What follows is a summary of a presentation that I made for the international “Pulp and Paper Strategies” conference in Miami, Florida, in mid-February of 2008. In it, I outline the major changes in our society’s use of paper, and the very positive forces at work that can benefit pulp & paper producers, particularly the emergence of the green economy.
The less-paper (vs. “paperless”) society arrives
We are seeing a shift away from paper-based communications. This has been happening for decades (think radio and TV), but the pace has accelerated dramatically since the advent of the Internet. This is happening first in the rich countries, where markets are mature, and electronics are more affordable. However, as the transition to cellphones has shown, developing countries can leapfrog to new technologies, and therefore may not develop the same level of demand as we have had in traditional paper and pulp products. Even paper-based airplane boarding passes can now be replaced by a bar code image on your smartphone, and IATA says that as of May 2008 there will be no more paper plane tickets anywhere.
Meanwhile, the circulation of newspapers and magazines is shrinking, slowly in some cases, much more rapidly in others, and the format of many publications is shrinking as money-losing publications seek to reduce costs. Advertising in print form is fading in the face of concerted competition from electronic media that are cheaper to disseminate. Moreover, direct mail is now being seen as an invasion of privacy, leading to government-mandated “Do not mail” lists.
Print advertising is slowing, and paper ads are declining as a part of that picture, and ads are migrating towards things like product placement, which are harder to avoid. Despite this, smart advertisers still expect to use print ads as part of an integrated media campaign, which has been demonstrated to be more effective than using electronic media alone. Remember that media complement each other, and older media persist, albeit with different roles: radio is still around, as are TV and movie theatres. As a result, print advertising will persist for a long time to come, not least because we like it. A newspaper, for example, is much more than just a compendium of information; it has emotional and tactile aspects that are critical to their existence. That’s why publishers approach newspaper redesign with such fear and trembling – because they are messing with the subconscious appeal of the medium.
E-books: soon, but not yet
E-books have been tried before, but they’re not quite ready for prime time. Printing in a book will be anywhere from 600 dpi to 1500 dpi, depending on the book, whereas a computer screen is typically 72 dpi. Even Amazon’s new Kindle e-book only has a screen resolution of 167 dpi. This means it is physically harder to read a Kindle screen for comparable-sized type than it is to read an ordinary paperback, but that will change over time as the cost of screens goes down, and their sophistication goes up. And, once again, the economics of e-books is sufficiently compelling for some applications, such as textbooks and reference material, that they will find a steadily growing niche.
And while paper still flourishes in white-collar environments, the need to store, file, and shred documents, plus the desire to be environmentally acceptable, is pushing companies towards electronic documents replacing paper documents. I regularly get emails that have closing signatures that say things like
“P Please consider the environment before printing this e-mail.”
Of course, such comments takes no notice of the electricity consumed to power all the supposedly “clean” IT-based media, or the carbon produced when generating this electricity. There is no such thing as environmentally perfect consumption.
Likewise, in health care there are significant advantages to electronic documents, from cost savings to more successful treatment, to prompt corporations to move to electronic paper records from paper files, and governments generally are moving towards them.
So the demand for paper of all kinds is shifting, and as electronic media becomes cheaper and more powerful, it will become more pervasive, and will displace paper in more and more situations. As Steve Chercover, an analyst at D.A. Davidson, put it: “The only grade of paper immune to technological substitution is tissue, such as bathroom or facial tissue.”
The global economy
Developing countries are both potential new markets as their middle classes expand, and sources of rapidly emerging competition. Pulp and paper companies in America and Europe now have to deal with imports from South America and Russia. China has recently gone from being a net importer to a net exporter of newsprint. Capacity is shifting to the southern hemisphere; it’s currently a toss up as to who is the world’s biggest paper producer: Indonesia or Brazil. Indonesia’s having supply problems, whereas Brazil can deliver right now.
Regardless, Brazil may be the cheapest place to grow paper pulp at the moment. A pine tree in a northern Canadian or Finnish forest can take 50-90 years before it can be pulped and milled into paper, whereas a eucalyptus tree in Espírito Santo, on Brazil’s coast, is ready in seven. And there are other, smaller ripples as well. China, which has become an almost insatiable customer for resources of all kinds, has now become the biggest importer of scrap paper (and other materials) for recycling. There are concerns about how they recycle, with consequences both for the environment, and for the poorly paid workers who separate recycling by hand, but that’s a different issue.
