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|Pulp & Paper Industry Strategy Group|
Final Report March 2010
Transmittal letter v
Industry foreword vii
Terms of reference ix
Executive summary xi
The Australian Pulp and Paper industry xii
Vision for 2020 xiii
Competitive advantages xiii
Mutual obligation xvi
National benefits xvii
The future xvii
1. Introduction 1
The scope of this review 1
Policy background 2
The Pulp and Paper Industry Strategy Group 5
An industry under challenge 6
2. The economic contribution of the pulp and
paper industry 9
The global pulp and paper industry 9
Economic contribution of the broad Australian pulp
and paper industry 11
3. Current operating environment 23
Current mill developments 23
The industry’s capacity for innovation 24
Changing consumer demand 27
Resource availability 28
Environmental issues 33
4. Analysis of opportunities for the industry 49
Competitive environment study 49
SWOT analysis 51
5. Industry transformation strategy 67
Competitive advantages 68
The future 71
6. Recommendations 73
Perceptions of the industry 73
Innovation and R&D 75
Fibre security: plantation investment 78
Energy: climate change abatement 79
Approvals process 83
Investment: special project finance 85
Transport and infrastructure: infrastructure investment 86
Fibre security: forest certification 88
Ethical procurement 89
Energy: renewable energy 90
Fibre security: recycled paper processing 92
Fibre security: native fibre resources 95
Energy: energy security 96
Anti dumping 98
Transport and infrastructure: transport 101
Energy: energy markets 104
Training, skills and workforce development 105
7 Net economic and/or social contribution of
strategies by 2020 109
Impacts of Strategy Group recommendations 110
8 Case study: the Finnish pulp and paper industry 121
The Finnish pulp and paper industry 121
Actions taken 122
9 The way forward 125
Appendix 1 Pulp and Paper Industry Strategy Group 127
Appendix 2 Locations of Australia’s pulp and paper mills 129
Processes used in the Australian pulp and
paper industry 130
Current relevant government programs
and policies 134
Appendix 5 Woody biomass for energy: opportunities 138
Economic impacts of individual
recommendations (percentage deviation
from baseline) 143
List of shortened forms 145
Senator the Hon Kim Carr
Minister for Innovation, Industry, Science and Research
CANBERRA ACT 2600
I am pleased to present to you the Pulp and Paper Industry Strategy Group’s report on the Australian pulp and paper manufacturing industry. The report is the result of the review of the industry you commissioned on 19 June 2009.
The Department and I were fortunate to work with a committed and focused group of company, union, State and local government and research agency representatives who have a great belief in building a sustainable future for the industry.
The frank dialogue that took place between companies, unions and government has forged valuable alliances and linkages during the course of the review. The Strategy Group has recommended to you that a Pulp and Paper Industry Innovation Council be established to continue this important alliance.
I would like to particularly thank my two Deputy Chairs, Mr Jim Henneberry of Australian Paper and Mr Michael O’Connor of the CFMEU, for their leadership and constructiveness during the course of the review. I would also like to express my appreciation to all Strategy Group members, official observers and other stakeholders, for the insights, expertise and industry knowledge they have provided.
I would finally like to thank the Departmental secretariat team: Murray Fearn, Darren Atkinson, Rodney Bourke, Mainul Haque, Karen Aguilera, Rachel Searl, Katrina Tidy, Michaela Pohlman and Dayna Scott, for their assistance during the course of the review and in compiling the report.
Minister, I commend the Pulp and Paper Industry Strategy Group’s report to you.
Chair, Pulp and Paper Industry Strategy Group
Head of Division, Manufacturing Division,
Department of Innovation, Industry, Science and Research.
31 March 2010
by Deputy Co-Chairs
On behalf of the Pulp and Paper Industry Strategy Group, we would like to thank Minister Carr for the foresight and faith he has shown in commissioning this review of the Australian pulp and paper industry. This process allowed industry leaders, unions, expert advisors to work with government to create Australia’s first pulp and paper industry strategy. As a result of this review, we firmly believe that companies, unions and governments can continue to work together to secure a sustainable future for this vital industry.
For all involved in this process, there were important learnings about our industry. The most significant is that our industry is uniquely sustainable, operating within an organic cycle of tree growing, wood processing, paper making, recycling and tree replanting. Similarly, our industry is recognised around the world for the economic sustainability, employment security and community engagement that it delivers.
Australia’s pulp and paper industry has played a significant role in our country’s history, since before Federation. Early on, our industry provided communications security for a population far removed from the main centres of paper production. More recently, we have provided stable and substantial employment and income generating options to tens of thousands of Australians, particularly in regional areas. In 2008–2009, domestic pulp and paper production contributed $2 billion of value-added manufacturing to the forest products sector. We are an essential part of the sector’s supply chain and a significant contributor to our nation’s GDP.
