The bottom line for most buyers backing off from recycled paper is cost. Many (but by no means all) of the recycled sheets have been priced higher than their virgin counterparts. Conservatree interviewed paper manufacturers in 1997 to find out why. We found that people at the mills had many different explanations for the premiums.

Several pointed out that most of the recycled pulp is bought on the open market, which is a much more expensive option for an integrated mill that has its own virgin pulp facility. Therefore, papers manufactured with purchased pulp would cost more than virgin papers produced from a company's own pulp.

John Morrison, vice president of marketing at Potlatch, said the company dropped its previous 50% recycled, 10% postconsumer (50/10) recycled content levels to simply 10% postconsumer on two of its #1 coated papers because "it didn't make sense." The company had been purchasing preconsumer pulp on the open market when it had its own forest land that provided less expensive pulp.

Even companies that own a deinking pulp mill have higher expenses, according to Terry Plummer, vice president of sales and marketing at Boise Cascade. "The cost of deinking investments makes it hard to bring down the price of recycled," he said, especially when they are an incremental addition to an existing facility. Further, said Plummer, "While recycled pulp mills were being built in the U.S., several large virgin pulp mills were being built in other countries, producing very low-cost virgin pulp."

Most of the deinking plants, even those connected to a paper mill, had expected to be able to sell some of their pulp on the open market. When they were undercut by virgin pulp, the economics that were supposed to balance out the costs of the deinking mills were thrown off.

Jack Plomgren, marketing manager for Union Camp's fine paper division, pointed to structural issues that make virgin pulp more economical. Referring to the paper industry, he said, "We are very efficient at bringing trees to a mill and pulping them." But, he added in comparison, "As a country, we are not as efficient in collecting wastepaper from small offices, sorting it, and getting it to a mill for deinking," resulting in price differentials at mills with virgin pulping facilities. He also noted that, "The quality of waste is impacting price," with the unexpectedly high amount of "stickies" (many different types of adhesives) requiring mills to run higher, cleaner (and therefore more expensive) grades of wastepaper than their original projections.

Customers, too, play a role in higher prices for some recycled papers. When prices are falling, lower recycled demand can create higher price differentials between recycled and virgin papers. Distributors will sell their older, higher-cost inventory before ordering again, so customers may not be able to take advantage of lower-cost recycled paper as quickly as they can get the lower-cost virgin paper.

How To Handle Price Premiums

Fortunately, text and cover, opaque, and some coated papers are generally the same price, whether they are made with or without recycled content. Randy Wolf, then executive director for the Recycled Pulp & Paper Coalition, insisted that buyers can get competitive pricing for recycled commodity grades, too, even for relatively small quantities, if they are willing to be "squeaky wheels." As an example, he had an employee call paper distributors to get pricing for ten cases of recycled paper. When the costs came back higher than comparable virgin papers, she called back to insist on a cheaper price. She got it, but only after working her way through the sales hierarchies.

Not all buyers view the current price differentials negatively. When asked whether he had seen buyers backing off from recycled, Union Camp's Jack Plomgren noticed that, while that might be true for some purchasers, "Other people realized that the percent of premium was being reduced and chose to buy recycled." Clearly, these buyers understand the importance of continued strong support to the recycled paper market and view the reduction in price differentials as an indication that their support is working.

Potlatch's John Morrison noted that one way that people dealt with the paper pricing peaks in 1994-1996 was to reduce the amount of paper they buy, through source reduction strategies. He thought that will continue. "Publishers were reluctant to change page size and page numbers but it turned out to be not as bad as they thought. They may not go back." Magazine and catalog publishers, in particular, are likely to continue to massage every possible opportunity to make their paper dollar go farther, including continuing page size reductions and decreasing the number of pages in their publications.

Wayne Pennock, marketing information manager at Moore Business Forms, agreed that economic realities led their customers to search out more opportunities to reduce paper purchases, and Moore adapted to those changes. While customers' increased use of electronic forms cut into Moore's traditional business of selling forms bond paper, the company now sells its expertise by teaching people how to create and use the electronic forms. Pennock also reported that customers were increasingly using linerless labels, which peel off a roll like tape instead of peeling off a backing that then is thrown away. Moore also incorporated new presses so efficient that they cut printing paper waste in half, thereby reducing the amount of paper Moore bought for conversion. That saved money for Moore's customers as well.

Thus, when cost is a decisive factor in using recycled paper, buyers develop creative strategies for bringing it into line.