LISTENING STUDY Question 48:
What causes the price differences and what could reduce them?

LISTENING STUDY: Respondents understood this question differently, depending on their expertise and place of focus in the production process, which in turn gives us a view from many different points in the system. As Michael Jackson, a noted nonwood fiber expert, points out, there are a number of ways to interpret this question. Some looked at the question overall, others commented on price differences relating to sourcing the fiber, producing the pulp, and buying finished paper.

General Overview

Not sure the exact question here. Price of raw material as delivered to the pulp mill? Price of fiber ready to be made into paper? Price of paper? - Michael Jackson, Consultant, Tolovana Park, OR

Economy of scale, scaling up production and linking it to demand will reduce costs. - Jeff Lindenthal, President, Green Field Paper Company

The most significant factor is the lack of infrastructure for the use of agricultural fibers and the production of agricultural fiber pulps. - Living Tree Paper Company

In a frontier capitalistic society, there is no relationship between cost of production and selling price of paper. Corporations are driven by only one goal: make as much money as possible, by whatever means. There is no common-wealth morality in a free market economy.
      See for example, my presentations, "Some problems of technology development for the small innovators," "Saving British Columbia," and "The Cooperative Commonwealth Federation - the time has come again." - Al Wong, Founder, Arbokem

One hundred forty years of practice making paper from trees. Trees have become very efficient sources of papermaking fiber the way the industry is constructed. Tradition is a major holdup. Since just after the Civil War, paper has been made from trees. Every piece of papermaking machinery has been designed for trees. You can't just dump a bale of kenaf into a pulper, because the pulper was designed specifically for trees. The tree paper industry has built economies of scale from research to distribution.
      On the other hand, how much is spent on ag-fiber paper research in the last couple of years? Pretty close to $0 has been spent for kenaf, hemp, bagasse, sisal, jute, straw, flax, you name it. Meanwhile, millions are spent each year to develop higher-yielding, shorter-rotation tree-crops. We're really just starting to figure out how to get ag fibers grown and processed efficiently. The holdup is not just lack of sufficient research. Research will help, but there are other critical steps.
      The second cause is consumer demand. We've seen this with recycled in our lifetimes. Cost has gone down dramatically since the 70s. They created a system over a period of time that has made these fibers efficient to make into paper. It did not happen all at once or overnight. It was a combination of environmental awareness, government action, landfills closing, deinking technologies - the creation of a new infrastructure and creation of economies of scale over time. The same needs to happen with tree-free fibers.
      Consumer demand will be a big driver for this market - if someone can make it at a profit, the industry will go out of their way to make processes more efficient. More folks are working on planting, growing, harvesting, transporting for board products. That's good. If those industries can figure out these issues of efficiency such as bringing the raw materials to a manufacturing process at a profit, then that experience can be translated to other manufacturing processes, such as papermaking.
      Other industries are helping do the work - molded car parts, biomass energy, wallboard, they are all working on infrastructure that will help pulp and paper. - Peter Hopkins, Environmental Papers Consultant for Crane Paper Company, Gargan Communications

Sourcing Fiber

Historically, wood fibers were used in the US and Europe and the pulp and paper industry invested so much money in the wood pulping industry. The general consensus is that wood fiber will remain as the main source of paper and the share of nonwood sources will grow gradually. India and China use more nonwood source fibers simply because wood fibers are not available for them.
      There remains the three main problems with agricultural fiber pulping in general: (1) agricultural fibers have seasonal supply, (2) the agricultural fibers have low density and transportation cost is high (compacting technology is there but still needs energy to compact them) and need more pulping liquid, (3) agricultural fibers will degrade during storage (wood chips are piled in pulping mills and some will degrade but not as much as agricultural fibers).
      A perfect scenario would be establishment of small pulp mills at the heart of the wheat belt, corn belt, etc., compact the straw and send it to the mills, then pulp during the off-season, hiring the farmers. Pulps can then be shipped to the paper mills. Thus, combine farming and pulping. It is no different than sending grains to the mills to be processed as flour. - James S. Han, Research Chemist, USDA Forest Service Forest Products Laboratory

