Simeon de Jesus
Simeon de Jesus is manager of Project Engineering, Wood Products International, Ltd., Hong Kong. He was previously technical director of the Paper Industries Corporation of the Philippines.
The author explores some of the practical aspects and problems of establishing pulp and paper plants in developing countries of the tropics compared with developed countries of temperate zones. Plants in the tropics may be more costly and complex, he concludes, but they can be profitable for the investor.
Experience in the establishment of pulp and paper industries based on woods from the moist tropical forest regions is limited. Up to the early 1960s little use was found for these tropical woods in pulp and paper manufacture. Instead, the secondary vegetable or nonwoody fibres, such as bamboo, rice straw, bagasse and others, constituted the main raw materials. However, with the recent advances in pulp and paper technology and the stimulus of a worldwide shortage of paper, there now appears to be general interest in the development and utilization of the untapped wood resources of the moist forests in the tropical countries of Central and South America, Africa, and south and southeast Asia.
It will be noted that while the pulp and paper industry in the developed countries has flourished under traditionally accepted technologies, in the tropical moist forest regions this industry is just getting its bearings, often improvising techniques adapted to the raw materials. As more experience is gained, these tropical products are gradually gaining acceptance in world markets.
The tropical moist forests are located in the so-called underdeveloped or developing countries. Hence, in discussing the determinants associated with the setting up of a pulp and paper plant, the distinction between the factors attributable to the nature of the woods of the tropical forest and those due to regional underdevelopment is not made in this article. Five main considerations that could influence any plan for establishing a pulp and paper enterprise based on the utilization of woods from the tropical moist forests are discussed. These are: the wood raw material, the market situation, the infrastructural requirements, the role of the government, and the available labour pool.
When one brings up the subject of tropical forests, the picture that immediately comes to mind is of a woodland area with a diversity of hardwood tree species, most of which are short-fibred. Homogeneity in species has never been a distinguishing feature of these forests. It is not unusual to find more than 3000 wood species in any one of them.
For those now actively operating in tropical forests, the profit emphasis is on log exports and on the manufacture of primary wood products such as lumber, veneer and plywood. The channelling of prime logs for pulp and paper would be most unsound because the acceptable price level of wood for the pulp and paper operation is very much lower than that obtainable from the exports of the logs or the manufactured primary wood products. What would be a more desirable arrangement is a programme of wood supply that would include the utilization of wood materials now hardly recovered from the normal logging operations. Many pulpwood materials can come from noncommercial tree species, damaged trees, defective residuals and logging waste such as bucking trims, tops and big branches. Ordinarily, all this would add about 30% more wood to the normal commercial logging production.
Unless the operation is structured for an integrated complex that brings together primary logging, secondary pulpwood logging, wood products manufacture, and pulp and paper manufacture, the economic feasibility of a less integrated set-up in the tropics would at best be very marginal. An operation only pulpwood logging and pulp and paper manufacturing would be burdened with the heavy costs of road construction and maintenance, without benefiting from the more attractive returns of primary log exports and the primary wood products. The integrated set-up, in effect, would be advantageous by maximizing the use of wood materials, reducing overall capital investments, lowering operating costs and inventories, minimizing equipment maintenance costs, and in general depressing fixed plant costs. In the natural forests of the tropics it would certainly be difficult to justify economically an operation involving only pulpwood logging.
Although there are areas in the tropics where indigenous long-fibred pines grow, these are not very extensive. The base raw material would therefore consist almost wholly of short-fibred woods, the limitations of which in pulp and paper manufacture are obvious. Where the strength characteristics of the paper end products are not critical, these hardwood species may be satisfactorily used. If, however, the requirement is for paper products for packaging and other heavy industrial uses these products, if made from hardwood species only, would find little acceptance in the market. Most enterprises in this situation would import long-fibred pulp for blending with the hardwood pulps. The cost of importing long-fibred pulp, however can be prohibitive.
The heterogeneity of these forests is another characteristic that needs thorough evaluation. A large expenditure in pre-research studies, involving investigations into each of the principal wood species in these forest areas, would probably have to be made. There is still a dearth of information on the characteristics for pulp and paper making of most tropical woods.
THE TUXTEPEC NEWSPRINT MILL IN MEXICO government built and operated since the late 1950s
Another major handicap is the lack of information for proper management practices. This- stems from the deficiencies in inventories and data on forest growth. However, this shortcoming is now being remedied in many countries in the tropics.
