pulp and paper industry
by Chris Lang

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The expansion of plantations and the pulp and paper industry in Thailand is not an accident, nor is it the necessary result of something neutral called "development". It has happened because a range of institutions (sometimes working deliberately together but also simply working towards their own aims) have promoted the growth of both industry and the industrial plantations necessary to feed that industry.

This section looks at some of these institutions and the ways in which they have ensured that the model of industrial tree plantations has been implemented on the ground. International "aid" agencies, both multilateral and bilateral have worked hand in hand with successive Thai governments to ensure the development of the industry in Thailand. Section 3 looks at the Thai government's support to the industry.

The World Bank has played a significant role behind the scenes in promoting the development of the pulp and paper industry in Thailand. From the mid-1950s, the Bank promoted the expansion of infrastructure and commercial logging leading to the opening up of many forest areas (Lohmann 1991: 3).

In addition to direct loans to pulp and paper companies through the International Finance Corporation, the Bank's private finance arm, the World Bank played an important role in establishing a series of semi-autonomous state agencies in Thailand. These include: the Industrial Finance Corporation of Thailand (IFCT); the Thai Board of Investment (BOI); and the National Economic and Social Development Board (NESDB). As well as promoting industrial development in general, both IFCT and BOI have played an important role in promoting the pulp and paper industry in Thailand. The NESDB meanwhile overseas all public investment planning (Rich 1994: 13) and through its promotion of cash crops grown for export, has paved the way large-scale eucalyptus planting. (See section on Thai Government support, above.)

Almost all of Thailand's pulp and paper mills have been built with international finance – often in the form of cheap concessional loans. Foreign "experts" often come with those loans. Siam Kraft, Thailand's first modern pulp mill, for example, received financing from the US Export-Import Bank. The engineer was Parsons and Wittemore, a US-based pulp and paper manufacturing company (Sonnenfeld 1998a: 63).

In the 1990s, several new pulp mills started operations in Thailand: Siam Cellulose (1992); Phoenix II (1994); Advance Agro (1996). All three new mills are designed to use eucalyptus as raw material (Sonnenfeld 1998b: 118) and all three use technology and machinery from Northern countries to produce pulp.

Northern funders have played a key role in promoting the development of a wood-based pulp and paper industry in Thailand. When the Army Mapping Corps established Thailand's first paper mill in 1923, the raw material used was waste paper.

It is only in the 1990s that wood has become a significant raw material for the pulp and paper industry in Thailand. In 1988, the Asian Development Bank noted that "wood is not a significant source of raw material" for the pulp and paper industry in Thailand. Instead the industry relied on waste paper, rice straw, bagasse, bamboo and kenaf. According to the Bank, "Shortages of raw material keep the pulp and paper industries operating below capacity and prevent expanded capacity" (ADB 1988: 1). The Bank's narrow view of the situation is clearly illustrated here. According to the Bank, the industry must expand. Yet, by the late 1980s there had been several major protests against the development of eucalyptus plantations in Thailand – the ADB appears oblivious to these protests. (See section on Protests, below.)

From 1989, the Asian Development Bank, carried out a "Private Tree Farms Development Study", which aimed to "prepare for the development of a major resource base which could support new and expanded domestic industries based on wood fibre" (ADB 1988: 5). The US$320,000 technical assistance was funded through a grant from the Japan Special Fund (ADB 1988: 8). According to the Bank, the project aimed "to determine appropriate mechanisms to develop a meaningful reforestation program relying on the active involvement of the private sector" (ADB 1988: 9). Phase one of the project identified private companies "interested or active in tree plantation development" and determined the level of interest from banks in giving loans to plantation companies (ADB 1988: 6).

The Agricultural Land Reform Office is currently in negotiations with the Asian Development Bank to receive a US$20 million loan from the ADB for structural adjustment in the agriculture sector. The Four year project would establish a revolving fund to promote commercial tree plantations in land reform areas, and would be carried out in association with the RFD and the FIO (Montri 2000a: 5) (Montri 2000b: 6).

Canada's International Development Agency (CIDA) helped fund the Canadian consultant firm H.A. Simon's work with the Thai company Soon Hua Seng (Carrere and Lohmann 1996: 234) and helped establish the ASEAN Forest Tree Seed Centre in Thailand (ADB 1988: 4). In 1992, Chemetics International Company of Vancouver won a contract with Phoenix to supply engineering services, equipment and materials for an integrated chemicals bleaching plant. The deal was financed with loans from the Export Development Corporation of Canada (US$5.7 million) and the Canadian Imperial Bank of Commerce (US$4.3 million) (EDC 1992).

