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FAO ACPWP MEETINGA PRESENTATION
ONINDIAN SCENARIO – PAPER & FORESTRY
June 06, 2006At
Rome
Indian Paper Manufacturers Association (IPMA) New Delhi, INDIA
Face of Resurgent India
The Second Fastest Growing EconomyModerate InflationEasy Credit AvailabilitySixth Highest Foreign Exchange ReservesRapid movement towards Free Market EconomyIntegrated with the Global EconomyPromising Consumer MarketsSignificant Investment in Infrastructure Creation for IndustryGrowing Market for IT & ITESGrowing Self Belief & National Pride
Face of Resurgent India
Fourth Largest Economy in terms of Purchasing Power Fourth Largest Economy in terms of Purchasing Power Parity...Parity...
Among the Top 5 Economies (PPP) 2005…Among the Top 5 Economies (PPP) 2005…
Source: CIA
12.4
8.2
3.9 3.72.5
0.0
5.0
10.0
15.0
US China Japan India Germany
Expected to be the Third Largest in GDP by 2020Expected to be the Third Largest in GDP by 2020Already Fourth Largest Contributor towards Incremental global GDAlready Fourth Largest Contributor towards Incremental global GDP P Growth (3.2%) after USA (21.6%), China (9.4%) & Japan(6.4%) in Growth (3.2%) after USA (21.6%), China (9.4%) & Japan(6.4%) in 2005 2005
Indian Economy–A Snapshot
Economic Growtho Sustained economic performance
Average since 1991 6.2%2004-05 6.9%2005-06 8% Forecast to sustain growth of over 8% p.a.
o Services account for over 50% of GDPo Manufacturing sector grew at 10% in 2005-06o Exports of USD $ 100 billiono Forex reserves of USD $162 billion (incl. Gold & SDR)
Mature Capital Markets o NSE third largest, BSE fifth largest in terms of
number of tradesThird most attractive destination for manufacturing
India among the top
reformers in 2003: World Bank’s Doing Business in
2005
Fiscal Reforms…..on fast track
Rationalisation of tax structure – both direct and indirect Progressive reduction in peak rates of duties;Direct and indirect taxes further reduced this yearo Peak Custom duty reduced to 12.5%o Corporate Tax at 30% o Tariff to be aligned with ASEAN levelsValue Added Tax introduced from 1st April 2005Rupee made fully convertible on trade account
Human Resources….a treasure trove
India’s competitive edge - its highly-skilled manpowero Over 380 universities (11200 colleges)o 1500 research institutionso Over 200,000 engineering graduateso Over 300,000 post graduates from non-engineering collegeso 2,100,000 other graduateso Around 9,000 PhDs
Knowledge workers in software industry increased from 56,000 in 1990-91 to 650,000 in 2003; o to reach 2 million by 2008
Due to its young demographic profile, India would continue to be surplus in working population for a long-time
Competitive Strengths
Ease of starting and running businesses
Increasing recognition of value of entrepreneurs
Increased entrepreneurial activity by diaspora
New business models due to penetration of technology and communications – IT, ITeS
Ease in availability of financing
Trend towards outsourcing operations and services to India has created new opportunities
Well developed judiciary
Competitive Strengths
Rank out of 102 countriesAvailability of scientist and engineers 3Quality of management schools 8State of cluster development 17Quality of scientific research institutions 20Government intervention in corporate investment 34Quality of educational system 36Sophistication of financial markets 37Foreign ownership restrictions 41
(Source: World Economic Forum’s ‘Global Competitiveness Report, 2003-04’)
Growth of Economic Potential By 2050
•(Source: Goldman Sachs)0 10 20 30 40 50
Italy
France
Germany
UK
Russia
Brazil
Japan
India
USA
China
Economic power interms of GDP (USDtril.)
