JANUARY/FEBRUARY 2007

Processing Paper in India

India’s paper production is rising to meet its growing demand, but its mills are decades behind the technology curve—and it could take decades more for them to become globally competitive.
By Adam Minter.

BY ADAM MINTER 

At seven a.m., motorized vehicles are in the minority on the highway that runs northwest from Delhi into India’s Uttar Pradesh state. From the back seat of a car stuck in traffic, I watch as oxen-driven carts lurch past me and human-drawn carts pass the oxen. Filling the little remaining space are children on their way to school, women in colorful saris or black burqas carrying food on their shoulders or heads, and a small army of laborers in sandals and loose-fitting cotton garments. Sitting beside me, reading a newspaper, Shashi Kanth Jain, a soft-spoken Delhi native, sighs. “This is why I wanted to leave early,” he tells me. “Otherwise, we would get stuck in traffic.”
   Jain is secretary general of the Indian Agro & Recycled Paper Mills Association, a group with 150 members that represent the major players in India’s scrap-consuming paper industry. Jain’s position gives him a clear perspective on India’s paper industry, which—like the nation itself—is struggling to evolve into a technologically advanced and globally competitive player. According to IARPMA figures, India’s paper production has grown rapidly in recent years, increasing from 5.9 million mt in 2004 to 6.4 million mt in 2005, and it is expected to continue growing 7 percent a year through 2010.
   India’s economy is projected to grow even faster than that, however, at a rate of 8 percent annually over the next two years. In Jain’s view, India’s increasing wealth could mean even greater growth for its paper industry. In anticipation of such growth, mills are adding at least 1 million mt of annual production capacity by 2008. “When an economy grows,” Jain says, “the paper industry grows with it.”
   This morning we are heading to one of the most active papermaking regions in India with plans to visit two of northern India’s most important scrap-consuming paper manufacturers. As we clear the first wave of traffic, we begin to pass trucks and trailers loaded with bales of OCC and ONP.
   Three hours after leaving Delhi we are on a single-lane road that runs through farm fields to Bijnor. The town’s crowded center soon gives way to more fields. In the distance, smokestacks and bales of mixed paper loom beside several long buildings set on 60 acres of farmland. Our car stops at a gate. Jain identifies himself to the guard, who waves us into the Rama Paper Mills complex.
   P.K. Agarwal, the facility’s vice president, greets us and invites us into the office for tea. As we take a seat in a second-floor conference room, Agarwal explains that he is a “paper technologist” by training, a 28-year veteran of the Indian paper industry, and an eight-year employee of this Rama mill. “It is a much different industry than the one I knew three decades ago,” he observes, noting that “the biggest difference is the utilization of secondary fiber.”
Indeed. In the 1970s, virgin wood-based papermaking accounted for 84 percent of India’s production, and secondary fiber a mere 7 percent. But as India’s forests declined and wood costs rose, the ratio began to shift. In the 1980s and 1990s, increasingly strict environmental enforcement placed long-term stresses on wood-based papermaking. By 2005, wood fiber constituted only 25 percent to 28 percent of India’s paper production. Recovered fiber accounted for 40 percent to 45 percent, and agricultural residues such as cane husks made up 28 percent to 30 percent.
   The Rama mill in Bijnor, founded in 1987, is notable in that it consumes only secondary fiber. Founded with a single line to produce duplex—a paper made by laminating two sheets together—today the plant’s three lines produce 39,500 mt annually of newsprint and writing and printing papers.
   Agarwal leads the way out of the office and past the plant’s blackened boiler building, which is surrounded by piles of rice husks ready to be fed into the boiler as fuel. From afar, I can feel the heat from the facility, even though the outside temperature exceeds 95 degrees F. Nearby, workers sit under a canvas shade and sort through plastic trash they’ve pulled from bales of imported scrap paper. Bottles and bags—the most common outthrows—go into canvas bags to serve as additional boiler fuel. Farther along, workers sit on the ground and slowly pull apart bales of mixed paper imported from the Middle East, sorting contaminants into small bags and leaving a wide range of paper types to be gathered and fed into the mill’s pulpers. At the other end of the yard, loose printer cuttings purchased domestically flutter in the hot breeze.