The British Commonwealth Development Corporation has invested in the following Soon Hua Seng Group companies: Advance Agro Public Company Ltd (Integrated pulp and paper mill); Thailand Advanced Communications Co Ltd (Printing and publishing); and Thailand Soon Hua Seng Company Ltd (Eucalyptus forestry and pulp and paper production) (CDC no date b). (See section on CDC, below.)

Aid agencies have also supported research into fast-growing tree plantations aimed specifically for the pulp and paper industry. Japan has been particularly active in this field. In 1981, Japan's International Cooperation Agency (JICA) established a trial eucalyptus plantation covering 844 hectares in Sakaerat (JICA no date b: 11) in northeast Thailand. The project aimed to promote research and training of Thai forestry officials.

Funds from Japan's Overseas Economic Cooperation have supported farmers' participation in the Thai-Japan Reforestation and Wood Industry Co. which was designed to supply raw materials to a consortium of Japanese paper makers (Carrere and Lohmann 1996: 233-234).

During the 1980s, JICA also supported the Research and Training in Reafforestation Centre based in Bangkok (ADB 1988: 4).

In 1992, JICA funded the "Reforestation and Extension Project in the Northeast of Thailand", a five year project which established four large-scale nursery centres in the northeast and aimed to produce 20 million seedlings a year. The seedlings were distributed to farmers in over 100 selected villages, with extension services also provided by the project. The project also established a demonstration plantation covering 6,400 hectares (JICA no date a) (Carrere and Lohmann 1996: 233).

During the 1980s, the Australian government promoted eucalyptus plantations in Thailand, through its support of a project in Tung Kula Ronghai in north east Thailand. Tree planting, supposedly to "reforest" upland areas as part of the project led to widespread protests by the communities affected.

The theory was simple: the fast-growing trees would raise the water table, and thus prevent salts being deposited in upper soil layers. Rice yields would therefore increase. The project designers however, completely overlooked the fact that the "degraded" forest, which the project replaced with eucalyptus trees, was actually of vital importance to the villagers and provided a source of firewood as well as pasture for grazing animals (Casson 1997: 13).

Even where the project met its own goals, it failed from the villagers' point of view. In June 1987, project consultants McGowan International reported that 480 hectares of eucalyptus planted in Nam Kham had successfully lowered the water table -- unfortunately the plantations had also dried up village wells (Casson 1997: 14).

A 1995 Thai NGO report documents the problems with the project: "Soils where eucalyptus is planted have become sandier, and the ground is crossed by deep cracks in the dry season. In Kampaeng subdistrict, which consists mainly of uplands, soils which have become sandy migrate to lower areas. They have, for example, accumulated in the local natural pools or nong, making them so shallow they are unusable by livestock or people" (Jirawan et al 1995).

Despite the problems, the project won the Australian government's 1988 award for "Excellence in Overseas Development Assistance" (Carrere and Lohmann 1996: 235).

The Australian Agency for International Development (AusAID) has learnt few lessons from its failure at Tung Kula Ronghai. According to Gerard Guthrie, AusAID's Director of Rural Development, Infrastructure and Environment, "AusAID has had almost no activity" in plantation development. AusAID does not have a policy on plantations and does not even have a forest policy. AusAID has not commissioned any research into tree plantations in the last five years, and "given the absence of relevant projects" it does not propose to commission any (Guthrie 2001).

The case of the Thai Forest Sector Master Plan shows how some of the various actors work together in promoting industrial forestry and the pulp industry. The Master Plan project came about through a series of meetings between Jouko Virta, the president of Jaakko Poyry's consulting division, and members of the Thai government. In May 1988, during a trip to Finland, then-Prime Minister Prem Tinsulanonda signed an agreement for the Finnish government to fund a Thai Forest Sector Master Plan. Not surprisingly, Jaakko Poyry won the contract to carry out the project (Carrere and Lohmann 1996: 243) (Rajesh 1995: 30).

Poyry benefitted further from the Finnish government's generosity in 1988, shortly after the then-Finnish Ambassador to Thailand, Benjamin Bassin, visited the Phoenix pulp and paper mill in northeast Thailand. The Finnish government subsequently agreed to give an interest US$91 million free pre-mixed concessional credit for the expansion of Phoenix's pulp mill. The Swedish and Austrian governments also contributed concessional loans. Between 1990 and 1994, Jaakko Poyry International was among the Finnish firms that supplied the designs, machinery and technical advice to Phoenix (Watershed 1998b: 52). (See section on Phoenix, below.)