Indian Paper Industry…an overview
First paper mill established in 1832Rural based industry with linkage to Agriculture/Agro-forestryForeign participation is permissibleIndustry turnover - USD 3725 MillionContributes over USD 447 Million annually to exchequerProvides employment :o More than 0.3 million people directlyo 1.0 million people indirectlyImproving export performance continuously Commands enough growth potential
Importance to National Economy
0%
2%
4%
6%
8%
10%
12%
14%
16%
Metals Paper Manmadefibres,
w ool andsilk
Apparels Bev andtobacco
Leather
Output GVA Capital Employed Labour
Strategic Importance
Generates economic wealth in the hands of the
rural population.
Paper is the most important medium of
education/communication; mirrors country’s economic
growth
Education sector set to grow exponentially
Paper as a vehicle to drive the National Literacy
Mission in the country
Strategic Importance
Contributor to Greening India project through its
social farm forestry program
Progressively increasing use of industrial paper for
packaging.
Encourages many backward and forward linkages of
ancillary industries.
Changing Paradigms
Rising customer expectation
Imports to set the quality benchmarks
Players to offer a wide range of products
Product differentiation through Functional Brand Building
Service Differentiation through wider reach and Just in Time delivery
Response time to crash
Modernization of existingassets and capital needs
Change inMarket Place
Industry size, consolidation
Standardization of Industry
Availability of raw material
Minimum efficient scale of production
Asset Quality
Quality Benchmarking
Environmental considerations and standards
Shut down of smaller, inefficient producers
Change inIndustry Structure
Indian Paper Industry-Global Standing
0 20000 40000 60000 80000 100000Vietnam
VenezuelaChile
ColombiaArgentina
South AfricaAustraliaThailandMexico
IndiaTaiwan
United KingdomRussiaBrazil
IndonesiaSweden
Korea, Rep ofFranceFinlandGermanyCanadaJapan
China, People's Rep.US
'000
tons
India ranks fifteenth among global paper producers and is nudging forward P&B Capacity
Expansion Towards the Global Scale
20,00085,000Orient
85,000115,000Seshasayee
100,000163,700West Coast120,000230,000TNPL54,75083,550Sirpur160,000180,000JK Paper200,000352,500ITC320,000465,000BILT 100,000153,500APPM
Proposed expansion(TPA) - 3 yr plan
Present Capacity(TPA)
Company
Aggressive portfolio addition comprising value-added variants.Improving quality of paper in terms of visual appeal and functional characteristics.Capacity expansion ranging between 15000-25000 tpa are taking place in numerous medium scale paper mills Quality benchmarking with international standards. Improved technology being used for cleaner and brighter paper.
Composition & Structure
Waste Paper/Secondary
Fibre Based30%
Agro-residue Based31% Wood
Based39% Production
6.55 MillionTon
Consumption7.16 MillionTon
OperatingCapacity
8.50 Million Ton
Per capita consumption 7.1 Kgs
Market Segmentation
Demand Growth Demand Growth for Paper among for Paper among Fastest in the Fastest in the WorldWorld
Share of Coated Share of Coated Woodfree in Woodfree in Printing/Writing Printing/Writing increasing increasing rapidly rapidly
Packaging Board Packaging Board demand growth demand growth is led by Highis led by High--end Bleached end Bleached BoardsBoards
Total Demand (2005Total Demand (2005--06)06)•• Paper & Paperboard 6.55 Million TonsPaper & Paperboard 6.55 Million Tons•• NewsprintNewsprint--1.45 Million Tons 1.45 Million Tons
High-End W/F (0.73 Mn T)
Coated Paper (0.26 MnT)
Splty. Paper (0.21 Mn. T)
Branded Cut-Size (0.18 Mn T)
Low-End W/F (1.51Mn. T)
Packaging Boards (1.29 Mn.T)
Packaging Papers (2.34 Mn.T)
F.Y. 2004-05
Source: JP Consulting
Total demand growth in 2000-2015 is expected to be 6.8 million tons. Supply is estimated to increase by about 6 million tons during the same period (depends on investments)
Printing and writing papers and containerboard are expected to grow most. There are less than 0.2 million tons of decided projects and about 0.4 million tons of planned project, ie. The planning gap during the next 15 years would be well over 5million tons.
