Paper majors opt for farm forestry to beat costs

While the domestic paper industry is seeing a rising demand for paper, which will only go up in the coming years, it is facing pressure from rising input costs, especially pulp.

International pulp prices have jumped by about 7 per cent last year from $560 a tonne to $600 now, driving companies to hike paper prices by an average of Rs 2,000 a tonne.

The growing paper consumption in Asia is likely to increase pulp prices in the region for the sixth straight year in 2007, said Asia Pacific Resources International Holdings, the world's second biggest hardwood pulp producer.

Prices of hardwood pulp (used in producing as much as 80 per cent of the world's writing paper) in Asia are likely to average $575 a tonne next year from this year's $560, said A J Devanesan, the company president (Bloomberg reported earlier this month).

The paper manufacturers in the country use three kinds of raw materials for production "" forest produce (wood and bamboo), agro-based (bagasse, straw, etc) and recycled (waste) paper. Wood is the scarcest of these.

Since 1970, the share of wood as a raw material has declined from 84 per cent to 36 per cent. On the other hand, the share of agro and waste paper has increased from 9 and 7 per cent to 29 and 35 per cent, respectively.

According to R R Vederah, managing director of Bilt and president of the Indian Paper Manufacturers

Association, the share of recycled paper would go up in future.

Companies such as Bilt, West Coast and JK Paper are undertaking demonstration of better management practices through the use of high-yielding clonal plants across large tracts of land to ensure better yields as a part of their farm forestry operation.

The National Forest Policy, 1988, stipulates the paper industry to work with the farming community for sourcing industrial wood through farm forestry. In the coming years, we may see a spurt in farm forestry programmes by the paper producing companies, said Vederah.

"The industry has already moved from a five-year plantation cycle to a three-year cycle. Effort is on to bring a one-year cycle. Once it is achieved, farmers won't hesitate to turn to plantation. It would fetch them revenues on an annual basis like any other crop," said V Kumaraswamy, vice-president, finance, JK Paper.

Bilt has ventured outside the country and bought Sabah Forests in Malaysia to ensure that the shortage of pulp together with its rising price does not have a constraining effect on the company's big expansion plans.

"In South East Asian countries such as Malaysia and Thailand, government allows private companies to grow plantation for pulp manufacturing. However, the government policy in India does not allow forestry plantations for the corporate sector. So, companies are forced to depend on market sources for their wood requirement," said B Hariharan, group finance director, Bilt.