Poyry's Thai Forestry Sector Master Plan had an overwhelming bias towards planning for the development of industrial forestry and the pulp and paper industry and formulating the relevant policies and developing institutions to implement the plan (Montri 2000a: 2). The Plan recommended handing over four million hectares of farmers' land to private companies for tree plantations to feed the pulp and paper industry.

Thai NGOs opposed the plan, asking Finland to withdraw its aid for the plan. In August 1990, representatives from more than 200 Thai NGOs announced their refusal to participate in the TFSMP until it was completely separated from current government forest policy (Lohmann 1991: 16).

In 1995, the Finnish International Development Agency (FINNIDA), commissioned the World Conservation Union (IUCN) to carry out a review of the TFSMP. The review pointed out "serious flaws" in the Plan, and stated "if implemented either partially or in full, the plan would have many widespread, permanent social, economic and environmental impacts." IUCN's review team also pointed out that "the project was established with serious flaws in its design and methodology," with 80 per cent of consultancies going to international consultants who were "almost exclusively Finnish or Swedish and none spoke Thai" (Watershed 1996b: 4). (See Rajesh (1995) for a critique of the TFSMP.)

Although the TFSMP was never adopted by the Thai cabinet, during the project Poyry learnt the ins and outs of Thailand's forestry sector. Finnish machinery exporters also benefitted. During the same trip to Finland in 1988 that he signed the TFSMP agreement, Prem Tinsulanonda also agreed to the establishment of the Thai-Finnish Trade Association (now called the Thai-Finnish Chamber of Commerce). The Association aimed to "serve and promote trade activities between Thailand and Finland" (T-FCC www 1). Between 1989 and 1992, Thai exports to Finland grew four times, while Finnish exports to Thailand grew ten times (T-FCC www 1). Exports of machinery, much of it related to the forestry sector, rose from US$19 million in 1990 to US$113 million by 1993 (Carrere and Lohmann 1996: 234).

More Scandinavian support to industrial forestry in Thailand came in the form of a Sida-funded project: "Organisational Development of the Forest Industry Organisation (FIO)". Until the 1989 ban on inland logging concessions, FIO was responsible for logging Thailand's forests, through concessions handed out to logging companies. With the logging ban, FIO lost its main source of income and quickly ran up huge debts.

Like the TFSMP, the Swedish-funded FIO project grew out of meetings between a Scandinavian consultant and Thai officials. In 1992, Carl Mossberg, a consultant working in Laos for the Swedish forestry consultants, Swedforest, visited Bangkok and FIO. He met Chittiwat Silapat who was then head of wood products sales at the FIO. At the time Chittiwat was considering ways for FIO to survive in post-logging ban Thailand, and he asked Mossberg whether there was "any possibility for us to have some help from Sweden" (Chittiwat 2000a).

Chittiwat visited Sweden in November 1992, discussed the project with officials at the Board for Investment and Technical Support (BITS), and on his return to Bangkok submitted a proposal which BITS agreed to fund (Chittiwat 2000a). Not surprisingly, Swedforest subsequently won the contract. Tomas Jonsson, the project manager for the project said Swedforest won the project "In an open bidding process" (Jonsson 2001a). Yet, the funding proposal that FIO submitted to BITS in 1993 states, "The project will be carried out in close cooperation between FIO and Doman through Swedforest International AB of Sweden" (FIO 1993: 4). At the time Swedforest was part of the Doman Group, the Swedish state forest enterprise. Swedforest is now called SCC Natura. (See section on SCC Natura, below.)

In what Carl Mossberg described as "finding a new life for FIO" (Mossberg 2000) the project aimed to help FIO change focus to a pulp and paper and plantation agency. Project documents state that "forest plantation [sic] is the only answer for needed wood supply" (FIO 1993: 1) and that the new role of FIO is "to be a forerunner in establishing sustainable economic forests for Thailand's self-sufficiency" (Usher 1994). As part of FIO's new image, SCC Natura and FIO spent three years preparing two plantations for assessment for compliance with Forest Stewardship Council's principles for well managed plantations. SmartWood carried out the assessment in October 2000. In June 2001, Jeff Hayward of SmartWood stated, "we are still in a contracting phase. . . . We are in process of contracting a five year certificate that would include, at the present, only the two units evaluated in October 2000" (Hayward 2001). In 2001, the two plantation areas were awarded FSC certificates. The FSC assessment effectively continued the process started by Swedforest in 1993 – a process that has involved little, if any, discussion with NGOs and no facilitation of public debate about the role of FIO since the logging ban. (See section on FIO, above.)

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