Pulping the South:
Industrial Tree Plantations in the World Paper Economy
Ricardo Carrere and Larry Lohmann

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Chapter 3
Emergence of a Global System

A global market

In the 1950s, most production of fibre, pulp and paper was for domestic markets, and few large producers and consumers of paper imported raw materials from other continents. Although there was considerable trade of newsprint and some other grades across the borders of Southern countries, the bulk of international wood fibre and pulp trade was between Canada and the US and among European countries, with Finland, the USSR and Canada being the leading raw fibre exporters.

Today, the industry as a whole still produces mainly for domestic markets, and the North continues to dominate pulpwood production (see Table 3.1). Only nine per cent of fibre production, 17 per cent of pulp production, 23 per cent of paper production, and 16 per cent of waste paper production crosses national borders. The overall export market for wood pulp in 1993 was valued at little more than US$11 billion and for paper at not much over $43 billion.

Nevertheless, international trade in wood fibre has quadrupled since 1960, while the world market for pulp has grown fivefold over the past 40 years. Trade in paper, including waste, has also increased enormously. As Russian logs travel to Finland, chips and pulp from Canadian forests are shipped across the Pacific to feed Japanese paper mills, Indonesian pulp and paper surfaces in the Middle East and East Asia, and vast amounts of the US's discarded paper are exported to Mexico and the Far East. As industry leaders constantly point out, the pulp and paper economy has become global in just a few decades, with plantation, pulp and paper businesses nearly everywhere in increasingly active competition with firms from distant countries (Dudley 1992, Hagler 1993, IIED 1995).

Thus the wood fibres in a sheet of paper in Japan or Europe today may well originate from trees on five or six continents. To take perhaps the most extreme example, some 74 per cent of the wood fibres found in Japanese paper and board come from trees grown abroad. Between 45 and 50 per cent come from the US and Canada, over ten per cent from Australia and New Zealand, around seven per cent from Chile, over three per cent from Brazil, perhaps one to two per cent each from Finland, South Africa and Indonesia, and smaller amounts from Russia, China, Thailand, Fiji, Sweden, Norway and other countries. The average wood fibre found in a sheet of Japanese paper or board, in other words, has travelled more than 6,000 kilometres from its point of origin (estimated from JPA 1994, PPI 7.94, UN 1994).

TABLE 3.1
World's top raw fibre producers, 1991

table under construction

Source: FAO

In aggregate terms, most fibre, pulp and wood trade is still North-North. In 1991, nearly 83 per cent of wood fibre trade and 77 per cent of wood pulp trade was among the long-industrialized countries, with exports from South to North accounting for only 13 per cent of the fibre trade and seven per cent of the pulp trade. The US and Canada still produce close to half of the world's pulpwood and pulp and account for over 25 per cent of world fibre exports, 55 per cent of pulp exports, 31 per cent of paper exports, and more than 44 per cent of waste paper exports. Most of the biggest paper corporations, in addition, are American firms also involved in timber, sawnwood and plywood production (IIED 1995, PPI 7.94).

Yet this numerical Northern dominance conceals the deep impact the globalization of the pulp and paper economy has had on the South. As fibre, pulp and paper are shipped over greater distances, often by sea, the South has become more integrated into the global market than ever before, with several Southern countries moving up to the status of world-class exporters and importers within the last decade. (See Tables 3.2, 3.3, and 3.4.) The still small numerical ratio of Southern to Northern fibre in the world market, moreover, says nothing about the rise in absolute amounts traded, the extent to which new pulp capacity in Southern countries is aimed at export (see Table 3.5), or the large changes the globalization of the market has brought about in specific Southern rural societies.

TABLE 3.2
Top esporters of pulpwod and chips, 1991

table under construction

Source: Estimated from IIED 1995; United Nations import-export figures; USDA 1994

TABLE 3.3
Top exporters of pulp, 1994

table under construction

Source: Estimated from Stefan 1995; IIED 1995; PPI 7.1994, 7.1995; United Nations import-export figures; WRIGHT 1993. Indonesia will soon be a prominent exporter.

TABLE 3.4
Top exporters of paper, 1993

table under construction

Source: PPI 7.1994; United Nations import-export figures

In 1992, for example, Brazil, the South's preeminent pulp and paper exporter, sent around three-quarters of its approximately US$750 million worth of pulp exports to Europe and North America _ the US and Belgium taking the lion's share _ with another quarter going to Japan and the rest of East Asia. Only around two per cent went to its own Latin American region. Brazil's nearly $600 million in paper and board exports were spread over even more countries, with Argentina, Italy, the UK and Nigeria leading the pack. Some 35 per cent went to Europe, 30 per cent to Latin America, 14 per cent to Africa and 12 per cent to the Middle East. At the same time, the country imported over $210 million worth of paper, mainly from Canada, Finland, and the US (UN 1993).