The industry has traditionally benefited from abundant raw materials, competitively priced energy, a skilled labour force, a history of innovation, proactive environmental practices and an attractive investment environment. However, some of these advantages have eroded over time and the industry is now at a tipping point. With the right policy settings, Australia can continue to take advantage of the industry’s unique strengths and opportunities, allowing investment, innovation and employment in this sector to continue to add value in Australia. Without such changes, the industry will continue to decline, and with it, the jobs and opportunities it represents.
Allen Consulting Group estimates that the Strategy Group’s recommendations to government will lead to an increase in GDP over the decade to 2020 of $38.7 billion and an increase in jobs of 3,500 for the eight companies involved in the review. Further increases from new entrants to the industry could also be expected. However, current conditions have resulted in recent plant closures in Tasmania and additional downside projections in terms of investment and employment. It is expected that if policy changes are not made, the companies involved in this review will suffer reduced direct employment of 870 positions. Furthermore, recent decisions affecting the industry are estimated to result in an additional 420 direct job losses. This estimate does not take into account the significant job losses expected in up and downstream industries.
The Strategy Group’s recommendations to the Australian Government are intended to improve the international competitiveness, profitability, investment, innovation and development of the pulp and paper industry, the forest products supply chain and other related manufacturing industries. Our recommendations are designed to encourage:
The Strategy Group believes in the potential of its recommendations and hopes to continue its work, with the support of the Australian Government, as an Innovation Council. Such a Council would support, encourage and remove roadblocks to the implementation of the Strategy Group’s recommendations. It would also work to transform the industry to further leverage its environmental, social and economic contributions as technologies become available.
Minister Carr’s Pulp and Paper Industry Strategy Group provided the process and resources for industry leaders, unions, expert advisors and government to create a sustainable vision for our industry into the future. We take this opportunity to express our appreciation for the focus and support provided to us over the course of the Strategy Group’s review period and look forward to continued cooperation with the government to implement the recommendations outlined in this report.
We recognise Minister Carr’s leadership in commissioning the review and thank the Strategy Group’s Chair, Mr Stephen Payne, for the way in which he has steered the work of the Group and to members and observers of the Strategy Group for their contributions to the report. We also express our appreciation to the Strategy Group’s Secretariat from the Department of Innovation, Industry, Science and Research for their assistance.
We look forward to this strategy being a roadmap for companies, unions and governments to move forward together on behalf of our industry and for the benefit of all Australians.
Jim Henneberry Michael O’Connor
Chief Executive Officer National Secretary,
Australian Paper Forestry and Furnishing Products
[From the Deputy Co Chairs on behalf of the Pulp and Paper Industry Strategy Group]
Terms of Reference
Pulp And Paper Industry Strategy Group (PPISG)
In conducting the Review of the Pulp and Paper Manufacturing Industry, the PPISG will:
1. Assess the strengths and weaknesses of the industry, and examine the drivers and impediments to attracting sustainable investment in pulp and paper manufacturing in Australia. In doing so, the PPISG can take into account the impact of, but is not required to report on, current policy settings.
2. Identify existing and future sustainable and internationally competitive opportunities for enhancement and expansion of pulp and paper manufacturing in Australia, with reference to:
a. The regional focus of the industry
b. Opportunities for new or expanded capacity
c. Opportunities for climate change mitigation and for new or expanded renewable energy sources for manufacturing facilities, including co-generation associated with pulp and paper manufacturing facilities
d. New technologies, processes, products and markets.
3. Identify strategies to overcome impediments and capitalise on the opportunities to attract innovation and investment in pulp and paper manufacturing in Australia that:
a. Builds on Australia’s competitive strengths
b. Identifies actions that industry and Government should take to:
i. increase investment and manufacturing activity in pulp and paper manufacturing in Australia
ii. increase Research & Development (R&D) activity and encourage innovation
iii. enhance the skills of the Australian workforce across all areas of pulp and paper manufacturing activity.
4. Explain how the strategies would make a net economic and/or social contribution to Australia by 2020.
5. Report to the Minister for Innovation, Industry, Science and Research with:
a. an Issues Paper by 31 July 2009
b. a Draft Report by 28 September 2009
c. a Final Report by 28 October 2009.1
The Australian pulp and paper manufacturing industry is a significant contributor to the national economy. It consists of over 440 enterprises directly employing nearly 19,000 people, many in rural and regional areas where the industry is often the economic and social focus of those communities. The industry generates around $12.6 billion in domestic demand, produces total value added of about $2 billion, earns more than $1 billion through exports, and imports nearly $3.5 billion in goods. However, the industry is in crisis, with employment, investment and exports all falling.