Finally on the global economy, there is a massive shift in food consumption. As RDCs (Rapidly Developing Countries) like China and India see the incomes of their fast-growing middle classes go up, the number of calories they consume increase dramatically as well. It’s hard to know exactly how fast food intake is rising, but it’s been estimated that the middle class in China, for instance, has moved from about 1600 calories a day in the 1960s, to 2200 in the early 1980s, to more than 2700 calories by 2000. And they’re moving to more expensive calories as well, like wheat and meat, and away from rice and vegetables, essentially adopting our ways of eating. This is a double whammy: there are more people eating more calories, which is one of the reasons why food prices are soaring.
This also implies a need for more food packaging – and that demand should rise in line with the demand for food. The real question, from the point of view of this conference, is whether such packaging goes to paper or plastic. And with the rise in the price of oil, you can make a very compelling case for paper, which could be huge for you. What is clear is that the old patterns of supply and demand are changing quickly, and hence, old management and behavior patterns are no longer appropriate.
Wealth: the hidden mainspring of the economy
The next major driver of change is the compounding of wealth. The compounding of wealth is so important, and so prevalent, that it’s invisible to us, hidden in plain sight. It is the mainspring of the economy: we build on the achievements of those who went before us, much as Isaac Newton commented that the reason he could do so much in physics was the he stood on the shoulders of giants – the physicists that came before him.
One of the consequences of the compounding of wealth is that it creates hungry money that looks for homes that can create dependable returns – and historically, forestry-related industries have returned very steady returns over periods of decades and centuries. The growth of wealth, therefore, implies investment in new kinds of assets, including forests. As a result, a growing number of long time-horizon investors, such as endowments and pension funds, are starting to include timber among the resource-based assets in their portfolios. And the average annual returns on timber – meaning managed forest preserves that are eventually harvested – have outperformed those from most leading global stock indices, property, oil, or gold for the past decade. Worldwide, timber has attracted more than $20 billion of investment from institutional investors, but that’s a drop in the bucket of the amount of money looking for a good home. And while I recognize that timber is a separate market than pulp and paper, forestry management is as much a part of your operations as theirs.
Moreover, some environmentalists now say that managed forest reserves are good for the environment too, preserving biodiversity on lands that might otherwise be logged recklessly. As “green” awareness rises, forest management looks more and more attractive. It offers potential for tapping into the trading of carbon offsets, though all carbon-trading markets are as yet immature. It’s ironic, then, that most forest products companies, in North America at least, are getting out of land ownership. Since 1996, 30 million acres of private forest lands have changed hands. Today only two major forest-products companies, Weyerhaeuser and Temple-Inland, still have significant holdings.
And it’s even more ironic that some of the greens who bitterly fought against logging on federally owned American land during the 1980s and 1990s, now admit that major forest-product companies, such as International Paper, are diligent about re-planting trees and creating new forests that become wildlife habitats and sources of clean water. As the need for clean water becomes ever more apparent, fresh water is widely being described as the “next oil” because of the importance of producing and delivering it – another plus for the industry.
In many parts of America there is fear that new forest owners will quickly log their land, then sell it off for new housing developments. The housing bust has slowed this temporarily, but not permanently. The demand for second houses, cottages, cabins, and ski chalets will re-emerge as the boomers approach something like retirement, and look for a piece of paradise, on the beach, in the mountains, or in the forests – even if they have to destroy the forests to get it. In comparison, forest management, such as that practiced by the pulp & paper industry, will be seen as more and more benign.
Biotech – an alien technology
I’ve used this analogy before, but imagine that humanity was farther along in the exploration of space than we are, and that we stumbled on a planet that had obviously had intelligent life which had developed technologies vastly superior to ours. Now imagine that this advanced race had just vanished, as has happened with various groups in human history, leaving their technology behind. If we could figure out how to use these advanced technologies, and adapt their solutions to our problems, then it would save us years or decades of research. This is biotechnology: an advanced technology not developed by us. The difference is that rather than superior technologies being developed by a mysterious, more advanced race of aliens, the technology of life was developed here on Earth by the processes of life. Accordingly, as we learn how to adapt the techniques and technologies of life to do things we want done, our ability to do all sorts of things will leap instead of inching forward.
In the forest industries, this means better trees, as well as the potential for new ways of making paper. According to The Economist newsmagazine, researchers at Michigan Technological University, led by Vincent Chiang, started producing aspens with 45% less lignin and 15% more cellulose than wild aspens, and that grow almost twice as fast. The mixture the team achieved leaves the combined mass of lignin and cellulose in the trunk more or less unchanged and, contrary to some initial concerns, the resulting trees are as strong as unmodified ones. Dr. Lynette Grace of Forest Research in Rotorua, New Zealand has spliced the gene for a natural insecticide into the radiata pine, which is plagued by a form of moth caterpillars.