Growth of Paper Supply/Demand in India
Source: JP Consulting
Growth Drivers
Economic growth mirrored in the GDP, is the primary industry driver
Expected rise in domestic demand -a CAGR of 6.1 per cent upto 2008-09 ; Capacity expansion is estimated at only 3.1 per cent over the same period.
Expected education sector growth 4%.o Budgetary provision for
F.Y. 2006-07 by GoI : $5481 million (increase of 31.5%)
Growth Drivers
The writing and printing sector growth-5.5% compounded upto 2008-09, and India has become a hub for high quality printing at competitive cost
Progressive increase in the use - Industrial Paper for packaging of consumer goods and FMCG (Duplex 7.2 per cent and Kraft 8.0 per cent CAGR upto 2008-09)
Major Deterrent to Competitiveness & Growth: Raw MaterialThe Indian Paper Industry uses a variety of raw material viz.wood/bamboo, waste paper, bagasse, wheat straw, rice husk, etc.
Consumption Pattern – Past, Present & Future
39%
31%
30 %
1970 2000 2010
7 %9%
84%42 %
28 %
30%
Wood based Recycled Fiber Agro based
Installed Capacity-0.8 M Ton Installed Capacity-6.4 M Ton Installed Capacity-10.3 M Ton
Major Deterrent to Competitiveness & Growth: Raw Material
Agro-residues, etc.-Annual availability of agro residues is large
Agro ResidueMillion Tons
Tons needed per ton of Pulp
Pulp Potential
(Million Tons)
Wheat Straw 22 2.5-3.5 7.0Rice Straw 15 2.5-3.5 5.0Bagasse 10 5.0-6.0 2.0Jute/Mesta/Kenaf 2 - -Total 49 14.0
Even though agro-residue has been one of the legs through which Industry has grown in the past yet, this may not be able to sustain the future growth of the Industry, taking due account of quality of paper required, environmental issues involved, logistics etc.Bagasse is increasingly used by Sugar Mills for co-generation of power Existing mills based on agro residues under threat of closure
Major Deterrent: Raw Material
In India only about 20% waste paper is being currently recoveredannually; low recovery is on account of alternate use of paper in wrapping, packing, etc.
45
49
56
60
69
73
Italy
USA
Western Europe
Japan
Sweden
Germany
World 46%
Source: PPI, CEPI, Swedish Forest Industries Federation. Figures refer to 2002
Waste Paper - based units account for about one third of Indian paper capacity
Major Deterrent: Raw Material
Waste paper :
50% of industry’s requirement is met through import
which is on increase.
Import : 2 million tons valuing USD 500 million.
India lacks collection, sorting and grading system of
waste paper for proper utilization.
Major Deterrent: Raw Material
Wood:Raw Material choice depends primarily on final paper quality.
Absence of sound raw material base deprives mills to grow in sizes to achieve economies of scale and attain global benchmarks.
India’s current forest policy does not allow industrial plantation by private sector on degraded forestland.
Wood (Contd…)
Industry uses varied species of hard wood material due to limited availability.
Raw material constitutes 40% – 50% variable cost of sales and is one of the highest in the world.
India is still to resolve this issue effectively through industrial plantation policy and leverage it to become a major global player.