On 19 June 2009, Senator the Hon Kim Carr, Minister for Innovation, Industry, Science and Research, commissioned a review of the pulp and paper manufacturing industry. The purpose of the review was to recognise the industry’s competitive advantages and identify the significant opportunities available to the industry to grow, increase its profitability and become internationally competitive. The Minister brought together the key decision makers from companies and unions along with leading industry experts, researchers and government representatives to identify these growth strategies.
This report should not be considered a ‘government’ report. It is a review of the industry by the industry and has been prepared for the consideration of the Australian Government. The views and recommendations in this report should not be considered as endorsed by the Australian Government or any state government. The Australian Government is expected to respond to the report and its recommendations as appropriate.
The Australian Pulp and Paper industry
The Australian pulp and paper industry produces items that are essential to everyday living such as paper and paper products for personal hygiene, paper for packaging foodstuffs and liquids, and paper for printing, communications, newspapers and magazines. The industry is also a large producer of renewable energy and the major user of recovered paper for recycling.
Indeed, sustainability is central to the pulp and paper manufacturing industry. According to the International Council of Forest and Paper Associations, the industry, in cooperation with its upstream and downstream partners, can deliver much of what is needed to address challenges such as:
The continued progress towards a society based upon predominantly digital communications and ‘paperless offices’ presents both challenges and opportunities for the pulp and paper industry. It has an important role to play in Australia’s future prosperity, especially in regional areas where it produces crucial income and employment opportunities for thousands of Australians.
Industry transformation is vital to keep pace with changing technologies and to maximise the benefits these new technologies offer. The challenge of transformation is not unique to pulp and paper: it is shared by all areas of traditional manufacturing.
However, the Australian pulp and paper industry is at a tipping point, with no guarantee of survival into the future. It faces a difficult market environment, with many challenges—economic, environmental and technological—from both domestic and international sources.
The economic performance of the industry, in general, is stable at best—its economic contribution to Australia remains static, the number of people the industry employs directly is falling, in general terms it is investing less and specific expenditure on R&D is low. The verdict is clear—the Australian pulp and paper industry must undergo significant change if it is to have a sustainable, long-term future. If the industry continues to falter, not only will its Australian-made products disappear, but with them the opportunities to address wider problems.
The Strategy Group has identified many significant challenges facing the industry, including:
Vision for 2020
As part of its efforts to meet these challenges, the Strategy Group has developed a vision for 2020. The industry’s vision is:
To be widely regarded as a uniquely sustainable, innovative, internationally competitive and profitable industry. Its communication, hygiene, packaging and renewable energy products provide skilled, secure jobs, while meeting the community’s social and environmental expectations.
Innovation, investment, sustainability and productivity will be the key drivers in delivering this vision. Considering these drivers, the Strategy Group has drafted a transformation strategy to assist the pulp and paper industry to meet its major challenges and achieve its vision. The strategy, summarised in Figure 1, recognises the industry’s competitive advantages and identifies the significant opportunities available to the industry to grow, increase its profitability and become internationally competitive. It sets out the strategic goals for the industry and links them to national social, environmental and economic benefits.
The Australian pulp and paper industry boasts a number of internationally competitive advantages including relatively inexpensive fibre and energy resources, a highly skilled labour force with best practice working conditions, an attractive investment and business environment, and a regulatory framework that ensures world-class, sustainable environmental outcomes. This operating environment provides a solid basis for transformation and creates certainty for further investment.
The strategy for transforming the industry recognises and builds on these existing strengths.
The industry has a history of developing and implementing innovative solutions to address problems and improve its efficiency. The transformation strategy will further encourage such outcomes. The industry has substantial experience in the production of renewable energy and significant expertise in efficient water, energy and waste management.
The opportunities that can take the Australian pulp and paper industry forward include the implementation of realistic, achievable strategies to increase investment and innovation, further development of its renewable energy generation opportunities, securing its vital fibre resources for the long term, further enhancement of the skills of its labour force, improvements to energy and transport efficiency, mitigation of its impacts on the climate and better promotion of the industry’s clean environmental and ethical credentials.
This report makes practical recommendations to help the industry realise these opportunities. The recommendations are aimed at growing the industry’s existing competitiveness and transitioning it to achieve its vision for 2020. The recommendations are directed at improving investment in the industry, both in the supply of fibre and at manufacturing facilities. Other recommendations focus on ensuring that energy costs—a traditional advantage for Australian industry generally—do not constrain the growth of the pulp and paper industry specifically.
The report also recommends measures to increase the industry’s competitiveness, such as:
To realise these potential opportunities, it is essential that the supply of affordable domestic fibre continues. The industry is confronting a looming shortfall of economically harvested fibre and will not be able to deliver on its potential unless appropriate policies are put in place to encourage more investment in the plantation sector.
Figure 1 Transformation strategy for a sustainable pulp and paper industry
Figure 1: A flowchart representation of the transformation strategy for a sustainable pulp and paper industry