Little forest cover, a competitive disadvantage

A major constraint in the growth of the Indian paper industry is the lack of access to supply of quality primary raw material at competitive prices, be it wood or recovered fibre or agro fibre. This major handicap has put the Indian paper industry at a considerable disadvantage in its quest for global competitiveness.

Today, the demand for paper in India is estimated to grow at 6-8% per annum. The Indian paper industry will be the fastest growing paper industry in the world.  The Indian paper industry, which witnessed a “bad patch” during the pandemic period, is now poised for revival of demand and solid growth.

But the drawback for India is the lack of forest cover. It is fibre deficient. Between 20-25% of Indian paper production is met through integrated paper mills using wood as the primary raw material. These mills account for all high quality grades ( for example, maplitho, copier, coated papers).

The current requirement of wood is estimated at 11-million tonnes per annum, while the current availability of 9-million tonnes, falls short. The projected wood requirement is estimated at 15 million-tonnes by the year 2024-25.

The shortfall in the wood availability has triggered a steep price increase of wood over the years.

The Indian paper industry has been in dialogue with the government for making available the waste forest land for development of wood plantations by the Indian paper industry. While the government is quite sympathetic to the needs of the industry, no concrete action plan has evolved so far.

Meantime, the domestic paper industry is sustaining itself by raising wood through agro and forestry mode.

Today, pioneering efforts by the paper industry in producing high quality clonal seedlings namely eucalyptus, subabul, casuarina, acacia, species, which are largely drought- and disease-resistant and can be grown in a variety of agro climatic conditions, is keeping the Indian paper industry going. Large part of wood is grown in backward marginal/submarginal land. The farmers grow trees, called “trees-outside-forests” and are sold to the paper industry as well as to other industries. Substantial investment has been made by the paper industry on plantation, R&D, production of high quality clonal seedlings. in providing technical/technological services to farmers to improve the quality of the products in India.

In India, an estimated 5,00,000 farmers are engaged in growing plantations of eucalyptus, subabul, casuarina, acacia, and poplar, among others. On an average, about 1,25,000 hectares are being brought under agro/farm forestry on an annual basis, with 1.2 million hectares on a cumulative basis across the country, due to intensive efforts mounted by paper mills over the last several years. This has generated significant employment opportunities for the local community, especially in the rural areas, and also significantly supplemented the income of farmers and helped check the rural-urban distress migration.

Additionally, this has had significant environmental benefits in terms of increase in the country’s green/tree cover, carbon sequestration, restoration of degraded land, and mitigating climate change. These “managed forests” support the environment, providing clean air, clean water through increased rainfall, wildlife habitat and carbon storage.

If there is continuous delay in the government’s positive response for sparing forest waste land for paper industry for raw material growth, the paper industry is to look to the agro forest model to meet the additional requirements. However, this will put the industry at a higher cost of operations.

I feel this will be a major deterrent for the paper industry’s future growth plan and will inflict over USD 100 per tonne of additional cost for paper manufacture. This would render the industry non-competitive.

The Indian paper industry is highly hopeful about securing the release of wasteland for plantation by the paper industry. This fits with the government policy about make in India. If not, the demand for high quality maplitho, copier grades and other coated grades will have to be met through imports, impacting the domestic paper industry and Indian economy. Hopefully this will be averted.

Investments in the paper industry
The Indian paper industry is capital intensive and requires over Rs 2,000 crores to create a viable green-field integrated paper mill as per today’s cost and price.

The industry has always been the domain of the private sector though state and central governments have had their share of this industry ownership. The Mysore Paper Mills, which is owned by the Karnataka government has been the earliest in the list. The central government’s Hindustan Newsprints and HPC (with the Nagaland Nowgang and Cachar Mills) are the other government-owned entities. Tamil Nadu government’s TNPL, has been the most successful of the government-owned paper units.

Given today’s agenda of priority for health, education and social welfare, no state government can be expected to invest in the paper industry nor will the central government do so. The private sector, by choice and by default, is expected to carry out this task of creating new capacity. Paper units have remained profitable - at least until the onset of pandemic. It is expected to remain so in future as well, even though the industry fortunes are severely hurt by the unprecedented rise in prices of coal, energy, chemicals, and waste paper.

Overseas investments may also flow in, given the fact that India will be the fastest growing market. Thus the private sector and overseas investments are expected to be the main sources in future capacity creation of the Indian paper industry.