The costing of wood and wood wastes in tropical forest regions is important in the establishment of a pulp and paper industry. The costs of hauling and delivering waste woods, for example, have to be carefully reviewed as they could turn out to be more expensive than even the primary logs of normal logging operations, particularly if the appropriate hauling system and equipment are not used. The question of costing waste woods also enters the picture. Should pulpwood and waste wood be costed separately to the pulp and paper operation? Also, should the primary logging operations function at arm's length from the pulp and paper operation and cost woods to the latter at a profit? To a large extent, management policies dictate the system of this costing, and the decision should be directed toward an optimized economic return for the overall complex.
Because of these problems of raw material costs, heterogeneity of wood supply and dearth of necessary forest management information, most tropical countries have national programmes for the planting of fast-growing - and sometimes long-fibred - wood species. Some hardwood species in certain areas are known to be harvestable for pulp and paper manufacture at 5 to 10 years of age, and long-fibred pines in 15 to 20 years. Commercial plantations have bright prospects. The obvious advantages of tree plantations are: (a) the development of a resource having a greater volume of fibre per unit area; (b) they provide homogeneous fibre raw material; (c) they make possible a concentrated wood supply close to the manufacturing operations, thus reducing delivering costs; and (d) they allow use of marginal lands not only for pulpwood production but, more important, for the prevention of soil erosion and for watershed management. Plans for the utilization of wood from the natural tropical forest for pulp and paper could be on a relatively short-term basis until (hopefully within 20 years) a sustained source of supply from tree plantations can take over.
The next important aspect to consider in any plan to establish a pulp and paper manufacturing plant is the market. In most tropic regions, the manufacture of paper products is primarily aimed at import substitution. Production for export alone is seldom in the priority plan, although it usually happens that the combination of import substitution and export is eventually adopted, and proposed in the feasibility studies.
Import substitution is the preferred target for any pulp and paper manufacturing project. In this way, the products of the enterprise readily qualify for local government protection in the form of tariff duties against competitive foreign products, investment incentives such as tax suspensions, reductions or credits, financial support and guarantees, and many similar advantages. Normally, marketing policy is directed toward filling in as much as possible of the domestic demand first and then channelling any excess production to the export market.
Thus, while local or domestic sale is the preferred market outlet for most of these new projects, they also avail themselves of export sales, although these could be more difficult to maintain since production costs and shipping charges are in general very high. Where production is much in excess of domestic demand, however, export would be a natural outlet, but considering its disadvantages it would in all probability be motivated primarily by a desire to reduce fixed costs while ensuring the recovery of at least the variable costs of production.
At this point, it might be well to comment on the present state of the pulp and paper industry in a typical developing country. First, it will be noted that investment capital in most of these countries is short. Capital-intensive pulp and paper plants, therefore, are usually small. The economies of scale seldom benefit these projects. They could not possibly be competitive in the world market and as a business they would most probably fail in their own countries were it not for the protection provided by their governments. Furthermore, these small mills, because of the limitations of capital, are not growth-oriented. The need for improvements and expansions is usually hampered by the large capital requirements associated with every plan for change. Thus, it can be seen that the insufficiency of capital, plus limited plant capacities and consequent high product costs, contribute to the depression of the domestic market. This is perhaps the biggest single factor that deters prospective investors from investing in pulp and paper in the tropical moist forest regions.
In studying the market potentials of these countries, the lack of an organized statistical record of activities in pulp and paper is a common and serious drawback. A reasonable estimate of consumption and demand for the end products is difficult to come by. Indirect surveys are most often resorted to, using other available market indicators from national sources if handy, or from international bodies such as the United Nations, FAO, the World Bank and others. Data on the gross national and domestic product, population growth rates, cost of living, per caput income, etc., could convey a good sense of the market, even though this might sometimes be arbitrary. Another possibility would be the direct approach, whereby individual interviews with established local importers and manufacturers could be used to obtain the information needed.
The market for pulp and paper in the tropical developing countries is admittedly limited. The paper products that would find ready markets in these areas may be categorized as those that are essential for the growth of their economy. Much in demand, and in many of these countries politically preferred, is newsprint. Following this are the paper requirements of industry, which are mainly in the packaging classification. These may include wrapping grades, shipping bags and containerboards. Lastly, the most common grades that are usually popular with local producers are the writing and printing papers. It will be noted that the more sophisticated grades of fine papers are not normally found in these markets.
The general lack of infrastructure in the countries where the tropical moist forests are located is a feature much deplored by most investors, as this the technology for usually results in a substantial additional nonproductive investment cost for them. In these countries, the contribution of the government to infrastructure development could be expected to be very minimal. Untapped forests are usually found far from urban areas and the national government's development of road networks in these distant places is hardly significant. For the government to build roads for one private enterprise could not be readily justified from the standpoint of national social gains.