Annual agricultural crops are more energy intensive than sustainably managed forests. Much of the additional raw material cost stems from the additional work and energy required to deliver the material. In addition, it is necessary to invest additional money in facilities to convert them to produce paper made from agricultural fibers. Reducing the cost of agricultural fiber crops would not eliminate the fundamental biodiversity and energy use problems associated with these crops. - International Paper

If Arundo donax production is done on a large-scale, the price would be less. We wouldn't want to crash the wood markets. We were at a meeting of wood people and pulp and paper. When we said the price would actually be lower, the industry members told us to be quiet, they'd rather keep the price high. We would need 15-25 thousand acres of the Arundo donax in plantations for the price to even out or become less than wood pulp. With that, we could supply two mills a day with their production requirements of raw material. That's our goal: to plant 100,000 acres by June 2003. This raw material would go to Samoa and others. Some of it would supply the chips required for panel boards. However, the pulp and paper market would be larger.
      On the Hellsburg farm, the Arundo donax is like people and animals. We put 4-6 ft rows in one day and 90-120 days later the rows disappear. However, they have never encroached the vineyards. It is harvested with a modified piece of a rice cutter/harvester. The cane is collected with a grapple. With this harvesting method, it costs $9/ton compared to $95/ton for tree harvesting. - Ernett Altherimer, Founder and Chairman, Nile Fiber

From our experience with the recycled paper industry, the price difference is mostly economies of scale. The delivery costs should be highlighted; often these costs make or break the product. Transportation costs can be worked out though; it might make more sense to ship the fiber on a train across the nation rather than shipping it a few states on trucks. - Russell Clark, Environmentally Preferable Purchasing Program, US EPA

The Recycled Products Purchasing Cooperative has only been around three years [in 2002]. We're trying to overcome the price barriers to buying recycled. At this point, we are not purchasing tree-free and alternative fiber papers as the cost isn't competitive. These industries can't get close to virgin fiber prices because the economies of scale aren't there. We do intend to move into the tree-free industry and push suppliers, but it's a bit down the road.
      There should be more public funding for R&D to develop new hybrids and varieties that are resistant to pests. Cooperative extensions would be good entities to accomplish such research. Additionally, cooperatives that pool fiber producers together to reduce transportation and production costs would be ideal. There should also be government participation in the fiber production. The government could use public lands to set cheap rates or grow it themselves.
      The industry should identify the potential users to determine their price point and what preference they would give to alternative fibers, if any. Then they should balance the demand against the costs of production to see how much the price can be pushed down.
      The collection infrastructure should be targeted. The industry could reduce the overall costs of getting pulp to industry by developing regional collection programs to get high volumes shipped. With this model, the pulp purchasers can reduce their fiber unit costs.
      Promoters would also need to target producers to show that there would be a demand for tree-free papers. With demand numbers they could get the "big four" to invest in capital equipment and conversion costs. - Tyson Miller, Program Director, Recycled Products Purchasing Cooperative

For kenaf and hemp, the greatest price barrier is the cost for separation of the bast and core fibers. For applications where whole-stalk kenaf can be used, we didn't find significant differences in acquiring the fiber compared to wood. The cost of acquiring separated hemp is even higher than kenaf because hemp has lower bast fiber content and lower quality core fibers, so you have to separate more hemp to get the same quantity of fiber.
      The capital costs for a soda process kenaf mill should be on par with a kraft mill for wood. The minimum scale for a kenaf mill, around 300 tons/day is much smaller than a typical kraft mill. A smaller mill has certain advantages; for example, as it wouldn't need to draw on such a large supply area to be economically viable. Kraft mills need to be at least 500 tons/day. If the mill is integrated (using its own pulp to make paper), it will be far more economically efficient.
      Operating costs: Our study suggests higher operating costs for chemically separated kenaf than for soft or hardwood. Compared with softwood chemical pulping, kenaf would have 15% higher operating costs. Compared with hardwoods, kenaf would be 50% higher. The cost difference is primarily due to labor and energy for separating the fibers. We would expect the cost for whole-stalk kenaf pulping to be comparable to wood because you wouldn't have to pay labor and energy costs for separation.
      For agricultural residues, the overall costs, both capital and operational, would be similar to wood. The limiting factor is the availability of a reliable supply. If the plant is located within a large straw supply area, it is far more economical. - Richard Denison, Ph D, Senior Scientist, Environmental Defense

