Barbara A. Holford
Barbara A. Holford is a British economist with long experience in the field of pulp and paper.
Every year FAO conducts a survey of pulp and paper manufacturing capacity worldwide. The economist who is principally concerned with compiling this survey describes the method, objectives and limitations and how to interpret results.
Annual surveys of the capacity of the pulp and paper industry or of certain products are not new; they have been conducted for several decades in some countries. The need for greater information of this nature received an impetus in the period following World War II when numerous developments were being planned to meet the pent-up demand for the products of the industry. A preliminary assessment of pulp and paper capacity was therefore undertaken by FAO for the First World Consultation on Pulp and Paper Supply, Demand and Trade held in 1959. Under the aegis of the FAO Advisory Committee on Pulp and Paper, annual worldwide surveys were initiated in 1962 and have been continued ever since. It must be freely admitted that the current FAO survey is vastly different from the first one, not only in the number of countries included, now 92 as opposed to 45, but also in the products for which data are sought, now 18 grades of pulp and 19 of paper and paperboard compared to two for each formerly.
The opinion of the first World Consultation was that a need had clearly been established to keep both demand trends and capacity developments under continuous review. The pulp and paper industry throughout its history has been beset by ups and downs of major and minor proportions. The causes of some of these can be attributed to world economic conditions but there have been other occasions when the industry itself may have been responsible, through insufficient knowledge of overall development plans, which engendered either undue optimism or pessimism about the future. Greater stability in the world markets for these commodities is to the advantage of all concerned, as violent fluctuations in supply are neither good for the producer and the profits he hopes to make nor for the consumer and the price he has to pay for the product. The increasing size of new pulp mills and paper machines has not helped to relate more closely increases in capacity to increases in demand, as new projects are now of such proportions that without careful planning, dislocation of supply, and hence of price levels, can result from the untimely phasing of start-ups. Furthermore, the importance of having the best information available of future developments in productive capability is of equal concern to the established manufacturer in a developed country and to the government or enterprise wishing to establish a mill in a developing country. As FAO has always been concerned with securing an adequate world supply and a fair distribution of pulp and paper, it decided to fulfil the expressed need for meaningful data on future levels of capacity.
Each year a questionnaire is sent to countries with a pulp and paper industry or where one might be established in the next few years. The correspondent to whom the questionnaire is addressed is in almost all cases a representative of the national pulp and paper trade association, a member of the FAO Advisory Committee on Pulp and Paper or a person closely connected with the industry in a particular country. The estimates are therefore derived from industry sources. Only for three or four countries does FAO itself provide estimates. It is true to say that the results reflect industries' intentions at a moment in time but it is important to add that these intentions may be influenced significantly by subsequent economic, financial and market conditions.
As has already been mentioned, the coverage of the survey includes all pulp and paper producing or potential producing countries in the world but this was not always so. In the early 1960s only the major producing countries were able to supply the desired information and it took considerable time and energy to encourage other countries to collect the data and to establish proper channels of communication for forwarding it at the desired time to FAO. Slowly but surely the coverage was extended and now all countries with existing pulp and paper mills or those where capacity might be installed in the next five years are included.
In much the same way, the amount of product detail requested in the survey has grown. Very limited data were sought initially; for example, only the main grades of wood pulp for papermaking and two broad categories of paper and board. As time went on and the usefulness of the survey was increasingly appreciated, efforts were directed toward extending the breakdown of products. As the industry developed and certain products rose rapidly in prominence, information on capacity was sought. Thus in 966 household and sanitary papers were added to the list, and in 1972 hardwood pulps. In 1975, a major review of the data included in the survey was undertaken, which resulted in a further breakdown of the headings for paper and paperboard, while still retaining the continuity of the series. This additional information will be available in the survey for the period 1975-80 to be published in June 1976.
Not all surveys have covered the present forward time-span of five years and not everyone would agree that it is the best period to have selected. Bearing in mind that capacity is really an estimate of practical maximum production, the time-span affects the nature of the estimates. For example, in the first year or two of a survey projects of the highest degree of probability, such as new mills or machines actually under construction, are included. In the middle years of a survey, there may be included projects in an advanced stage of planning which are most likely to be implemented. In the final years, estimates may be made, not based on specific projects, but on a general evaluation of development projects.
In the major producing countries, capacity surveys are undertaken for the benefit of the producers themselves, for trade associations and government agencies. In several countries, however, a survey is conducted in response to the request from FAO. In other countries, including the less developed countries in Latin America, Near and Far East and Africa, only little interest has been displayed up to now in assembling a regular file of current and accurate capacity data.
Like the FAO survey, most national inquiries are conducted annually, usually by the trade associations. But even among these there are different methods of approach. In the majority of cases, questionnaires are sent to member companies/mills with accompanying instructions defining capacity and describing each product for which information is sought. Where membership of the association does not represent the whole industry contacts are made with non-members in order to obtain a complete estimate for the industry. There are many exceptions to this approach. For example, in Norway and Argentina, capacity data are developed from sources other than direct surveys of producers. For most African countries, information is collected through the ECA/FAO Forest Industries Advisory Group for Africa based on personal knowledge of the existing mills and of the plans for future developments. Yet another approach is adopted in Japan, where two methods are used to estimate pulp and paper capacity. The first one is based on a paper-machine inventory, undertaken every four or five years by the Ministry of International Trade and Industry (M.I.T.I.), with the cooperation of the Japan Paper Association. In addition to this exhaustive register of capacity, all major companies are required to submit to M.I.T.I. at six monthly intervals estimates of anticipated changes in capacity for three years ahead. The second method, which is used by the Japan Paper Association, is to adjust the figures obtained from the machine inventory in the light of actual operating experience and then to take into account future changes in capacity. The figures thus obtained reflect practical maximum capacity and are the ones used in the FAO survey, after appropriate product regrouping.