Chile, meanwhile, sold 96 per cent of its reported 1993 wood chip exports of $137 million to Japan, while the bulk of its $150 million in log exports, including pulpwood logs, went to South Korea (56 per cent), Turkey (19 per cent) and Japan (18 per cent). The country divided 80 per cent of its $468 million in pulp exports between Asia and Europe, with only 15 per cent going to Latin America. Leading buyers included Belgium/Luxembourg, taking 16 per cent, Japan with 12 per cent, and South Korea, Italy, Germany, China and the UK with around seven per cent each. While Chile did export most of its paper and board to its own region of Latin America, with a quarter of its $77 million in exports going to Argentina alone, the country also imported $143 million worth of paper and board, mainly from the US, Brazil and the Nordic countries (USDA 1994, UN 1994). (See Table 3.4.)

The continuing statistical dominance of North-North trade, moreover, can obscure the way in which parts of the North _ including parts of Northern Alberta and the southeastern US _ are being transformed by the globalization of the industry into new 'Souths within the North'. In Iberia, for example, state subsidies have helped ensure that woodlands useful to local economies are replaced with pulpwood plantations for the international market. In 1955, pulpwood constituted only seven per cent of commercial wood in Spain, but by the late 1980s, the figure was over 50 per cent. Pulpwood trees now cover five million hectares in Spain, with other hardwoods occupying only 1.9 million. Erosion and pest infestations have increased, while biodiversity has been cut, commons enclosed, and rural areas depopulated. Spain's 1985 entry into the European Community has only reinforced this process. Since EC rules 'assign' milk production to Northern Europe, many former milk-producing areas in Spain have been switched over to pulpwood plantations. European Structural Funds aimed at integrating Spain's regions into the larger European economy have subsidized the mechanized clearing of maquis vegetation for 'reafforestation' _ a process which hastens erosion and decimates wildlife (Coordinadora Extremena de Proteccion Ambiental 1992).

TABLE 3.5
Ratio of exports to production of chips, pulp and paper, selected countries (per cent)

table under construction

Source: Estimated from Stefan 1995; PPI 7.1994, 7.1995; USDA 1994; United Nations trade figures; WRIGHT 1994; ABECEL n.d.

Globalization of production, of course, has been accompanied by an increasing regionalization and globalization of investment and ownership. Today Swedish firms operate throughout Europe; the New Zealand-based giant Fletcher Challenge holds firms in North America; Australia's Amcor manages operations in China, Europe, Japan and Southeast Asia; Japan's Daishowa is in the forests of the Western Canadian interior; Finland's partly state-owned Enso is investing in Kalimantan; the US's Weyerhauser is moving into Eastern Siberia; German and Finnish firms are in Galicia; British companies are in Brazil and Swaziland; and Japanese firms are planning moves into China. While India's Ballarpur operates in Thailand's Northeast, Thailand's own Siam Pulp and Paper is investing in mills in the Philippines, and Indonesia's Indah Kiat and Raja Garuda Mas are putting money into mills in Bombay and Sarawak.

Export destinations

Where is all the exported wood fibre, pulp and paper going? The answer depends on many factors, including how close the exporting country is to an importer. Some of the most voracious importers for which statistics are easily available are listed in Table 3.6.

TABLE 3.3
Fibre, pulp and paper imports, selected countries, 1993

table under construction

Source: Estimated from IIED 1995; United Nations import-export statistics; Rice 1995; Hagle 1995

One of the ironies of the globalization of the pulp and paper industry is that over half of all world exports of raw fibre for paper-making are shipped to three of the most heavily-forested countries in the world _ Japan, Finland, and Sweden _ all of which make it a matter of national pride to maintain plentiful domestic tree cover. In 1991 these three nations absorbed 40, nine, and eight per cent of the trade respectively; Belgium/Luxembourg ranked next, with seven per cent (Hagler 1993, IIED 1995).

Importing the most pulp, meanwhile, are the US, Germany and Japan, with 17, 15 and 11 per cent of all imports, although these three countries are also among the biggest world producers. The top paper importers are the US, with 19 per cent of world trade, Germany, with 13 per cent, and the UK, with ten per cent. Taiwan and South Korea, meanwhile, import the most waste paper, with ten per cent of world trade each, followed by The Netherlands with eight and Mexico and Canada with seven each.

The biggest South-North flow of raw fibre is that of wood chips from Chile to Japan, and the largest South-North flow of pulp from Brazil to the US. The biggest North-South pulp trade, meanwhile, is from the US to South Korea, China and Mexico and the biggest North-South paper trade from the US to China (IIED 1995).

Overall, the global fibre, pulp and paper economy can be divided roughly into Atlantic and Pacific trading regions. In the Atlantic region, which is the focus of world trade in paper, pulp and paper production is concentrated in North America and the Nordic countries, with growing links to wood or pulp sources in countries such as Brazil, South Africa and Congo. In the Pacific region, most industry trade consists of logs, chips or pulp sold to Japan and, to a lesser extent, China and the Asian 'tigers'. While in the Atlantic region, there is a growing shortage of softwood for pulp, the Pacific region has seen a shortage of hardwood for a decade, although with new eucalyptus plantations this may ease (Hagler 1993).

