The Paper Business

The BRICS countries are among the key stakeholders in the pulp and paper industry. Here they have found an environment conducive to both sourcing raw materials and selling finished goods. International Paper is a global leader in the paper and packaging industry, which operates in four out of the five BRICS countries. Ksenia Sosnina, President of International Paper in Russia, talks about some of the specific aspects of International Paper’s business in Russia and other BRICS nations.

How would you describe key trends in the global pulp and paper industry?

Generally speaking, we see huge opportunities in packaging. It’s more about non-durable production segments like food, online distribution, online retailers, and the restaurant industry. Many developing countries have tremendous potential to develop retail and consumer markets, which drive development in the packaging industry. Box demand was up a couple of percent year-over-year. Online shopping is another example. Demand for boxes from online retailers is about 5 percent of the box market, but it’s growing by 20 percent a year. Globally, the paper market still continues to grow due to developing markets. Speaking about overall trends on the global pulp and paper market: fluff pulp is projected to grow globally at an annual rate of around 3 percent; at the same time, demand for packaging will grow at a similar pace. The global demand for cut size will grow at an average of 1 percent per year, and consumption of newsprint paper will continue to decline. Recycling and the use of recycled materials continue to gather pace.

What are the prospects for and role of the industry in the development of BRICS countries’ economies?

Demand in emerging markets, in particular BRICS countries, is growing. Basically, in our industry, development depends on two factors: availability of required resources and a market for the products. BRICS countries have it all. Thus, Russia, Brazil, and China are among the top-5 countries with the largest forested areas, while China, India, and Brazil are among the top-5 most populated countries in the world, which means high labor supply and high market demand.

Dynamics in our industry reflect the leading economic indicators; when the economy grows, so does the use of paper and packaging, which drives the growth of our entire sector.

What is the current state of the forest industry in Brazil, Asian countries, and the United States?

IP operates facilities in all of these countries. Given that forest regulation and forest ownership patterns can differ highly from country to country, it is important to IP to maintain a Global Responsible Fiber Procurement Policy and to maintain certifications in manufacturing facilities to ensure compliance with national and international chain of supply requirements.

In Brazil and Asia, consumption is growing and production is actively developing. The United States’ market is much more mature – here issues of efficiency, productivity, consumer performance, product differentiation, and innovation are the core priorities.

What is your position in Russia?

We see Russia as a strategically important market and we are pleased to have built a strong and successful business here. Since 1998, International Paper has invested more than $700 million into expanding and modernizing its production in Svetogorsk. Today, we can say that our Svetogorsk mill, which mainly produces paper for the Russian market (Ballet and SvetoCopy brands), is one of the largest pulp and paper facilities in Russia, is part of the country’s systematically important enterprises, and is also proving a successful investment.

Our footprint in Russia also includes JV Ilim Group, which is a unique arrangement in the paper industry, both in Russia and globally. Throughout our cooperation, joint investment has amounted to approximately $1.2 billion, which has been directed at modernizing production and improving efficiency and productivity at Ilim Group’s facilities, including projects such as Big Bratsk and Big Koryazhma. Ilim Group produces paper and packaging for the domestic market here in Russia, and then in Siberia we produce pulp. This is an example of a successful partnership.

Brazil plays a significant role for IP. Could you outline IP’s operations there? How does it differ from its operations in Russia?

Indeed, we have established a strong and successful business in Brazil, since we entered the market in 1960. Currently, we are the largest uncoated printing and writing paper producer in Latin America and one of the leading players in the packaging business.

Both Russia and Brazil have the largest forest areas in the world — around 800 million hectares in Russia and around 412 million hectares in Brazil. However, they significantly differ in type of wood – in Russia, it is mostly soft-wood and pine-wood forests, while in Brazil, it is mostly tropical forests. The climates also differ. As a result, the renewal of forest resources in Brazil could be completed in 6 years, while in Russia it would take up to 75 years.

IP has leading positions on both of these markets. However, in Russia, we sell mainly to the local market, while 50 percent of the paper we produce in Brazil is exported to countries in Latin America, Europe, and Asia.

Notwithstanding some deceleration in the market in 2014 and early 2015, Russia has excellent competitive potential for further development. I believe that Russian companies in our sector should continue to invest in improving productivity and efficiency, quality and consumer performance, marketing, and promotion. Sustainable forestry management, energy efficiency investment in environmental projects, and infrastructure development are also important. The government continues to play a role; there is a clear need to continue developing the legislative base that stimulates investment in state-of-the-art technologies, sustainable forest management, and non-commodities exports.

What is with sustainable forestry in Russia? What incentives do businesses expect from the state?

Sustainability is becoming an increasingly popular concept in Russia, but we still need to improve awareness in this area. One of our key partners in promoting the sustainability agenda is the Moscow School of Management SKOLKOVO, and we have started to develop sustainability programs together.

In 2013, Russia made a progressive and important step toward implementing Sustainable Forest Management practices – it enacted its first-ever National Forest Policy. IP is part of a high-level, multi-stakeholder working group, which is currently working to actively promote the development of regional rules and regulations under the lead of the Russian Federal Forest Agency – and this is crucially important. The transition to a new model is a major change that requires the government’s active participation in enacting rules, new education systems that will train a new generation of forestry workers and operators, and support from businesses. We believe that Sustainable Forest Management will help Russia realize its forest potential on a modern level in line with best practices.

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