Wood Demand
Fuel Wood:
Demand: 280 Million MT CumulativeShortfall:80 Million MT & growing
Pulpable Wood:
The paper industry’s needs for wood is expected to grow from 5.2 million tons in 2000 to 13.2 million tons by 2020/annum
Wood demand scenario for Industry & Community
Apprehended Shortfall for Paper Industry : 93 Million MT cumulative by 2020(assuming that part of fibre needs are covered by increasing use of waste paper &
agro residues)
Wood Sourcing
Current requirement of virgin wood raw material is met by Industry – Government source 20% (mostly Bamboo) and non-Government source 80%.Industry’s main anxiety is about sustainability and competitiveness
in absence of a proactive Industrial Plantation Policy; many major mills have embarked on Agro-forestry :–The industry planted : 25432 ha (2001-02)pulpable varieties for : 30343 ha (2002-03)sustenance : 39019 ha (2003-04)
: 50302 ha (2004-05): 58281 ha (2005-06)
Imports of Wood & Wood ProductsImports of Wood & Wood Products20042004--05 USD 666.32 Million }05 USD 666.32 Million }20052005--06 USD 708.73 Million } Growth 6.37%06 USD 708.73 Million } Growth 6.37%
Forestry Sector – A Realty Check
Land Status : Total geographical area : 328 Mn Hectare40 Mn Hectare dense forest (>40% crown density)
64 Mn Hectare wasteland (Min. Of Rural Development)
29 Mn Hectare degraded forest land
35 Mn Hectare non-forest degraded land (fragmented)
160 Mn Hectare urban/agriculture/non-areable
Source : FSI/WDB
48% 12%20%
9%11%
National Objective
Source : CII Study
To achieve by 2012 a total of additional 31.46
million Ha forest and tree cover (33%)
Monitorable targets set by Govt. of India
Increasing forest and tree cover by 4.36
million Ha by 2007.
By another 27.10 million Ha between 2007-
2012.
Forests…. Policy directions
Forest Policies of 1894 and 1952(emphasised increase in forest cover, sustained yield management,
meeting the needs of domestic and industrial forest raw material
and earning revenue)
National Commission on Agriculture (Report 1976) (promote tree cultivation outside forest to bridge gap between
supply-demand)
Forest (Conservation) Act, 1980(curtailment of powers of the State to de-reserve forestlands or
assignment for non-forest purpose)
National Forest Policy 1988
(conservation of bio-diversity, liberalised wood import,
encouragement to social/farm forestry for industrial needs)
Scheduled Tribes (Recognition of Forests Right)
Bill 2005
(to formulate a comprehensive legislation to address the rights of
forests dwelling Scheduled Tribes inhabiting the forests for
generations and are in occupation of forestland)
Forests…… Policy directions
Environment Protection - Major Statutes
Mines & Mineral (Dev. & Regulation) Act, 1957
Mineral Consessional (Consession) Rules, 1960
Environment (Protection) Act, 1986
Hazardous Wastes (Management & Handling)
Amendment Rules, 2003
Charter on Corporate Responsibility for
Environmental Protection
International Protocols That Forced Changes in the Last Decade
CBD 1992 : REDUCED PROSPECTING FROM
FOREST
Planted Forests Code (draft under discussion)
KYOTO 1997 : REDUCE LEVEL OF GHG
EMISSIONS
WTO 1994 : GLOBAL COMPETITION
(WEAKNESS)
(THREAT)
(OPPORTUNITY)
Key Drivers to Public Policy
Balancing development aspirations with conservation imperatives
Multi-criteria optimizationo Acceptable minimum standard
o Acceptable trade-offs
o Market models for efficiency
Rule of Law & Equality before Lawo Satisfaction of societal needs, values or
preferences
Public Private Partnership
o Government, industry and local community
o State to create enabling environment, enforce
negotiated terms of exchange
Public Private Council
o Civil society and NGO participation
Global integration of governance norms;
networked environment
Key Drivers to Public Policy
Important Developments in Indian Forestry
Containment of loss of forest cover
Protected area conservation
Sustainable forest management
Extensive plantations
Community forestry and stakeholders participation
Industry-farmer linkages through social/farm forestry
Impact of international instruments
Path Forward
Changes in forest management objectiveso Bio-diversity, local livelihoods, environmental services,
forest services, wildlife protection and high value –multi-species timber & NTFPs
Balancing traditional and technical knowledgeScience based resource conservationDecentralization and devolvementMarket development for medicinal plants, NTFPsand eco-tourismMandatory and voluntary standards
Greening India
To meet the national target Annual accretion
needed in forest and tree cover – 4 million ha
until 2012
Current Status : 23% of forest cover (as quoted
officially)
Investment required to meet the target –USD
11045 million approx.