Causes of globalization

The globalization of pulpwood, pulp and paper production is due to a combination of many factors. First, the industry's culture and institutions, like those of industrial capitalism generally, tend to be oriented toward unlimited accumulation, economic expansion, and consumption growth. When resources in one area can no longer be tapped to feed this growth due to economic, ecological, geophysical or political reasons, but are accessible elsewhere, pressures for globalization increase. Growth in paper consumption in Japan after 1960, for example, has been largely dependent on, first, finding West Coast North American alternatives to expensive or inaccessible local fibre sources, and, second, as North American sources become less economically, politically and biologically accessible, on finding further alternatives in other regions of the world (see below). In a world of skewed power relations and resource distribution, globalization thus offers a way of preventing local circumstances _ whether they are classified as economic, biological or political _ from limiting local consumption. Just as economic growth externalizes costs to the future through debt and discounting, the global economic expansion which accompanies this growth externalizes costs to 'outlying' regions.

Industry- and country-specific factors, of course, have helped lay out the particular paths toward globalization which wood fibre, pulp and paper have taken. Among these are the cultural and political factors mentioned in Chapter 2, which, over time, have locked the industry into reliance on big machines, reinforced the need for a huge forest resource, and contributed to recurring rhythms of overinvestment, recession, concentration, and demand stimulation. It is partly these rhythms which define the quest for more trees and paper buyers which has pushed the industry to expand outside its traditional centres.

Other forces behind globalization include the North American industry's long-standing practice of depleting old-growth forests and investing in new pulping technologies and biotechnology research instead of replanting extensively. As native coniferous forests are exhausted, environmental activism rises, further cutting into pulpwood harvests. Union Camp Corporation, for example, estimates that, partly due to environmental concerns, sale of timber from public lands in the Pacific Northwest will be 64 per cent lower in the second half of the 1990s than it was a decade earlier, while wetlands legislation could reduce acreage available in the southeastern US by ten per cent. That amounts to the equivalent of the raw materials needed for 30 world-class 400,000 tonne-per-year pulp mills. Environmentalist pressure to reduce cutting in old-growth forests in the Nordic countries, Australia and Chile has also been significant. The Finnish industry, meanwhile, was jolted in the early 1990s by the disruption of Russian exports of wood, especially hardwood, due to the breakup of the Soviet Union (Marchak 1992, Know-How Wire 1993: 5, JP&P 30 (1), Ozinga 1994, McClelland 1994, Hagler 1993).

Such developments are leading the industry not only to look toward as-yet unexploited old-growth forests, but also to plan for increasing reliance on plantation fibre. Plantations are especially attractive in that they promise to be able to furnish exceptionally uniform raw material more quickly than natural forests and on a smaller land base, avoiding conflict with other land uses. While industrial plantations currently account for only about 15-30 per cent of world demand for pulpwood (indeed, wood trade consultant Robert Hagler estimates that only 11 per cent of 1993 global pulp production was based on fibre from plantations of exotic trees), these ratios are bound to rise, given deforestation, decreased availability of extensively-managed forests, the limitations of recycled fibre, and the resistance of much of the industry to non-wood raw materials. Already by 1990, 95 per cent of Chile's industrial wood production, 93 per cent of New Zealand's, and 60 per cent of Brazil's came from plantations. By the year 2030, meanwhile, Indonesia plans to increase the share its plantations take in production of industrial wood from the present 20 per cent to 80 per cent (Hagler 1994, 1995; Bazett 1993; IIED 1995; R. Wilson 1991, 1995; Stefan 1995; Pandey 1992).

The more industry is forced to shift from natural forest to plantation pulpwood, the more incentive it has to shift raw fibre production to the South. For one thing, although growth rates vary extremely widely from place to place and depending on the methods used, and are always higher in experimental plots than in large-scale plantations, fast-growing trees such as eucalyptus can on the whole grow much faster in the South than any commercial species do in the North, meaning both that they are available earlier and that less land is required for plantations. While the average growth rate of managed forest and plantations in the US is about 2.6 cubic metres per hectare per year, pine plantations in the South have been shown to yield from 5.7 cubic metres at certain locations in Madagascar to 30 in some Chilean plantations. Southern eucalyptus plantations have meanwhile yielded from around 1.5 cubic metres annually per hectare in Burundi to six in various locations in India all the way up to 70 under certain exceptional regimes in Brazil. Forestry consulting firm Jaakko P"yry estimates that while 1.6 million hectares of replanted forest area in British Columbia's interior are required to feed a 500,000 ton-per-year pulp mill, and 800,000 hectares in the Nordic countries, only 50,000 hectares are required in Brazil under ideal conditions. Bazett calculates that to feed a comparable mill, 1.3 million hectares of non-managed coniferous forest would be required, while only 650,000 hectares of intensively-managed natural coniferous forest and 80,000 hectares of fast-growth plantations (Evans 1992, Pandey 1992, Axberg and Sthl 1989, Bazett 1993).