   Each month the mill purchases 2,000 mt of domestic scrap paper and imports 2,000 to 3,000 mt of secondary fiber from the Middle East and Europe. The mill stopped importing U.S. recovered fiber several years ago due to high contamination levels, Agarwal says. “There’s at least 10 to 15 percent more contamination in American bales than Middle Eastern or European ones,” he claims. “We used to see a lot of glass in the American shipments, and the result would be damaged machinery and injured workers.”
   Recently the Indian government lowered the duties on imported scrap paper to 5 percent for consumers and 12.5 percent for traders. Despite this price advantage, most consumers—including Rama—prefer to use brokers rather than deal directly with the scrap suppliers. “Our business is making paper,” Agarwal explains. According to IARPMA, imports—most of which arrive through major ports, especially Mumbai’s—fulfill 60 percent to 70 percent of India’s secondary fiber needs.
   Rama’s workers are scattered throughout its sprawling sorting complex. The company employs up to 300 laborers in various capacities, depending on its production and sorting needs. Inside an open warehouse, elderly women sit on a concrete floor, wearing pale saris, pulling metal spines from notebooks. Young men grab handfuls of imported office paper, place them in the middle of small canvas blankets, and carry them to a conveyor belt that feeds the paper into a pulper.
   The inventory is enormous, the activity frantic, yet there is an overwhelming silence among the workers, who work together in groups based on their town of origin. Payroll employees can expect to receive roughly US$4 a day, while outsourced workers, hired in teams, earn less.
Agarwal heads into a dim warehouse filled with the rumble of papermaking machinery. Workers soaked in sweat scurry through the space in sandals, carrying wrenches and buckets. At the far end, writing paper spins off an Indian-made machine onto spools.
   According to Jain, the Indian government’s recent emphasis on education spending is one of the most important growth factors for the country’s paper mills. In fact, the rate of spending on education is outstripping India’s rapid economic growth and driving production at mills like Rama’s. “As the population becomes more educated, people will buy more paper products,” Jain surmises. “So that’s a big factor in industry growth.” Also, he says, a recent reduction in the excise tax on printing, writing, and packaging papers—from 16 percent to 12 percent—is expected to widen the market significantly.
   The mill is in the process of boosting production more than 25 percent, to 50,000 mt annually, by adding a deinking line that will process imported scrap paper. “We are modernizing and expanding,” Agarwal says. As part of the project, Rama is installing a cogeneration plant to power its lines, following a trend set by India’s midsized and large mills. “And if there is surplus power,” he says, “you can add a machine.”
   As Agarwal describes the environmental benefits of cogeneration, he walks toward the back half of Rama’s land and pauses beside a gray, sludge-filled canal where oxen are submerged up to their shoulders, cooling in the afternoon sun. Nearby, a series of low, gray brick walls enclose pools of sludge in various states of drying. Workers transport the sludge by handcart to a small brick building where others feed it into simple papermaking lines.
   To illustrate this process, Agarwal leads us around the building and into the dank, low space where two small, primitive lines produce a cheap, grainy gray approximation of cardboard that he calls “sun-dried board.” Dried sludge covers every surface, and the heat of the building is stifling. Workers hustle toward the wet sheets as they come off the lines, cutting them into roughly 1.5-meter squares. The workers then shuttle the sheets outdoors and arrange them across 10 acres of fields, creating a surreal, gray patchwork-quilt landscape. There, the paper sheets dry for eight hours. “It’s cheaper than incinerating the sludge,” Agarwal says, “and better for the environment.”
   During dry months, Rama produces 8 to 10 mt per day of this low-quality board, which it sells—for about US$89 per mt—to manufacturers that use it to make cheap cartons. “This is the most common means of disposing of sludge,” Jain notes, “and it is well-suited to India, at least during the dry season.”
   As we walk back to the office, Agarwal says that Rama’s vigorous response to rising paper demand is curbed only by the rising cost of transporting its products to markets across India. Fuel prices have affected the company’s consumers, who are expected to pay shipping costs, he notes. Rama ships all of its paper by truck, mostly in 9- to 10-mt loads. The mill can ship newsprint and white paper affordably as far as 1,000 km, Agarwal says, though most of its newsprint customers are in nearby Delhi. Duplex paper can travel farther—up to 1,600 km. When I ask Agarwal if Rama would consider exporting its paper, he smiles and shakes his head. “We don’t need to focus on anything but India for the foreseeable future.”

