The heft and feel of a well-worn handle,
The sight of shavings that curl from a blade;
The logs in the wood pile, the sentiment of huge beams in an old-fashioned house;
The smell of fresh cut timber and the pungent fragrance of burning leaves;
The crackle of kindling and the hiss of burning logs.
Abundant to all the needs of man, how poor the world would be
Without wood.

Everard Hinrichs, quoted by Eric Sloane in A Reverence for Wood


Tuesday, June 5, 2012

Company Town America - Peering into the Dark

News of an explosion and fire at the Verso Paper mill in Sartell, Minnesota, brings our consciousness back to the plight of the pulp and paper industry and its employees here in the United States. The mill, bought from International Paper back in 2006 as one of four mills to create the new company, had been struggling competitively for some time; the company had laid off 175 workers as recently as late last year in an attempt to remain profitable.

The story of Sartell is another of the long list of company town stories that are not going well these days. The mill was constructed over 100 years ago and has been the town's major employer for all that time. It pays over $1 million a year in property taxes, money which is a major revenue stream for the schools and services in the area. Employees of the mill had been fearing the future of the mill, and the fire pushes that fear to the forefront of their minds.

Go Wood has reported in other posts the difficult transition that our country is making as the wood and paper industries, under competitive pressure to consolidate, go through buy-outs and shutdowns. The spirit of the folks working the mills is always great, and the folks in Sartell are committed to getting their plant cleaned up and back online. But the economic pressures on corporate management get greater with each passing month.

Last year, in an article entitled "A Crumpling Paper Industry", the Portland (Oregon) Tribune reported on the sad story of the recycled paper industry trials. Mills that had been unprofitable running virgin fiber from wood chips had been converted to recycled paper mills with the hope of a greener, and more profitable, future. And while companies such as the Kraft Group of Boston see a future in the recycled linerboard industry (they just purchased two of the three mills that International Paper was forced to divest as part of the Temple-Inland takeover) the larger picture is grim right now for the pulp and paper industry in general.

Source:  . Latest figures have the number at fewer that 3,300 workers. 
Part of the problem is the fact that a lot of folks are getting their news online, from news sites and blogs such as this. But since paper is still used in huge amounts, the larger picture is that most of the pulp and paper production is being done in other places, these days.

Going global

The paper industry has gone global, spurred by enactment of world trade pacts. Foreign nations offer cheaper labor costs, looser environmental rules and faster-growing markets for newsprint and other paper products. Domestic companies were forced to compete with foreign operations, and they also gained ripe opportunities to take advantage of the lower costs and expand overseas.
Paper mills require an enormous investment in machinery, and many U.S. companies, such as Blue Heron, simply haven’t invested much money into their domestic plants.
“The reinvestment cycle is terrible in this industry,” says Jerry Powell, owner of Portland-based Resource Recycling Inc., which publishes recycling industry trade journals and organizes national conferences. “Therefore, we’re going to get our clocks cleaned.”
Only one new paper mill – a tissue plant in Alabama – has been built in the U.S. during the past six years, Powell says.
The world’s largest paper company, Memphis-based International Paper Co., closed its Albany, Ore., mill about 15 months ago and shed 240 workers, even though it was still profitable, Pallesen says. The company has been heavily investing overseas, with major land and paper plant acquisitions in China, Russia and Indonesia.
Pallesen says the trade pacts have caused companies to scurry for cheaper labor costs. A Chinese mill worker gets about $1 an hour and no pension benefits, he says, while some of his skilled members get $28 an hour or more, plus health care and pension benefits. And China is worried about competition from cheaper labor in India, he says.

Subsidies pivotal?

Usha C. V. Haley, an international business professor at New Zealand’s Massey University, says China’s economic advantage in the paper industry is due to massive government subsidies, not cheap labor.
“They get free land. They get free electricity. They get free saplings to plant in plantations. They get free water. They get loans that don’t have to be repaid,” says Haley, author of a 2010 study on China’s paper industry for the Economic Policy Institute in Washington, D.C.
Haley found that China provided $33.1 billion in subsidies from 2002 to 2009 to propel its paper industry to become a major exporter. Not all the subsidies are easy to document, she says, so that figure understates the full amount.
The biggest production expenses at Chinese plants are due to the cost of paper-making equipment and pulp and recycled paper, not labor, Haley says. She estimates that labor accounts for only 4 percent of costs at older Chinese paper plants and 6 percent at modern plants, vs. an average of 8 percent at U.S. plants.
“I’ve come to the conclusion that capital, not labor, is the big advantage,” Haley says.
China tripled paper production in the past decade, she says, becoming the world’s leading paper manufacturer. In contrast to the U.S., China’s burgeoning middle class has a growing thirst for newspapers, magazines, books and other paper goods. Yet China has relatively few forests and a low recycling rate, so it’s gobbling up recycled paper from other countries.

Easy to see that there are no easy solutions...our labor costs are higher, and our capital costs are real, not subsidy money provided by the government as they are in our communist and socialist competitors. Worse of all, that money being provided to those overseas mills is coming from...the U.S., thanks to our insatiable appetite for cheaper goods and debt for social services.

All of this makes for a heartbreaking, vicious cycle of cut-back, sell-off, and shut-down. The fate of the International Paper (nee Weyerhaeuser) paper mill in Albany, Oregon, on Christmas Eve of 2009 is being repeated over and over again. The video below shows just how frustrating this experience can be for people in the community when the mill gets shut down.

The problems of our basic manufacturing industries seem to be beyond the control of our industrial leaders and beyond the grasp of our political leaders. Doesn't seem like anyone today realizes the basic tenets of capitalistic society, and the benefits it brings...that production has to come before consumption. Looks like we're going to learn that lesson, one way or the other.


Anonymous said...

Facebook nation... We have been rewarding style over substance for some time now in this country and there's a reckoning coming. Maybe it starts today in Wisconsin.

Bea said...

Interesting post. I am wondering if you have any numbers on the import of paper product into the US from China or elsewhere, and if it is increasing. Do you have any thoughts on what could be done to encourage US paper consumers to stick to US manufactured paper?

Bill Rolek said...

The only way we come back is to make things here in this country again. Follow Starbucks lead on this. They are opening a plant in Georgia and reopening a mug factory in Ohio.