Land is also cheaper in the South, particularly in big contiguous parcels. In many countries, for example, the state rents out nominally 'forested' reserves to plantation companies at well below market rates. In Indonesia, state land can be rented by plantation firms for about US$0.30 per hectare per year, in Thailand for around $2.50, and in Lao PDR for $3.00 (WALHI 1990, Bannan 1995). While land rental dominates the costs of tree planting programmes in the US, one company which plans to set up a plantation in Lao PDR will spending a mere six per cent of its annual outlay on lease of land (Moulton and Richards 1990, Bannen 1995).

All this makes for low wood costs. According to the Canadian consulting firm H.A. Simons, the cost in 1988 of producing one bone-dry metric ton of hardwood fibre was only a bit over US$28 in Brazil, Chile and Argentina, $40 in the southeastern US, $49 in the interior of British Columbia, $102 in the Nordic countries, and approximately $154 in Japan. Softwood fibre production costs, according to the same company, were less than $28 in Chile but over $42 in the southeastern US, over $70 in Australia, and over $140 in Japan. In 1993, although competition with the South had forced Northern wood prices down somewhat, Brazilian and Indonesian hardwood woodfibre costs, and Chilean and Brazilian conifer costs, were still less than half those prevailing in the Nordic countries or the US's West Coast, and also less than in Eastern and Western Canada, Iberia, and the Southern US. More recently, the gap has widened again, as North American and Nordic raw material costs have increased sharply (Graham 1994; Know-How Wire 1.93; Bazett 1993: 77, 92-3; Hagler 1994, 1995).

Such cost differentials are critical, since wood represents 40 to 70 per cent of the variable cost of making pulp, which is in turn the most important cost in making paper. As Robert A. Wilson remarks, 'Wood is the strategic driver in the industry . . . the key competitive differentiator'. It is thus often profitable to grow wood in the South even if the plantations are at a great distance from large paper markets. Barring political and economic turmoil, the move to the South for raw fibre is likely only to accelerate in coming years, as wood chips from the northwestern and southeastern US and western Canada become scarcer or more expensive (although Siberian softwood exports may also increase). Consultant Robert Hagler estimates that between 1990 and 2010, while the annual allowable cut of conifers in the US Pacific Northwest will decline from 100 to 70 million cubic metres per year, the yearly yield of eucalyptus plantations _ situated mainly in the South _ will surge from 82 to 132 million cubic metres and that of conifer stands in Australia, New Zealand and Chile will increase from 36 to 62 million cubic metres. Bruce Arnold, another US forest industry consultant, claims that industrial forest plantations could account for 50 per cent of the world's industrial wood production by the year 2000 (Wilson 1991; Know-How Wire 1.1989; Bingham 1995; PPI 8.93, 1.94; Hagler 1993, 1995; Wright 1993; PP 1.1995; Stefan 1995; Pandey 1992).

Discounted land is not the only subsidy encouraging the expansion of pulpwood plantations in the South. As later chapters will document, other subsidies which governments help make available include tax exemptions, low-interest-rate loans, low-cost labour and political repression. Hourly wages in Brazil, for example, are 20 per cent of those in Germany. Suppression of labour unions is meanwhile provided free of charge by the governments of many countries witnessing a plantation boom. As Chapter 5 will argue, such subsidies are topped up through support by international agencies and even NGOs for infrastructure and research and development programmes which disproportionately benefit the industry.

The move to plantations, and in particular plantations in the South, coincides with the growing acceptability to manufacturers of plantation fibre, especially eucalyptus. (See Chapter 2.) Conversely, the greater the inroads plantation fibre gains into the industry, the more manufacturers will be encouraged to treat raw material as a factor whose composition can be manipulated and homogenized. Whereas the industry has previously been largely dependent on diverse types of wood waste, and thus has had to rely largely on manufacturing processes to ensure uniform quality in paper, it is now increasingly capable of reducing variability in the raw material itself. Plantation output can be homogenized through choice of species, site, inputs, spacing, provenance, hybridization, cloning, macropropagation, micropropagation and DNA analysis. Genetic engineering is also getting under way. As Robert A. Wilson and O. Fernandez Carro of Arjo Wiggins Appleton note (1992), 'the process of linking genes to tree, pulp and paper characteristics is now beginning'. Wilson (1995) adds:

Like the agricultural revolution from the wild wheat of Mesopotamia to modern, high-yielding, disease-resistant wheat, the forest industry is facing a new age of merging natural forest species with agricultural experience into modern fibre-cropping systems. Tree species . . . are following the same path and improvements as wheat, corn and potatoes.

Dependence on such uniformity will of course only reinforce dependence on plantations (Fernandez Carro and Wilson 1992, R. Wilson 1995, P. Wilson 1995, Griffin 1995, L. Wilson 1994).

Shifting pulp production

Some of the same incentives which encourage the industry to shift pulpwood production to the South also encourage it to build pulp and paper mills there. Cheap land in big contiguous swathes, for instance, is an advantage not only for plantation interests but also for pulp manufacturers, since state-of-the-art pulp mills tend to be huge and are thus most economically sited in the centre of large, compact raw-material catchment areas. Low labour costs are of course also attractive to pulp firms, as is the eagerness of many Southern governments to 'apply stimuli' to the industry. Looser environmental regulations provide still another attraction. In 1990, the pulp and paper industry in North America had to devote 54 per cent of its total spending on new plant to environmental measures, and in Western Europe, 26 per cent, while elsewhere the figure was only 10 per cent. New air and water rules enacted by the Environmental Protection Agency are set to make pulp and paper production still more expensive within the borders of the US; International Paper claims that the rules will cost it alone more than $1 billion in capital improvements over a three-year period (Soulas 1994, McClelland 1994, Van Hook 1994, FT 9.2.95).