Almost all countries conduct their survey for a future period of five or more years, which coincides with the FAO requirement of one base year and five future years. Although the United States can be described technically as an exception in this regard, seeking information on committed expansions for three years ahead and on expansion plans for an additional two years, it is effectively covering developments for a five-year period.
FAO seeks its information at the turn of the year and in an ideal situation each country would by that time have just completed its own survey. Such, however, is not the case and the figures sent to FAO are based on data obtained at varying dates in the preceding twelve months. By the time FAO publishes the results of its survey in mid-year, the information for some countries can be as much as 18 months out of date. Fortunately, however, this is so in only a limited number of cases and the majority of the leading producing countries provide FAO with data based on their most recent survey adjusted to include the latest changes of plan by companies concerned. An important exception to this is Canada, which, because of the timing of its survey undertaken to meet the needs of its own industry, only has available for FAO data for four years ahead. These, however, have been updated as far as possible prior to submission to FAO.
Thanks to the cooperation which FAO has received from all concerned, the pulp and paper capacity survey has reached a certain standard of credibility but the results remain suspect in specific instances, due mainly to difficulties inherent in any international collection of data. Problems occur in the interpretation of definitions, be they of capacity or of products. The definition of capacity used by FAO has undergone but little modification over the past 15 years although it has been critically reviewed on a number of occasions.
In application, it has been found to be generally satisfactory and the changes introduced only serve to make the text more explicit in order to reduce errors in interpretation.
Capacity is defined as the practical maximum tonnage of pulp, paper or paperboard of normal commercial quality that can be produced each year with full use of equipment and adequate supplies of raw materials and labour, and assuming full demand. No allowance is made for losses due to unscheduled shut downs, strikes, temporary loss of power, etc. Allowance is made for new mills or machines, normally phasing the additional capacity over the first few years of operation, and for facilities which have been closed down with no intention of resuming production.
Where a paper machine produces more than one grade, the capacity is apportioned between the grades according to production plans for future operation.
The changes in operation of multipurpose machines is one of the causes of discrepancies between one survey and the next, because it introduces an element of short-term production planning into what might otherwise be considered as an estimate of physical capacity.
Possibly a more serious difficulty emerges in the application of the definitions of products. Only for the very broadest of categories is it possible for any international organization to achieve uniformity of definition. The greater the detail desired the more national production and market characteristics conflict and any definition reflects a compromise. Pulp and paper are no exception in this regard but during the past two years, with the collaboration of its contributors, FAO has not only been able to elaborate new definitions of the products for which it is seeking capacity data, but has examined with many of the countries concerned the problems involved in interpreting the definitions and in providing the information requested. This has resulted in the elimination of many discrepancies but it has not and will not eliminate them entirely, for the products of the industry are forever developing to meet new requirements.
To take a case in point, newsprint is a product which for a long time has been regarded as "standard" and therefore comparable in international statistics.
The situation is changing and has in very recent years affected the major world producer.
Canada, now includes in its definition of newsprint, and hence in its newsprint capacity figures, lightweight newsprint (40-46.4 g/m2), which was previously classified as printing paper, and by most other countries still is. Such changes are of course noted in the report on the FAO capacity survey but they are of importance to someone who is wishing to trace developments in the newsprint industry and to compare the situation in Canada with that in Japan, where this trend toward lower grammage of newsprint is not yet apparent.
Before forwarding the capacity questionnaires to FAO, many of the trade associations and other correspondents verify their data from sources at their disposal. Nevertheless FAO itself carries out three validity checks.
The first is a comparison with similar data provided the previous year. The second is a comparison of the capacity for the base year, 1975 in the case of the current survey covering the period 1975-80, with estimated production for that year. This latter information is available from a separate survey, in identical product detail, which FAO also conducts annually. If any discrepancies emerge as a result, the correspondent in the country concerned is invited to provide an explanation. Instituted for the first time this year is a third check. With the cooperation of trade associations, survey correspondents and other interested persons and organizations, FAO has compiled a list of new mills and machines which are planned to come on stream in the future. This list, as far as possible, provides informal-ion on the timing, products and capacity of these projects but it is not exhaustive, and in particular it does not contain information on improvements, speed-up of machines and so on. The correspondents are being invited to identify positively from the list which projects have been included in the 1975-80 survey and, following a comparison with the capacity increases indicated in their completed questionnaires, an explanation is being sought for any major discrepancies.
FAO is conscious that the list of projects is not exhaustive and, in particular, does not contain information on improvements, speed-up of machines and so on which may be an important element of additional capacity. Nevertheless, in the belief that the information it contains will prove useful to industry and governments alike, this information on projected pulp and paper mills will be made available in the near future.
Each survey contains some 30000 figures and it would be foolish to believe that each single one is correct. Nevertheless, through contacts with many persons, associations and organizations connected with the pulp, paper and allied industries, FAO has recently made a systematic effort to eradicate inconsistencies, to improve comparability and to reduce errors in the data to a minimum. In this endeavour, it has received invaluable support from a wide variety of sources and, it is believed, has achieved a large measure of success and now provides meaningful data on future pulp and paper developments throughout the world, to the mutual benefit of both developed and developing countries.