And pulp and paper products can be used for novel technologies as well. Dr. Pulickel Ajayan, formerly of Rensselaer Polytechnic Institute, and now of Rice University, mixed carbon nanotubes and lithium with cellulose to create a cheap, flexible, paper-thin electric storage medium that stores electricity, and provides it either as a battery (slow, prolonged discharge) or a capacitor (rapid, high voltage discharge). A single layer of nanotubes with a lithium coating acts as a lithium battery; two layers act as a capacitor; and three layers act as a hybrid of both. This produces a material that works at temperatures from –80°C to 180°C, and can be rolled up, folded or cut like paper with no effect on its performance. It could be attached to folding solar panels of the sort used in space missions, or on Earth it could provide portable power in deserts or at the poles. The three-layer version creates a unique hybrid power supply which has characteristics needed for applications that require both high-power pulses and steady, battery-like flow. Moreover, it provides them both while discharging and re-charging, and are therefore highly useful for applications like hybrid cars. Many hybrids use dynamos to recover their energy of motion when they brake, and the recovered energy is normally stored in a battery. But such a car needs a burst of energy to get going again. Dr Ajayan’s device could provide this more effectively than a conventional battery.
Climate change & the green economy
The evidence is now pretty clear that climate change is happening, even though there are still skeptics that deny it. I spoke for a group in the transportation sector in British Columbia a few months ago, and made the same comment there. Afterwards, the conference chair came up to me and said that most of the skeptics live in the temperate zones, because anyone who lives or works in the Arctic knows that climate change is happening. Along similar lines, I was visiting the Lamont-Doherty Earth Observatory (part of Columbia University outside New York City) a couple of months ago. One of their climate scientists, who specializes in the study of the arctic regions, said that they have witnessed changes in the past year that they didn’t expect to see for at least 30 years.
Clearly, then, not only is climate change happening, but it’s happening far more quickly that we expect or are prepared for. And it’s pretty clear that humanity is at least a contributing factor. What is not clear is how climate is going to change. Climate is what is known as a chaotic system, which means it is literally unpredictable, no matter how much we know. What is clear is that public opinion on climate change has shifted, and it will take a brave organization to argue against that public orthodoxy today. What’s more, I believe we are in the midst of seeing most major corporations embrace the concept of a green economy, and therefore energy efficiency and waste management – but not just for public relations: the true driver of the green economy will not be guilt, but profit. Another word for “pollution” is “waste”, and while curtailing pollution is seen as a profit-destroying process, curtailing waste is a profit-enhancing one. Once corporations get that – and big ones like Wal-Mart, GE, and Citicorp already have – then the gold rush for greater efficiency by being green is on.
And pulp & paper can make a compelling case for being green, after generations of being seen as a villain (“Woodsman, woodsman, spare that tree!”). Forests are now seen as carbon sinks, and money will be made in carbon credits from the sustainable management of forests. As cellulosic ethanol begins to enter the market, sawdust and waste wood will become usable by-products, contributing to greener fuels.
The longer-term question is: Will cellulosic ethanol come from farms or forests? Part of this answer will be economic, the rest of it will be political – and never forget that the farm lobby is very powerful. The energy you create in your incinerators can be sold as renewable energy to your communities. And your end products, both pulp and paper, are recyclable, and recycled materials cost less than virgin. It’s almost as if the green revolution, now firmly underway, were designed to benefit this industry.
Moreover, as a Scout leader, I can’t resist adding that you have a natural PR opportunity – at least in North America, and possibly the rest of the world. Scouts have, for decades that I know about, been involved in planting trees in a program that is called, in my part of the world, “Scoutrees”. By 2002, Canadian Scouts had planted 17 million trees through Scoutrees. They can become very visible partners in sustainable forestry if properly approached. Moreover, Scouting operates in 160 countries around the world, and forests are Scouts’ natural habitat – especially in a world that is increasingly urban and disconnected from nature.
BUT – and there’s always a but – while this industry has a compelling case to make in the green economy, someone actually has to make it, and I’m not aware of anyone actually doing that. Pulp and paper are global industries, but there’s no global leadership. As an industry, you act regionally or locally, not nationally or globally. You can’t win hearts & minds if you don’t try.
To benefit from the changes coming at this industry, and not be flattened by them, you need to act in new and different ways. The behaviors of the past won’t work, and will be harmed by the future instead of helped by it. The future will be both a more exciting, and a less forgiving, place. I would suggest that the rewards far outweigh the problems associated with changing your behavior.
 “Genetically modified arboriculture: Down in the forest, something stirs”, The Economist, Jan 6th 2005.
 “Storing electricity: It looks good on paper”, The Economist, Aug 16th 2007.