Small wonder, then, that Southern-produced pulp can be as cheap, relative to that of the North, as Southern-produced wood. In 1993, for example, bleached hardwood pulp cost only US$78 a tonne in Brazil but $156 in Eastern Canada and $199 in Sweden. New regional and global trade agreements such as GATT are making it easier for the industry to take advantage of such cost differentials by shifting production to the South (Judt 1994, Hagler 1995). The consultant firm Hawkins Wright predicts that of all the major kraft market pulp capacity increases expected between 1994 and 1997, some 77 per cent, or over 3.6 million tonnes per year, will be sited in the Southern countries of Indonesia, Brazil, Thailand, South Korea, Chile and Morocco. Over 98 per cent of the hardwood kraft market pulp capacity increases expected over this period will be in the South (Bingham 1995).

Pulp, moreover, has more value added, and, when dried, is more efficient to ship than logs or wood chips, which are up to half water. One dry tonne of hardwood pulp is roughly equivalent to 2.5 tonnes of hardwood chips; while it costs US$150 to ship, from Chile to Japan, enough softwood to make a tonne of dry pulp, it costs only $55 to ship the pulp made from that softwood. Thus plantation sites and mills have been integrated in the export sectors of Brazil, Indonesia, and other Southern countries. After 2000, according to Robert Hagler, 'increased pulping capacity in wood-producing regions and more joint ownership of this capacity by producers which formerly imported raw wood' will cause international wood fibre trade to level off and eventually to decline (Bazett 1993; IIED 1995; Hagler 1993; Whitham 1994).

While the cost of capital for mills tends to be higher in the South than the North, Southern countries can offer compensations which are often more than adequate, including soft loans from multilateral development banks. In order to be able to reschedule the debt service on such loans, Southern producers are often forced to reduce prices to keep orders _ and foreign exchange _ coming in. That pushes paper prices down worldwide. Hard-pressed to compete and hold market share, some Northern firms may be driven to subcontract out some of their basic production to their Southern counterparts. Thus the label of a Northern paper firm may be affixed to boxes of photocopy paper flowing out of southern Brazil or central Sumatra, while the firm's own mills move into production of speciality papers. This pattern helps explain why the newest, biggest mills in countries such as Brazil produce so heavily for export, while the task of supplying the domestic market is typically left to older equipment (Graham 1994, Oinn 1994).

Contributing to pressures to establish mills in the South is Northern firms' need to export pulp and paper machinery. In the early 1990s, for example, a severe economic recession engulfed Finland, a country particularly vulnerable to pulp and paper industry cycles due to the high 30 per cent share its forest industries contribute to GNP. What with heavy indebtedness, cost-cutting and layoffs by the forest industry, firms such as Tampella, Valmet, Sunds Defibrator, and Ahlstrom began to strive especially hard to find more Southern outlets. Helped by Finland's Premixed Concessional Credit Scheme and the Finnish 'foreign aid' budget, Finnish machinery exports to Indonesia surged from nil to over US$100 million between 1990 and 1993, while those to Thailand increased nearly fivefold, to almost $110 million, over the same period. Some 18 per cent of Finland's machinery exports now go to the two countries, up from a little over one per cent in 1990 (PPI 1.1994; Finland National Board of Customs 1990-3, Rasmusson 1994, Ulvila 1994).

Nordic-country consultancies in forestry, engineering and pulp and paper manufacture are also eager to find more contracts abroad. Some ten per cent of Finland's professional foresters were reportedly unemployed in 1994, and many are eagerly seeking corporate- or 'foreign-aid'-funded jobs in the South. According to Ulf Rasmusson of World Wide Fund for Nature Sweden, Nordic consultants in Indonesia not only play a major role in the development of industrial forest estates but have also been involved 'in most of the major mill developments on the island of Sumatra' and 'perhaps the majority of the large mill projects on Kalimantan, . . . which will be the focus of much of the pulp mill development ahead.' With their ability, through inside connections, to appropriate 'aid' funds for what are essentially commercial purposes, Nordic forest industry consultants are also invading Laos, Cambodia and Vietnam in large numbers, overwhelming local bureaucracies with money and plans, in their attempt to repeat past industry 'successes' in Brazil and other countries. With some analysts predicting a stagnation in Nordic harvest volumes if large areas are planted in the South, pressures to export Nordic consultants may well increase further in the future (Rasmusson 1994, Bazett 1993).