New Mechanism for Resource Mobilisation - MSP
Multi-stakeholder partnership (MSP) is being evolved for augmentation of existing resourcesMSP framework -o Not a lease documento Legally enforceable MoU partnership between
Company/user group, public or privateLocal communityForest department/land owning agencies
Stands at an advance stage of Government’s consideration and approval
Industrial Plantation-Industry’s Pitch
Hope for Paper Industry’s sustenance and growth cannot be pinned on Social/Farm forestry aloneIndustry’s needs 1.2 – 1.5 million ha. of plantablearea i.e. 4 - 5% of total degraded forestland to derive socio-economic value.Industrial plantation policy will attract private sector investment in development of high-yielding sustainable plantation.
Development of approx. 1.2 million ha. will bridge the shortfall on raw material front in the immediate future.
Win-win proposition
Employment Generation
Agro-forestry facilitated by industry is generating sustained rural employmentThrough nursery operations for plant production and distribution to farmers — 0.50 million mandays/yrThrough harvesting operations — 11.25 million mandays/yrIndustrial Plantation…gains to accrue (feasibility study)
120.4 million mandaysTotal employment potential per annum
43 million mandaysAnnual mandays required for harvesting 250x0.172
77.4 million mandaysTherefore, annual mandays required (450x0.172)
450 mandaysAverage mandays over one rotation
0.172 million haArea of plantation in one year (12/7)
1.2 million haArea of Plantation
Carbon Sequestration
Paper Industry – only large scale industrial sector capable of realising a low carbon energy self-sustaining trajectory avoiding major changes to its primary production processAdoption of more effective organisation of its existing bio-mass supply, improved energy efficiency and more sustainable waste management practices could yield hundreds of millions carbon credits through CDMOn average production of 1ADT of paper results in 0.67 ton CO2 --Source:CEPI
CDM Projects
Two significant projects submitted by IPMA MembersITC Ltd. – 42000 ha. of plantation with a potential to sequester 10.7 million tons of carbon, reducing 39.3 million tons of CO2 having a carbon credit value of USD 106 million in the first commitment period. Available on UNFCCC websiteTNPL – its bio-methanation project is first CDM project implemented in the paper industry to generate 37000 CERs a year. TNPL has about 82,955 CERs to its credit
Forest Governance – Latest Study Reports
Cost Benefit Analysis Study By CII on “Public
Private Partnership In Regreening of Degraded
Revenue/Private/Forest Land”
Forest Survey of India’s “State of Forests
Report, 2003”
World Bank’s Report “Unlocking Opportunities for
Forest-dependent People in India”
Options Available to Industry
Option 1 : Indian Industry imports paper pulp to
manufacture paper
Option 2 : Indian paper industry shuts down and India
becomes net importer of finished paper products
Option 3 : The government makes enabling policy
amendments for EMPLOYMENT GENERATION &
SUSTAINABLE SUPPLY OF RAW MATERIAL
THROUGH INDUSTRIAL PLANTATIONS.
The Triple Bottom Line
ENVIRONMENTGREEN COVER, CONSERVATION
SOCIALEMPLOYMENT, FIREWOOD
ECONOMICGLOBAL COMPETITIVENESS, IMPORT REDUCTION & EXPORTS
SIZE OF TRAINGLE = INDICATOR OF SUSTAINABILITY
Rajeev R. VederahPresident
R. Narayan MoorthySecretary General
Thank You