One of my New Year’s resolutions was to write down some of the many stories my time working in heavy industry. So here’s a start.
When I travelled north in October/November last year, I managed to catch up with half a dozen of my former colleagues from the pulp and paper industry. I really enjoyed the chance to talk about some of the highs (and lows) of the more than 20 years I spent in the forest products sector. Looking back, we were really fortunate to start work in that industry at a time it was on a real high. New Zealand had a huge competitive advantage compared with the rest of the world. New Zealand’s large, very well managed and sustainable plantation forests of pinus Radiata could produce high-quality cellulose fibre at a very low cost. What’s more, due to a quirk of that species growing in NZ, we could get a wide range of products once we understood how to segregate and use the various parts of the tree (but that’s another story).
(If you mainly visit this blog for the pictures, you may be disappointed in this post. But if you’re still interested, read on …..)
Most of the wood destined for pulp and paper went to two companies. One of them (Tasman Pulp and Paper Ltd) made newsprint, competing in world markets at international prices. It’s paper machines were amongst the biggest and fastest in the world. Concentrating on just a few grades of paper, the mill operated at a very high efficiency, on lean margins.
The other (NZ Forest Products Ltd) made almost everything else, many hundreds of different paper grades. Its machines were smaller, slower and less efficient. It’s Kinleith mill was probably the largest and most complex pulp and paper mill in the world at that time. It was all about import substitution and subsidised exports, which for a long time was quite profitable. Three factors help to offset the inherent inefficiencies involved in making a huge range of products: export tax incentives; protection from competition from imported products; and of course that low wood cost. As well, even though 5 of the 6 the paper machines at Kinleith were inherently inefficient due to the frequent grade changes, the pulp mill was ‘state of the art’ and ran very well.
That profitability gradually changed, for a whole lot of reasons. Labour costs became more and more significant, for example, as a highly unionised workforce managed to extract a bigger slice of the cake. In such capital-intensive industry, it was usually easier to pay up than risk the cost of an extended strike.
To show you how well they succeeded: in 1981 when I got the job of technical manager, the lowest annual earnings of any of the shift workers in my department was $35,000. Probably around $90,000 in today’s currency. That person, a shift tester, was 18 years old and had to have successfully completed three years of secondary school education.
That situation was not sustainable. The profits came from the pockets of consumers: anyone who bought a writing pad, a bag of cement, a carton of beer or even a new benchtop for their kitchen. One of our products for example was saturating base paper, used to make laminates such as Formica. I heard a customer claim that the price of the Kinleith product was four times as high as that of the dominant producer (Westvaco in the USA). I quite believe it. They were locked into us by a ban on imports.
In the mid-80s, ‘Rogernomics’ put an end to the import barriers and export tax incentives. The writing was on the wall.
Now the Kinleith pulp and paper mill has one paper machine, not six. It makes just a dozen or so grades. Its production is higher then what we got from six paper machines, when we made around 2500 grades of paper.
The mill employs a few hundred people, compared with several thousand back then. In spite of the efficiency gains, I’m sure the return on capital is not very flash. It’s no longer a public company with thousands of New Zealand shareholders, but a private company owned by billionaire Graeme Hart. It’s part of a global packaging business.
There are however alternative uses for that forest land, some providing a higher return. Dairy farming, for example. Here’s what I saw as I drove down from Rotorua to Taupo along a stretch of road that I hadn’t travelled for perhaps 30 years. For miles, you used to feel shut in by dense pine forests on either side. Now, on the eastern side:
I have to say, that was a fairly ugly logging operation: lots of slash and high stumps. But it cleans up OK, you could see what it would become by the example on the other side of the road:
Quite what this change in land use will do to Lake Taupo is still being researched.