One of the most important incentives for investment in new plantations and mills in the South, and particularly in operations which integrate the two, is the expected world-leading growth rate in Pacific Rim paper and pulp consumption over the next decade. By 1998, market pulp demand in Asia is likely to have outstripped that in North America. Some 45 per cent of the region's consumption growth over the next decades, according to FAO, will be attributable to Japan, which already accounts for half its paper use, although growth in the Asian 'tigers' and China will also be important. According to Arjo Wiggins Appleton, the annual consumption of printing and writing papers in East and Southeast Asia will nearly double between 1993 and 2000, from 8.5 million to 16.5 million tonnes. Latin American paper consumption is also projected to grow, although less spectacularly, with demand for printing and writing grades expected to jump from three million tonnes in 1993 to 4.4 million tonnes in 2000. By comparison, Eastern European demand for printing and writing papers is projected to increase from 1.9 to 2.5 million tonnes (Wright 1993, Olsson 1995, Soulas 1994, Ionides 1994, Graham 1994, WALHI and YLHBI 1992, Soetikno 1993, Aurell and Jaakko P"yry 1988, Pesonen 1995).

Investment in plantations, pulp and paper is moving not only from North to South and North to North, but also from South to South and even, in some cases, South to North. Capital-surplus economies such as South Korea and Taiwan, for example, are increasing their investment in chip- and pulp-producing capacity abroad _ not only in Southeast Asia but also in, for instance, the southeastern region of the US _ partly to ensure secure supplies for domestic paper manufacturers. At the same time, a wood-hungry Chinese concern is looking to help build a pulp mill which would use as raw material the native forests of southern Tasmania, and Malaysian and Chinese firms have joined their Japanese and US counterparts in investing in recently-privatized state forest land in New Zealand (Graham 1994; Dudley, Stolton and Jeanrenaud 1995). South Africa's leading pulp and paper firm Sappi, meanwhile, controls companies in the UK, Germany and the US, while Mondi, the country's No. 2 producer, has interests in the UK and Portugal (PPI 3.1995).

Dynamics of globalization: the case of Japan

One of the most striking demonstrations of the regionalization and globalization of the pulp and paper industry is the expanding wood-fibre network centred on Japan. Japanese pulp and paper firms' exploitation of cheap foreign fibre sources has helped both to unharness national consumption from national supply and to circumvent environmentalist opposition from any isolated point in the network.

Soon after the emergence of modern journalism and a modern wood-based paper industry in the latter part of the 1800s, Japan's paper companies, having depleted the limited native domestic conifer forests, were already eyeing overseas resources in Russia, China and elsewhere. After the Russo-Japanese War, Sakhalin was annexed and a large pulp production base set up there to take advantage of the peninsula's softwoods. Following victory in the Sino-Japanese war, Manchuria's forests were also exploited, as well as timber in Korea and Taiwan. By the time of the Second World War, Southeast Asia's forests were already being studied for pulp potential by Oji, and there was some exploitation of Southeast Asian mangroves as early as the 1950s. During the Cold War, the US government, seeing Japan as an ally against communism, offered Alaskan forests to a fibre-hungry Japanese consortium, causing a tremendous impact on the Tongass National Forest area and river system (Nectoux and Kuroda 1990, JATAN 1993, Kuroda 1995).

Between 1960 and 1970, Japan, although faced with a shortage of economically-available domestic raw materials, saw its apparent paper consumption surge from 47 to 121 kilogrammes per capita. Beginning in 1959 with the lifting of a quota system of foreign exchange for timber imports, the country began importing large amounts of more expensive foreign fibre, particularly from sawmill wastes from western North American softwood forests. Shortages, however, continued through the early 1960s, despite increased production in national and private forests, and more and more was imported from North America, Australia, New Zealand, the Soviet Union, and _ peaking in the mid-1970s _ Malaysia. Between 1965 and 1975, the proportion of Japan's pulpwood supplies which were imported (and this does not include the important category of sawmill residues from processing of imported logs) jumped from three to 40 per cent. Between 1986 and 1993, overlapping with another period of rocketing consumption (Japanese paper consumption rates and oil prices appear to be inversely correlated), this ratio increased further, from 40 to nearly 60 per cent. In 1991 the country was appropriating 40 per cent of world imports and 90 per cent of Pacific Rim imports (Marchak 1991; Ozinga 1994; Hagler 1993, 1995; Japan Paper Association 1994; Penna 1992; Lamb 1992; Olsson 1995; IIED 1995).

Over the years, the form in which Japan has imported its pulpwood has changed largely from logs to wood chips _ a more easily standardized international commodity. In 1964, the first of a fleet of high-sided, flat-hulled oceangoing vessels made especially for hauling the chips was constructed. Such ships now number nearly 110, and are 90 per cent Japanese-owned. Between 1955 and 1975, the proportion of Japan's pulpwood derived from chips rose from 0.2 to 74 per cent. Largely as a result of this shift, the proportion of total world wood fibre trade conducted in chips increased from ten per cent in 1960 to 54 per cent in 1990. Japan now accounts for 80 per cent of the world's wood chip trade, five times more than Europe and North America combined. As suggested above, the next stage in this evolution is for trade in paper raw material to take the form of dried pulp rather than chips; between 1991 and 1994 the share of pulp imports in Japan's apparent consumption rose from 20 to 26 per cent (Schreuder and Anderson 1988, JATAN 1994, Lamb 1992, Whitham 1995).