Price differences are a result of:
1) economies of scale,
2) raw material costs and pulping yield,
3) supply and demand market dynamics.
- Tom Rymsza, President, Vision Paper

Pulping Fibers

The added expense associated with some tree-free pulp and paper is mostly due to small volume production and raw material costs. Large tree-based pulp and paper companies get premium pricing because they are producing large volumes and using an inexpensive raw material. Increases in demand of tree-free papers will allow companies to produce larger volumes at once. The other necessary component is a dedicated pulp mill that can recognize efficiencies through large, consistent volume production. - Tom Rymsza, President, Vision Paper

The price of raw material wood chips is maintained artificially low because of many resource tax breaks and other give-aways of public agencies that own large swaths of forestland, not only in North America but all over the world. Only when wood increases in price do the paper companies get interested in non-woods.
      In the mid-1990s Weyerhaeuser built a straw pulping line at its Springfield boxboard plant partly due to the tremendous price spike in 1994 when the cost of wood nearly doubled in one year, erasing their margins. Ditto for the Jefferson Smurfit interest in a test run of non-wood pulp that was arranged with the mill in 1997. But the interest of these companies was not sustained because the cost of wood went back down.
      One of the biggest factors in the costs of non-woods is the price of pollution control technologies to recover the pulping chemicals. The wood pulping chemical recovery systems have not worked for non-woods and new inventions have been introduced, but the entrepreneurs providing lab-scale alternatives have not been able to raise the capital needed to get these new technologies into pilot scale.
      Yet this may change as one major development is about to break due to the demand for non-wood pulping in China. - Jeanne Trombly, Fiber Futures

Financing was initially a major problem. Nile Fiber had to prove concepts all the way because no one had ever done it before. Investors were hesitant after trying wheat straw, rice straw, and other fibers, which haven't proven to be commercially applicable because they required too many process and equipment changes. After more than 3 years Nile Fiber proved you do not have to do that for Arundo donax. Most of the initial funding has been out of pocket, but now there is a lot of interest.
      The first run at Samoa Pacific was about 200 tons of Arundo. Because the beginning and end are mixed with wood, there was probably about 100 tons of pure Arundo. They will run another 40 tons early Sept.
      The Arundo donax economics work out very well. Cost that Asian companies are paying for contaminated pulp with silica are very high and these will be much lower with a higher quality product. - Ernett Altherimer, Founder and Chairman, Nile Fiber

Finished Paper Prices

The current prices for tree free papers may be up to twice the cost of tree based paper. - Green Seal, Choose Green Report: Alternative Fiber Papers

Price differences, in this question, apparently refer to the difference in cost for a nonwood typing paper and a competing tree-based typing paper. The question here seems to be "how do we make sure our typing paper is produced sustainably with minimal impacts?" not what will it be made of.
      Kenaf makes a great archive paper - it is long-lasting and has low acidity. Nonwoods are ideal for advanced filters, diapers, bandage products, currency papers, hygiene products, non-wovens - everything from weird composites to feedstocks for cellulose products.
      Without higher volume, tree-free papers will naturally be higher priced. Inherently they don't have to be. - Peter A. Nelson, President, AgroTech Communications, Inc.

To date, most of the printing and writing papers in the U.S. and Canada that include nonwood fiber have been text and cover grades. This makes sense, as text and cover papers, despite making up only a very small percentage of the paper market, are produced and priced in a way that allows short production runs, individualized papers, and larger profit margins than in other parts of the industry. Since nonwood papers generally cost quite a bit more than virgin forest fiber papers, often up to 50% more, it makes market sense to place them in competition with the most expensive papers, cotton fiber (which also happen to qualify as nonwood papers).
      The nonwood fiber papers that compete in more unforgiving markets, such as coated, copy and offset papers, generally (and ironically) bring their price down by incorporating some recycled content. Almost all nonwood fiber papers usually include recycled content also because they are appealing to environmentally conscious paper consumers, many of whom are looking for recycled paper.
      As with recycled papers, which have been significantly reducing or eliminating price differentials by developing larger market shares and more mature production systems, we expect that nonwood papers will improve their pricing as more stable and larger-scale nonwood sourcing and production systems are developed. - Susan Kinsella, Conservatree