Walking the Slow-Growth Path
From Bijnor we head back toward Delhi, navigating through small towns packed with livestock and traffic jams of delivery trucks. Most of the landscape between towns is empty, drought-stricken farmland. Outside Meerut, several tall metal structures rise from the yellow land. We enter this complex—Dev Priya Industries Ltd.—and bounce along the dirt driveway, passing a line of colorfully painted delivery trucks waiting for paper shipments. On the ground between these trucks, drivers sleep, many covered by blue plastic tarps.
   Mahendra Gupta, a burly businessman who greets us with wide strides and a crushing handshake, founded Dev Priya in 1989. From the beginning, he says, the mill focused on making “waste kraft into good kraft.” Today the company operates four lines at its 200-acre facility, producing roughly 52,000 mt annually of kraft and duplex papers for manufacturers, mostly around Delhi. In addition, the firm exports a small portion—about 5 percent—of its production.
   Gupta leads us into one of the many open spaces where he stores the scrap paper that feeds his lines. We move past soggy piles of OCC baking in the sun as a tractor pulls a trailer filled with loose domestic recovered fiber just delivered to the facility. When the trailer stops, seven workers rush from a warehouse and begin unloading the material by hand.
   All around, piles of baled OCC and mixed grades are scattered over the wide space. Gupta, who says he tries to keep a one-month supply of scrap paper on hand, estimates that 80 percent of the 5,000 mt of scrap paper he imports each month originates in Europe, with the remainder coming from other countries. “That’s mixed white from the U.S.,” he points out. “Over there, that’s OCC from Norway, and beside it, that’s Malaysian OCC.” Overall, OCC constitutes approximately 40 percent of the mill’s imported scrap paper.
   That percentage mirrors India’s overall paper imports, with OCC about 40 percent of the total and the rest evenly divided among ONP/OMG, mixed, and what Jain calls “office record.”  Unfortunately, India does not maintain central records of the origins of these imports. Instead it relies on individual states and ports to maintain their own records. Anecdotally, at least, the Middle East supplies the majority of India’s imported secondary fiber.
   Gupta is generally satisfied with his access to material, though high shipping costs from North America prevent him from doing much business there. “The only reason I don’t buy more from the U.S. is because the freight is so expensive,” he says. “Otherwise I would buy much more.”
   When I mention P.K. Agarwal’s claim that U.S. material contains too many contaminants, Gupta shakes his head. “The U.S. quality is much better,” he asserts. “Shipping costs are the only reason they don’t buy.” He has a point: Freight rates from the United States to India can be several times higher than those from Europe or the Middle East. In either case, Gupta does not import directly, relying instead on a broker in Mumbai to do most of his purchasing. The material arrives at Mumbai’s massive Nhava Sheva Port and then moves by container truck to Delhi’s dry port, where it is inspected and assessed for customs purposes.
   Even though India’s paper industry produces a variety of paper types, there are no statistics on the production volume of each type, according to IARPMA. But because India—whether by choice, necessity, or circumstance—is developing its domestic economy before its export economy, for now packaging does not play as significant a role in its paper industry. As a result, the country requires a different mix of imported secondary fiber than export-oriented countries like China.
   Nevertheless, India’s packaging demand is expected to grow—and quickly. Currently, corrugated boxes account for less than 20 percent of all packaging material consumed in India compared with a global average of 35 percent, IARPMA reports. Global retailers, and modern Indian retailers, are already demanding modern packaging. Meanwhile, ready-to-eat foods and perishables are becoming increasingly popular in India, driving demand for kraft and duplex papers. Responding to these market developments, Dev Priya is installing two more production lines that will lift its annual production about 35 percent, to 70,000 mt.
   Inside a cramped building, five of Gupta’s more than 2,000 workers do maintenance work on one of the mill’s kraft lines. Gupta stops beside several large rolls of finished paper and asks me to feel the texture. “We will need more scrap imports in the coming years to make this kind of quality,” he tells me. “There’s not enough material in India to meet our needs.”
   He leads the way out to a narrow passage that runs between the production line and a covered building packed with OCC bales that are heavily contaminated with white office paper. A cow walks through the middle of the lane pulling a cart loaded with half-dry sludge, which Dev Priya sells to a smaller mill that produces grayboard. When Gupta’s workers see him coming, they straighten their backs in deference, though he hardly looks at them. As he passes, his feet shuffle across dried rice husks that will feed a nearby boiler.
   Later, as Jain and I ride away from Dev Priya, I look back at the line of trucks waiting for paper loads. “That’s a very big and important mill,” Jain tells me. “It is a model for the industry.” When I ask why, he tells me that the most serious problem facing India’s paper industry is the lack of modern technology, and Dev Priya—by virtue of its new lines under construction—is leading the way. “By global standards, we are 30 years behind,” he says. “By Chinese standards, we are 10 years behind.” He sighs and cites a recent report suggesting that India’s paper industry will need to invest at least US$7.5 billion to be globally competitive. “But we don’t have those means right now,” Jain says.
   So India’s paper mills will take a slow-growth approach, competing with each other in a tight but expanding domestic market. Competition for imported secondary fiber also will remain tight, though the competition is limited—for now—mostly among Indian mills. As India’s paper industry grows, its mills likely will have to compete more and more against other international buyers, especially China.
   Jain opens his bag and pulls out a newspaper to read on the ride back to Delhi. En route, sections of the paper accumulate on the seat between us. As we enter Delhi, we pause at a stoplight. A beggar approaches the car, knocks on my window, and cups his hand for money. As he peers into the car, he notices the pile of newspaper and points at the valued commodity. I turn to Jain, but he has fallen asleep, so I gather the sections to pass them out the window. Despite my good intentions, the light turns green and the driver accelerates before I can give the paper another life in the beggar’s hands.•

Adam Minter is a journalist based in Shanghai, where he writes about business and culture for U.S. and Chinese publications.

Publisher’s Note: Since this article was written, Shashi Kanth Jain has left his position as secretary general of the Indian Agro & Recycled Paper Mills Association. He is now general manager, sales and marketing, for Rama Newsprint & Paper Ltd. in Mumbai.