Since the 1960s, most of Japan's fibre imports have been Western North American softwood chips. About 1968, however, the country began to import plantation pine from New Zealand, rubberwood and mangrove wood from Malaysia, and, a couple of years later, Australian eucalyptus. In 1972, a pulpwood supply contract was signed with the Soviet Union, and tropical hardwood chips began coming out of a Honshu operation in Papua New Guinea in 1974. South Africa began shipping acacia and eucalyptus chips in 1976, and Indonesian mangrove forests began to be chipped for export to Japan about a year later.

Following a mid-1970s downturn in the Japanese industry partially due to new pollution-control laws, a revalued yen, higher oil prices, and depressed industrial demand, three shocks led the country's industry to rush to diversify its overseas supplies even further. First, in 1979-80, interest rates increased in the US. This reduced housing starts, sawmill production, and thus mill residue surpluses available for export. US suppliers such as Weyerhaeuser, on which the Japanese industry had grown particularly dependent, imposed steep price hikes overnight. Prices did not remain high enough to make a shift to domestic supplies economic, and dropping oil prices in the mid-1980s encouraged the industry to turn to imports of softwood from countries such as Chile. With increased recycling, long fibres from these imported softwoods became particularly important to top up reused fibre mixes, but short-fibred Eucalyptus deglupta and E. grandis also began to be recognized as valuable for quality printing papers. By September 1981, Honshu, Oji, Jujo, and Kanzaki had teamed up in a joint firm aimed at securing new raw materials and unifying wood fibre research.

Second, in 1987-88, the Tasmanian government increased wood royalties, and a projected mill in the state threatened to absorb Australian hardwood (eucalyptus) supplies which had been going to Japan. These events led the Japanese industry to turn increasingly to Southeast Asia and the southeastern US. A third shock arrived in the early 1990s when logging was reduced in western North American forests, diminishing waste chip supplies drastically. This development was due to the forest industry's depletion of old-growth forests without sufficient replanting, accompanied by growing environmentalism affecting use of public lands. Chip exports from the western US declined almost 22 per cent between 1989 and 1992. The Japanese industry's worries about environmentalism in Australia and Chile have only reinforced its determination to secure varied raw materialsources (JP&P 30 (1); PPI 1.1994).

By the late 1980s, amid a second big surge in domestic apparent consumption from 160 kilogrammes per capita in 1984 to 222 kilogrammes in 1989, Japan was importing wood chips at a steadily increasing rate not only from Australia, the western US, Canada, Chile, New Zealand, South Africa, the Soviet Union, Indonesia and Malaysia, but also from Fiji, Papua New Guinea, China, Thailand, Taiwan and the southeastern US. In addition, it was laying plans to secure further supplies from the interior of northern Canada, Vietnam, Argentina, Venezuela, West Papua, and other parts of Oceania. Siberia, which has always supplied some softwood to Japan, has also become a major target for further exploitation but must wait for infrastructure to be built, some of which may follow on from oil development. Japanese chip imports shot up from 7.1 to 11.8 million tonnes between 1987 and 1991, with total pulpwood imports nearly doubling between 1985 and 1991. During the period of overcapacity and falling profits in the paper industry in the early 1990s, Japan's Ministry for International Trade and Industry, rather than taking direct responsibility for reducing production and capacity, gave the industry yet further encouragement to invest in technical development, plantations and mills in Asia to take advantage of the region's resources, low costs and expected high demand growth (Whitham 1994, 1995). In 1993, 38 per cent of Japan's chips came from North America, 30 per cent from Australia and New Zealand, 15 per cent from Latin America, eight per cent from other Asian countries, and over one per cent from Fiji and Papua New Guinea. Over the next decade, hardwood supplies from Southeast Asian plantations are likely to replace a significant portion of imports from more distant regions such as Chile or the southeastern US. The Japanese paper industry's continuing foreign expansion has been critical in keeping its prices competitive with those of imports and in reducing its dependence on the nation's trading companies; in the future it may also be critical in the industry's attempts to take advantage of new markets (Penna 1992; Marchak 1992; Schreuder and Anderson 1988; P&PA 1993; P"yry 1993; UN 1994; JATAN 1993; Hagler 1995).

As Chapters 8-12 will show, one result of this drive to diversify sources was social strife and dislocation in Southeast Asia and Latin America. Another was changes in the ecological and social landscape in certain regions of the North. By 1993, for example, the southeastern US had become a major source of raw materials for Japanese paper, with Gulf of Mexico ports exporting over twice as many hardwood chips to Japan than their counterparts on the West Coast. As one Japanese industry figure commented, his nation had taken a 'new step to secure resources, that is, planting its own forests in other countries as long-term resource programs' (JP&P 30 (1), Hagler 1995).