With the absence of roads to the forest areas, the problems of transport of materials and supplies to the operating base arise. Where natural waterways are available these are utilized, provided they are adequate for barges and other carriers of reasonable draft and tonnage capacities. Without access via water the building of permanent roadways for heavy transport vehicles would have to be undertaken by the private investors. In the tropics, where the rainy season can bog down operations, serious consideration must of necessity be given to the construction of the more expensive, although in the long run more economical, allweather roads.
SURVEYING A TROPICAL FOREST the technology for using it already exists
In many of the developed countries cheap power from hydroelectric facilities is available to industry. Rarely will this be found in the developing countries in the tropics. Thus, the heavy burden of investing in a power station would be another key feature of any pulp and paper undertaking in the moist tropical countries. It should also be noted that the design of the power plant is not confined to manufacturing requirements alone. A significant allowance would have to be provided to cover the needs of the company town site, i.e., for housing and community services. The company town is a natural outgrowth of any undertaking located far from urban areas. The development and growth of this community become a moral responsibility of the company. If good personnel are to be kept, the community where most of these men will live has to be adequately provided with at least the basic modern facilities in order to keep them and their families contented. To accomplish this, the project's contribution to community development extends not only to housing but also to many other welfare activities such as schools, hospitals, recreational facilities and security. The initial costs may be high but the impact on the social development of a raw country is much more than can be measured. To the company, the benefits of a stable working man, happy with his family in a peaceful community, cannot be overestimated. This more than offsets the problems of the fast turnover of men usually expected in ventures distant from the conveniences of the modern urban communities.
The support of the government is a desirable requisite for any project of the magnitude of a pulp and paper manufacturing complex. In a developing country of the tropics in particular, the government can help create the favourable climate in which a pulp and paper mill can operate on a profitable basis. While the primary concern of the government would still be the enhancement of the social gains derived from the establishment of the new enterprise, i.e., the added employment opportunities, the development of a virgin natural resource, the opening of an underdeveloped area to other development opportunities, and so on, the corresponding returns to private enterprise can be even more remunerative.
The integration of national planning with project planning is perhaps the best way to ensure government support. In some countries, special government agencies have been formed to encourage the establishment of local industries. Incentives have been given when it has been shown that the benefits of more employment, increased consumption and savings, greater foreign exchange earnings and more income distribution are attainable. In other words, where the benefits of a private industry run in line with government goals, one can expect more government encouragement and support.
The influence of the government in any new project is tremendous. A good understanding of government policies and attitudes, and a fair amount of discretion and tact in dealing with the proper authorities would be very strong assets for the venture. It is, however, generally conceded that business conditions are strongly swayed by the political stability of these countries. Understandably, new investment capital has always shied away from politically unstable areas.
WOOD FIBRE MICROSCOPICALLY ENLARGED technology has enlarged the forest
The developing countries in the tropics have been known to have a high rate of unemployment. Whenever possible, therefore, labour-intensity is imposed even in capital-intensive projects such as pulp and paper manufacture. Preference for manual labour is made over automation. Although manual labour is usually associated with low productivity, the employment of more hands makes up for this, and the cost is balanced by the generally low labour costs in these countries. The social demands for more employment often dictate labour policies.
There is also the added disadvantage of the lack of workers skilled in industrial operations in these regions.
There will therefore be a need to import skilled labour and technicians to start and operate new plants until local men are trained to take over these various functions. This will add to the project costs.
We have attempted to point out some important features that are basic to the establishment of a pulp and paper plant based on the woods found in tile moist tropical forests. Many of these problems would probably not be encountered in similar projects in the more developed countries. No mention has been made of other key factors involved in these evaluations, such as financing, production cost estimates, economic analysis, and others; normally these would not be any different from those used in preparing similar studies in the developed countries.
The apparent conclusion is that the determinants for the establishment of a pulp and paper plant in the tropical countries today are in many cases quite different from those encountered for similar projects in the developed countries. Although it appears that it would be more complex and more costly to set up a pulp and paper plant in the tropics, this does not preclude tile possibility that the venture would still be a profitable one.
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FAO 1973, Guide for planning pulp and paper enterprises. Rome. FAO Forestry and Forest Products Studies No. 18.
FOGGIE, ALISTAIR. 1960, Natural regeneration in the humid tropical forest. Proceedings of the Fifth World Forestry Congress, Seattle, 1960.
STOCKMAN, L.G. 1963, General properties of short-fibered raw materials and their influence on pulping. Paris, Unesco.
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U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT 1962, Feasibility studies, economic and technical soundness analysis. Capitol projects. Washington, D.C.