Competition among such a large number of countries for the Japanese market, of course, helped keep prices low as well as provide guarantees of steady supplies. By 1987, Australian hardwood was already cheaper in yen than domestic hardwood even when transport costs to Japan were added in, while US softwood was almost at parity with domestic softwood. The yen prices of these woods declined even further between 1990 and 1994, and Indonesian hardwoods and Chilean softwoods were still cheaper (Marchak 1992, Japan Paper Association 1994, P&PA November 1993, UN 1994, JP&P 30 (1), Hagler 1993, Whitham 1994).

Such low prices make it unlikely that the Japanese industry will turn from foreign to domestic supplies of pulpwood. While Japan is nearly two-thirds forested, its trees remain economically relatively unavailable for pulp. Instead of being managed by integrated corporations, forests are owned in small, fragmented parcels by families who band together in cooperatives and communities to manage them. Such owners are often not particularly interested in selling to the pulp and paper industry, which is located outside forested areas. Much Japanese forest land, moreover, is on steep slopes, is difficult to get access to, and suffers from poor management. While the government established ten million hectares of conifer plantations in response to heavy overcutting of hardwoods after the Second World War, it is extremely doubtful whether these trees, now over 40 years old and covering around a quarter of the nation's land surface, will be ready for harvest within the next ten years. Including such species as cedar and cypress, the plantations were in any case established mainly for lumber, not for pulpwood. Remnant hardwood stands, meanwhile, are being logged less and less, due largely to conservationist pressures (Marchak 1992, Cameron 1994, JATAN 1994, Bazett 1993, Kuroda 1995).

The increase in imports of wood fibre to Japan in the late 1980s and early 1990s was overwhelmingly in hardwoods. The postwar development of a hardwood pulp technology had enabled the exploitation of Japan's own broadleaved trees for paper, contributing to an increase in domestic hardwood harvesting in the 1960-72 period. But although domestic softwood harvests stayed roughly level through the 1970s and after, domestic hardwood supplies began to dwindle in the late 1960s, when beech forest felling, which had been increasing, began to trail off. Native hardwoods from countries such as Chile, Australia and Papua New Guinea, together with plantation eucalyptus and acacia from countries such as South Africa and Thailand, have satisfied much of the increased demand. As Chapter 2 suggests, this move has been supported by technological changes which made eucalyptus increasingly attractive as a raw material for quality papers. By 1991, the proportion of hardwood to total chips had increased to 65 per cent, and by 1993 to 73 per cent (Graham 1994, JATAN 1993, Penna 1994, Marchak 1992, UN 1994, Japan Paper Association 1994, Lamb 1992).

Historically, Japanese companies have tended to keep their pulp and bulk-grade paper mills close to home. Among other things, this enables the industry to take advantage of the economies of integrating pulp with paper plants. But with the need to secure cheap fibre supplies, the savings gained by transporting pulp rather than chips, and various trade pressures, Japanese foreign investments have increasingly included pulp and even basic-grade paper mills as well as plantations and chipping operations. In 1971, Oji and what was then Sanyo Kokusai Pulp helped establish the 700 tonne-per-day Carter Oji Kokusaku Pan Pacific pulp mill in New Zealand. Two years later, Nippon-Brazil Resource Development, a consortium of 20 Japanese paper companies and the Overseas Economic Cooperation Fund, joined together with Companhia Vale do Rio Doce in Minas Gerais, Brazil, to create Celulose Nipo-Braslieira, or CENIBRA (see Chapter 7). The 40,000 tonne-per-year Tenma whiteboard mill was set up in Thailand shortly afterwards with the involvement of Sumitomo. By 1980, in addition, new pulp or paper capacity amounting to one million tonnes per year had been built in Canada through the efforts of Honshu (in association with the Mitsubishi general trading company), Daishowa (with Marubeni), and Oji (with Mitsui). Nippon Paper and Alaska Pulp Corporation (in association with Mitsubishi, Marubeni and Itochu) meanwhile involved themselves in the construction of 800,000 tonnes of dissolving pulp and newsprint capacity in the US.

This trend accelerated in the late 1980s, when the yen was strong and domestic demand booming, and has continued into the 1990s. Kanzaki, Settsu, Daishowa and Jujo have set up new paper mills in the US and Settsu in Portugal and Spain, while Nippon and Marubeni are involved in a new pulp operation in Sumatra and 19 other Japanese firms are working to expand a huge pulp operation in Brazil. Japanese firms are also involved in paper operations in Indonesia, Thailand, Brazil, Malaysia, China and Singapore. In Canada, meanwhile, Daishowa, New Oji, Honshu, Hokuetsu, and Mitsubishi control gigantic 850,000 tonne-per-year pulp operations in Alberta, with concessions covering over 10 million hectares. As a result of such expansions, Japan's share of world wood pulp imports went up from less than five per cent in 1965 to nearly 14 per cent in 1989. In 1993 Japan imported about 3.3 million tonnes of pulp, 71 per cent from North America, two per cent from Brazil, Chile and Indonesia, and smaller amounts from New Zealand, the Nordic countries, Portugal and South Africa. Japanese firms have also begun buying paper from Canadian companies such as Macmillan Bloedel (AP&P 31 (2); Dargavel 1991; Olsson 1995; Whitham 1994).